SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                               -------------------
                                   FORM 10-KSB

[X]  Annual Report Under to Section 13 or 15(d) of the  Securities  Exchange Act
     of 1934

     For the fiscal year ended December 31, 2005

[ ]  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
     Incorporation or Organization)                  Identification Number)

                          700 Airport Blvd., Suite 300
                              Burlingame, CA 94010
           (Address of principal executive offices including zip code)

                    Issuer's Telephone Number: (650) 931-0500

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

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

     Check  whether  the issuer is not  required  to file  reports  pursuant  to
Section 13 or 15 (d) of the Exchange Act. [ ]

     Check  whether  the issuer (1) filed all  reports  required  to be filed by
Section 13 or 15 (d) of the  Exchange Act during the past 12 months (or for such
shorter period that the  registrant was required to file such reports),  and (2)
has been subject to such filing  requirements  for the past 90 days.
Yes [X]  No [ ]

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

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

     Issuer's  revenues for its most recent fiscal year, ended December 31, 2005
were: $466,620

     The aggregate  market value of the voting and non-voting  common stock held
by non-affiliates  computed by reference to the closing bid price for the common
stock on March 1, 2006,  as  reported on the NASD  Bulletin  Board  system,  was
approximately  $64  million.  Shares of common  stock held by each  officer  and
director and each person who owns more than 5% of the  outstanding  common stock
have been excluded based upon a  determination  that such persons are, or may be
deemed  to  be,  affiliates.  The  determination  of  affiliate  status  is  not
necessarily a conclusive determination for other purposes.

     The issuer had 45,239,120 shares of common stock outstanding as of March 1,
2006.

     Transitional Small Business Disclosure Format: Yes [ ] No [X]


<PAGE>


                                TABLE OF CONTENTS
--------------------------------------------------------------------------------


                                     PART I

Item 1.  Description of Business.............................................3-6
Item 2.  Description of Property...............................................6
Item 3.  Legal Proceedings.....................................................6
Item 4.  Submission of Matters to a Vote of Security Holders...................6

                                     PART II

Item 5.  Market for Common Equity and Related Stockholder Matters............6-7
Item 6.  Management's Plan of Operations....................................8-18
Item 7.  Financial Statements.................................................18
Item 8.  Changes in and Disagreements with Accountants on Accounting
         and Financial Disclosure.............................................18
Item 8A. Controls and Procedures..............................................18
Item 8B. Other Information....................................................19

                                    PART III

Item 9.  Directors, Executive Officers, Promoters and Control Persons;
         Compliance With Section 16(a) of the Exchange Act.................19-22
Item 10. Executive Compensation............................................22-25
Item 11. Security Ownership of Certain Beneficial Owners and Management
         and Related Stockholder Matters...................................26-28
Item 12. Certain Relationships and Related Transactions.......................28
Item 13. Exhibits and Reports on Form 8-K.....................................29
Item 14. Principal Accountant Fees and Services...............................30
Signatures.................................................................31-32


                                       2
<PAGE>


         Certain   statements   contained   in  this  Form   10-KSB   constitute
forward-looking  statements  within the meaning of Section 27A of the Securities
Act of 1933, as amended and Section 21E of the Securities  Exchange Act of 1934,
as  amended.  Such  forward-looking  statements  herein  are  based  on  current
expectations   that   involve  a  number  of  risks  and   uncertainties.   Such
forward-looking  statements are based on assumptions  that the Company will have
adequate  financial  resources  to fund the  development  and  operation  of its
business,  that  there  will be no  material  adverse  change  in the  Company's
operations  or business,  that the Company  will meet  success in marketing  and
selling its  products,  and that the Company will be able to continue to attract
and retain skilled employees necessary for its business, among other things. The
foregoing  assumptions  are based on  judgments  with  respect  to,  among other
things,  information available to the Company, future economic,  competitive and
market  conditions and future business  decisions.  All of these assumptions are
difficult or impossible to predict  accurately and many are beyond the Company's
control.  Accordingly,  although  the  Company  believes  that  the  assumptions
underlying the  forward-looking  statements are reasonable,  any such assumption
could prove to be inaccurate  and therefore  there can be no assurance  that the
results contemplated in the forward-looking  statements will be realized.  There
are a number of risks presented by the Company's business and operations,  which
could cause the  Company's  financial  performance  to vary  markedly from prior
results, or results contemplated by the forward-looking  statements.  Such risks
include  failure of the ANTs  technology  or  products  to work as  anticipated,
failure  to develop  commercially  viable  products  or  services  from the ANTs
technology,  delays or  failure  in  fundraising  efforts,  delays in or lack of
market  acceptance,  failures to recruit adequate  personnel,  and problems with
protection  of  intellectual  property,   among  others.  The  words  "believe,"
"estimate," "expect," "intend,"  "anticipate" "should",  "could",  "may", "plan"
and  similar   expressions  and  variations   thereof  identify  some  of  these
forward-looking  statements.  Management  decisions,  including  budgeting,  are
subjective  in many  respects  and  periodic  revisions  must be made to reflect
actual conditions and business  developments,  the impact of which may cause the
Company to alter its capital investment and other  expenditures,  which may also
adversely  affect the Company's  results of operations.  In light of significant
uncertainties  inherent in forward-looking  information  included in this Annual
Report on Form 10-KSB,  the inclusion of such information should not be regarded
as a representation  by the Company that the Company's  objectives or plans will
be achieved.  The Company undertakes no obligation to revise or publicly release
the results of any revision to these forward-looking statements.

                                     PART I

Item 1.  Description of Business

The Company
-----------

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

Current and Planned Operations
------------------------------

         The Company is engaged in the development and marketing of a relational
database  management  system,  the  ANTs  Data  Server,  that  it  believes  can
dramatically  reduce  costs  and can  improve  performance  in a wide  range  of
applications.  The Company's operations currently comprise marketing its product
and research and development related to adding features and testing and refining
the product.  The Company has realized $466,620 in revenues through December 31,
2005.  As of the filing of this  report,  the Company  believes it has funds for
continued  operations,  at expected  spending  levels,  through  July 2006.  The
Company  anticipates  that, if sufficiently  funded over the next twelve months,
its  focus  will  be:  continued  marketing  of its  first  product,  supporting
customers, and research and development.

                                       3
<PAGE>


         As of March 1, 2006, the Company had 41 full-time  employees.  In order
for the Company to execute its plans it will need to hire and retain  additional
personnel.  The Company plans to increase the number of its: technical personnel
by four,  sales,  marketing  and support  personnel by eight and  administrative
personnel by two by the end of 2006.

Technology and Intellectual Property
------------------------------------

Overview

         The ANTs Data Server is based on technologies that provide an advantage
over  other  relational   database   management  systems  (RDBMS's):   Universal
Compatibility and the ANTs Concurrency Engine.

Universal 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 port
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 from almost all popular RDBMS vendors. This
technology,  which is  tightly  integrated  into the ANTs  Data  Server,  allows
customers to port  applications  to the ANTs Data Server more easily and at less
cost. ANTs believes that this universal compatibility  technology is not present
in any other RDBMS product.

The ANTs Concurrency Engine (ACE)

         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 of two to fifteen times over other
RDBMS's.  The  Company  has  applied  for eight  patents on the  concepts  which
underlie  ACE,  four of which have been  granted  by the  Patent  and  Trademark
Office.

         ACE consists of two key components:

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

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:

          o    The  necessity  of  locking  records,  and in some  cases  entire
               indexes,  to ensure data  integrity.  This results in significant
               delays due to lock waiting.

          o    Cache  synchronization  conflicts  that occur when shared data is
               distributed in multiple caches or multiple clients

                                       4
<PAGE>


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

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

Patents

         The Company has  developed  several  proprietary  technologies,  all of
which it believes must be present to achieve results comparable to the ANTs Data
Server.  During 2000 and 2001,  the Company filed eight patent  applications  to
obtain  protection for its intellectual  property.  The Company has been granted
four patents. The remaining four 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  related to  hardware  designs
developed  during a time when the Company was  producing a  supercomputer:  U.S.
Patents No. 4,484,262  (granted on November 20, 1984) and No. 4,707,781 (granted
on November 17, 1987) on its Shared Memory  Computer  Method and Apparatus,  and
U.S.  Patent  No.  5,438,680  (granted  on August  1,  1995) on its  Method  and
Apparatus for Enhancing  Concurrency in a Parallel  Digital  Computer.  In April
2001, U.S. Patent No. 4,484,262 expired.  In January 2003, the Company chose not
to pay the maintenance  fee for U.S. Patent No.  5,438,680 and in November 2004,
U.S.  Patent No. No.  4,707,781  expired.  These three  patents  were related to
hardware  and had no  usefulness  for any  business  activity  the  Company  now
conducts.

Product, Markets, Product Strategy and Market Entry
---------------------------------------------------

ANTs Data Server

         The   Company's   first  product  is  the  ANTs  Data  Server  (ADS)  a
standards-compliant  SQL relational  database  management  system (RDBMS).  ADS,
which  incorporates  the Company's  universal  compatibility  and lock-free data
structure  technologies can provide customers with a low cost,  high-performance
alternative to most traditional RDBMS's. ADS can be deployed on hardware running
the Linux Windows, and Solaris operating systems.

Target Markets


         The Company markets ADS to Chief Information Officers, Chief Technology
Officers and application and database architects.  The Company believes that ADS
offers  an   attractive   cost/performance   advantage   for   existing  or  new
applications.  The Company focuses on opportunities in large  organizations  and
with independent software vendors where cost and application performance demands
dictate a willingness to look at new solutions.

                                       5
<PAGE>


Competition

         The Company  operates in the RDBMS  segment of the software  market and
competes against high-performance and general-purpose RDBMS's.  High-performance
competitors  include: Kx Systems,  Inc., FAME Information  Systems,  Inc., Solid
Information  Technology,  Inc. and the TimesTen product from Oracle Corporation.
General-purpose   competitors  include:  Oracle,   Microsoft,   IBM,  MySQL  AB,
InterSystems Corporation,  Enterprise DB 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.  The
Company's  success will likely  require that it win  business  from  established
competitors, and as a new entrant in the RDBMS market, the Company's product may
have less functionality than customers are accustomed to.

Revenue Model

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

Item 2.  Description of Property.

         The Company's headquarters are located at 700 Airport Blvd., Suite 300,
Burlingame, California. The Company now leases approximately 15,000 square feet.
To accommodate expected growth, on May 1, 2005 the Company moved into facilities
approximately  three  times  larger  than the offices it was renting in 2004 and
first few months of 2005. The Company incurred certain costs associated with the
move and its rent approximately tripled.

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, 2005 to December 31, 2005.

                                     PART II

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

    (a)  Price Range of Common Stock

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

         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.

                                       6
<PAGE>


                                                     High              Low

Quarter Ended December 31, 2005                     $2.90             $1.80
Quarter Ended September 30, 2005                     3.10              1.94
Quarter Ended June 30, 2005                          3.40              2.10
Quarter Ended March 31, 2005                         4.05              2.10

Quarter Ended December 31, 2004                     $2.02             $1.04
Quarter Ended September 30, 2004                     2.17              1.60
Quarter Ended June 30, 2004                          2.25              1.80
Quarter Ended March 31, 2004                         2.95               .80

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

         As of March 1, 2006 there were 45,239,120 shares of common stock issued
and outstanding and 1,523  registered  holders of record of the Company's common
stock.

    (b)  Dividend Policy

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

    (c)  Recent Sales of Unregistered Securities

         From  November 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 H Unit,
the purchase price paid by 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.

         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 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 warrant  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.

         See Part III, Item 11, "Security Ownership of Certain Beneficial Owners
and  Management  and Related  Stockholder  Matters" of this Annual  Report for a
presentation of compensation  plans under which equity securities of the Company
are authorized for issuance.

                                       7
<PAGE>


Item 6.  Management's Plan of Operations.

         The Company is engaged in the development and marketing of a relational
database  management  system,  the  ANTs  Data  Server,  that  it  believes  can
dramatically  reduce  costs  and can  improve  performance  in a wide  range  of
applications.  The ANTs Data  Server  is a  standards-compliant  SQL  relational
database   management   system  that   incorporates   the  Company's   universal
compatibility  and lock-free data structure  technologies  to provide  customers
with a low  cost,  high-performance  alternative  to most  traditional  database
management systems.  The Company anticipates that, if sufficiently  funded, over
the next twelve months its focus will be: continuing to market its first product
(the ANTs Data Server), supporting customers, and research and development.

Technology Development
----------------------

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

Marketing
---------

         The  benefits  of  the  Company's  Universal   Compatibility  and  ANTs
Concurrency Engine  technologies apply to a wide variety of potential  customers
and partners. Accordingly, the Company's go-to-market strategy includes:

     o    Focus  on  large  enterprise  customers  who can  realize  significant
          savings by migrating  applications  away from expensive RDBMS's and to
          the ANTs Data Server.
     o    Focus on industry segments where high-performance  applications demand
          a high-performance database.
     o    Sell 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  value  added  resellers  and system  integrators  -
                    companies  which  generally  have deep  expertise in certain
                    vertical  markets  and who  integrate  the best  products to
                    develop complete solutions for their customers.


Raising Capital
---------------

         During  2005,  the  Company  secured  approximately  $13.2  million  in
financing  through  private  offerings  and the exercise of warrants  related to
private offerings of Company  securities and approximately  $125,000 through the
exercise  of stock  options.  To carry out its plan of  operation,  the  Company
anticipates that over the next twelve months it will require an additional $8-10
million.  The Company currently intends to consider a number of avenues to raise
these additional operating funds: 1) in the past the Company has been successful
in raising funds through private placements of its stock to accredited investors
and anticipates that it will continue to raise funds through private  placements
to these accredited  investors,  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 2006,  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.

                                       8
<PAGE>


         The  majority of the  Company's  operating  expenses and costs over the
next twelve months are expected to be for and in connection with,  marketing and
selling the ANTs Data Server,  continuing technical development,  and supporting
customers.  As of March 1, 2006,  the Company had 41  full-time  employees.  The
Company views the  recruitment of additional  qualified  sales,  marketing,  and
technical    personnel   as   essential   to   the   further   development   and
commercialization  of its  proprietary  technologies.  The  Company  expects its
personnel and other  operating costs will increase  moderately to  substantially
over current levels.

Results of Operations
---------------------

         The results of operations  for the fiscal years ended December 31, 2005
and 2004 are summarized in the table below.

                                        Summary of Statements of Operations
                                      ----------------------------------------
                                           (in 000's except per share data)
                                            For Years ending December 31,
                                      ----------------------------------------
                                            2005             2004     % Change
                                            ----             ----     --------


Revenues                              $        467     $          -        N/A
Operating expenses                           9,155            5,060        81%
                                      -------------    -------------  --------
   Loss from operations                     (8,688)          (5,060)       72%

Other income (expense), net                    (16)               -       N/A
                                      -------------    -------------  --------
   Net loss                                 (8,704)          (5,060)       72%
                                      =============    =============  --------

Net loss per share -
   basic and diluted                  $      (0.22)    $      (0.16)       38%
                                      =============    =============  --------

Shares used in computing basic and
   diluted net loss per share
    (in 000's)                              40,419           32,501        24%
                                      =============    =============  --------

Revenues
--------

         During  fiscal  2005,  the Company  invoiced an  aggregate of $525,223,
comprising  $505,723  related to the license of the ANTs Data Server and related
one-year maintenance and support agreements, and $19,500 related to professional
services.  Of the total  invoiced  amount  related to the ANTs Data Server,  the
Company  recognized  license  fee  revenue  of  $397,500  in the  statements  of
operations  for the year  ended  December  31,  2005,  and  deferred  revenue of
$108,223  related to one-year  support and maintenance  contracts on the balance
sheet.  The Company earned $49,620 of the total deferred revenue in fiscal 2005,
leaving a total of  $58,603  in  deferred  revenue  on the  balance  sheet as of
December 31,  2005.  The deferred  revenue is being  amortized  ratably over the
twelve-month period from the contract dates. The professional services fees were
earned and recognized as revenue during fiscal 2005.

Of the total revenue of $466,620 that was recognized in 2005, the Company earned
82%, or $384,500, from contracts with two independent software vendors.

                                       9
<PAGE>


Operating Expenses
------------------

         Operating  expenses for the fiscal  years ending  December 31, 2005 and
2004 were as follows:

<TABLE>
<CAPTION>
<S>                              <C>             <C>      <C>        <C>               <C>
                                   Operating Expenses - Fiscal Years ended December 31,
                                              2005                         2004
                                              ----                         ----
                                                       %Change
                                                          vs.
                                               % of      Prior                      % of
                                 $  in 000's   Total     Period      $ in 000's     Total
                                ----------------------------------------------------------

Sales and marketing              $    3,618      40%      131%       $    1,564        31%
Research and development              3,590      39%       70%            2,109        42%
General and administrative            1,947      21%       40%            1,387        27%
                                ----------------------------------------------------------
    Total operating expenses     $    9,155     100%       81%       $    5,060       100%
                                ==========================================================
</TABLE>


         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%.

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.

         Total S&M expenses  increased  from $1.6 million in fiscal 2004 to $3.6
million in 2005,  an  increase  of $2.0  million,  or  approximately  131%,  due
primarily to the following: 1) An increase in total compensation expense of $1.1
million,  or 202%.  Total S&M staff  averaged 12 over fiscal 2005 compared to an
average of 5 in fiscal 2004, an increase of 7 people, or 140%. Sales bonuses and
commissions  were $296  thousand in 2005  compared to $141  thousand in 2004, an
increase of $155 thousand, or 110%. The ratio of bonuses and commissions paid in
2005 to sales revenue earned in 2005 is not necessarily  indicative of the level
of bonuses to be paid in future  years.  Additionally,  termination  expenses of
$125  thousand  were incurred for two people in 2005, as compared to $0 in 2004;
2) an increase in  professional  fees for the  execution of  marketing  and lead
generation programs,  web-site design and maintenance,  printing and other, from
$502 thousand in 2004 to $591 thousand in 2005, an increase of $89 thousand,  or
18%; 3) an increase in direct sales and marketing  expenses  (public  relations,
advertising, events and promotions and other) from $166 thousand in 2004 to $575
thousand  in 2005,  an  increase  of $409  thousand  or 246%;  4) an increase in
sales-related  travel  expenses from $159 thousand in 2004 to $343 thousand,  an
increase of $184 thousand, or 116%. During 2005 as compared to 2004, the Company
experienced  both a  significant  increase in numbers of sales staff  calling on
potential  customers,  and  greatly  increased  activity  in  international  and
domestic  markets  outside  California;  and 5) an increase in the allocation of
general  corporate  overhead from $157 thousand in 2004 to $400 thousand in 2005
an  increase of $243  thousand  or 155%.  The  increase  in  allocated  overhead
resulted from both the increase in S&M staff in 2005, as well as the increase in
total general and administrative expenses during 2005.

                                       10
<PAGE>


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

Research and Development Expenses
---------------------------------

         Research and development  expenses comprise primarily employee salaries
and benefits,  fees to consultants,  depreciation on equipment and software, and
allocation  of  corporate  overhead.  Throughout  most of  2004,  the  Company's
activities  were focused  largely on the basic R&D process related to developing
and rendering the product  viable for potential  customers.  In 2005 R&D focused
primarily on supporting  sales  activities  by adding new features,  testing and
refining the product based on feedback from  customers and potential  customers,
and  demonstrating  proofs of  conversion  (from  other  RDBMSs to the ANTs Data
Server) for potential customers.

         Total R&D expenses  increased from $2.1 million in 2004 to $3.6 million
in 2005, an increase of $1.5 million,  or approximately  70%. Major contributors
to the increase included: 1) An increase in total compensation expense from $1.7
million in 2004 to $2.5 million in 2005,  an increase of $800  thousand,  or 47%
due to: i) an increase in R&D staff from an average of 14 in 2004 to 17 in 2005,
an increase of 3 people,  or 21%; ii) raises for all R&D personnel in 2005;  and
iii) $99.2 thousand paid to R&D senior management  pursuant to salary agreements
with  the  Company   dated  October  29,  2004;  2)  an  increase  in  equipment
depreciation  expense from $159  thousand in 2004 to $242  thousand in 2005,  an
increase of $83 thousand, or 52%. In 2005, the Company increased property, plant
and  equipment  by $620  thousand;  the  majority  of which was  related to R&D
computers  and  upgrades  to  electrical  and air  conditioning  systems  in the
Company's development lab; 3) an increase in professional fees from $82 thousand
in 2004 to $568 thousand in 2005, an increase of $486 thousand,  or 593%, as the
Company  engaged  the  services  of a  significantly  larger  number  of on  and
off-shore  consultants for software  development and quality assurance  testing;
and 4) an increase in the  allocation  of general  corporate  overhead from $153
thousand in 2004 to $303 thousand in 2005, an increase of $150 thousand, or 98%.
Allocation of corporate  overhead  increased in 2005 due both to the increase in
the average  number of R&D staff in 2005,  and the increase in total general and
administrative expenses during 2005.

         The Company  expects that,  if  sufficiently  funded,  its research and
development  expenses  will increase  moderately  over the next twelve months as
additional staff and consultants are hired and additional hardware is purchased.

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.

         Total G&A expense  increased  from $1.4 million in 2004 to $1.9 million
in 2005,  an increase of $500  thousand,  or  approximately  40%.  The  increase
resulted  primarily from: 1) an increase in employee  compensation  and benefits
expense from $652  thousand in 2004 to $1.4 million in 2005, an increase of $748
thousand or 115%. Factors  contributing to the increase in 2005 included:  i) an
increase  in  medical  insurance  premiums  from $102  thousand  in 2004 to $259
thousand in 2005, an increase of $157  thousand,  or 154%, due to premium raises
in July 2005 that  averaged  approximately  7%,  as well as an  increase  in the
number of personnel  covered under the medical plan; ii) an increase in salaries
and  payroll  taxes from $472  thousand  in 2004 to $997  thousand  in 2005,  an
increase of $525  thousand,  or 111%,  resulting  largely  from: a) hiring a new
executive officer (Mr. Boyd Pearce,  formerly President of the Company, now CEO)
in October 2004 which  resulted in additional  expense of $150 thousand in 2005;
b) a bonus  of $100  thousand  paid to Mr.  Pearce  pursuant  to his  employment
contract;  c) $100  thousand  paid to  executive  officers  pursuant  to  salary
agreements  with the  Company  dated  October  29,  2004;  d) hiring a full-time
controller and in-house  recruiter in 2005 whereas in 2004 the Company  employed

                                       11
<PAGE>


part-time  independent  contractors  in these  positions.  These  new  full-time
positions increased employee compensation expense by approximately $125 thousand
in 2005 over 2004;  2) an  increase of $180  thousand,  or 154%,  in  facilities
expense from $117 thousand in 2004 to $297  thousand in 2005.  The Company moved
its  offices  in May 2005 to larger  facilities  which  increased  monthly  rent
expense from $6 thousand in 2004 to $16.7  thousand,  or 267%,  while  utilities
costs also  increased  from $50  thousand in 2004 to $110  thousand in 2005,  or
120%,  due to  significant  additions  of  computer  hardware  in the  Company's
development lab, requiring more electricity and air conditioning; 3) a charge in
2005 for bad debt expense of $16 thousand compared to $0 in 2004; 4) an increase
in professional fees of $81 thousand, or 19%, from $417 thousand in 2004 to $498
thousand in 2005.  The  increase in  professional  fees  resulted  largely  from
increases in legal and investor  relations fees due to increased capital raising
activity in 2005;  and 5) the  increases  in total G&A expenses  were  partially
offset by an increase in the amount of general corporate  overhead  allocated to
R&D and S&M,  thereby  reducing total expenses for the G&A department.  In 2005,
the  amount  of  corporate  overhead  allocated  to other  departments  was $702
thousand as compared to $312 thousand in 2004, an increase of $390 thousand,  or
125%.

         The Company  expects  that,  if  sufficiently  funded,  its general and
administrative  expenses will increase  moderately  as the Company  expands.  In
2006,  the Company will be 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 will incur increased audit
fees,  as the  outside  auditors  will be  required  to issue an  opinion on the
effectiveness of the Company's  internal  controls over the financial  reporting
process  during  2006.  Although the  Company's  total cost of  compliance  with
Section 404 in 2006 is presently unknown,  preliminary  investigation  indicates
the cost could total $300 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, 2005 and 2004 are presented in the table below.

                                                Fiscal Years ended December 31,
                                                2005                     2004
                                                ----                     ----
                                                         % Change
                                                             vs.
                                                           Prior
                                             $ in 000's    Period    $ in 000's
                                             ----------  ----------  -----------
      Other income (expense):
        Income earned from expired contract       $  -       (100)%       $311
        Interest income                             24          33%         17
        Gain on legal settlement                     6           0%          6
        Write off note receivable from
              former officer                         -       (100)%        (45)
        Write off assets related to office
         move, net                                 (41)        n/a           -
        Interest expense                            (5)       (98)%       (289)
                                             -----------------------------------
             Other income (expense), net          $(16)        n/a        $  -
                                             -----------------------------------

                                       12
<PAGE>


         The changes from 2004 to 2005 result  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, $286 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
------------------------------

         During 2003,  the Company  entered into an operating  lease for certain
computer  equipment  used in the Company's  development  lab. The original lease
obligation was $9,155 and was payable in monthly  installments over a three-year
period.  The outstanding  lease obligation was not reported on the balance sheet
as title to the  equipment  remained  with the lessor until the Company paid the
total  obligation  and a buyout  fee.  On  December  31,  2005  the  outstanding
obligation was approximately  $2,350. The Company paid this lease in full during
the first quarter of 2006.

         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.

         The Company is  recognizing  rent expense for this lease in  accordance
with Financial  Technical Bulletin 85-3 ("FTB 85-3"),  "Accounting for Operating
Leases  with  Scheduled  Rent  Increases".  The base  rent,  the  effects of the
schediled  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 May 1, 2005 through  December 31, 2005.
During the fiscal years ended December 31, 2005 and 2004, the Company recognized
a total of $133,344 and $0 respectively, in rental expense for this lease.

Critical Accounting Policies
----------------------------

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

         The Company believes the following  represents its critical  accounting
policies:

               o    Revenue recognition
               o    Stock-based compensation
               o    Income taxes

         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,  revenue
is deferred 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,  all revenue is deferred 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:

               o    Persuasive evidence of an arrangement exists.
               o    Delivery has  occurred and there are no future  deliverables
                    except post-contract customer support ("PCS").
               o    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.
               o    Collection is probable.

                                       13
<PAGE>


         Revenue from  professional  fees,  consisting  primarily of  consulting
services, is recognized as services are provided and the revenues are earned.

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

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

Recent Accounting Pronouncements

         In June 2005, the Emerging Issues Task Force ("EITF") reached consensus
on Issue No. 05-6 ("Issue"),  "Determining the Amortization Period for Leasehold
Improvements". This Issue provides guidance on determination of the amortization
period for leasehold improvements that are purchased subsequent to the inception
of the lease. Such leasehold improvements should be amortized over the lesser of
the useful life of the asset, or the lease term that includes reasonably assured
lease renewals.  This Issue is effective for leasehold  improvements acquired in
the  periods  beginning  after July 1,  2005.  The  Company  does not expect the
adoption of EITF No. 05-6 to have a material effect on its financial statements.


         In May 2005,  the FASB issued SFAS 154,  "Accounting  Changes and Error
Corrections".  SFAS No. 154  establishes new standards on accounting for changes
in accounting  principles.  Pursuant to the new rules,  all such changes must be
accounted for by retrospective  application to the financial statements of prior
periods unless it is impracticable to do so. SFAS No. 154 supersedes  Accounting
Principles  Bulletin  (APB) Opinion 2,  "Accounting  for Changes" and SFAS No. 3
"Reporting  Accounting  Changes  in  Interim  Financial  Statements",  though it
carries forward the guidance of those  pronouncements with respect to accounting
for  changes  in  estimates,   changes  in  the  reporting  entity,   and  error
corrections.  This  statement  is  effective  for  accounting  changes and error
corrections made in years beginning after December 15, 2005, with early adoption
permitted for changes and  corrections  made in years  beginning after May 2005.
The Company does not expect  adoption of SFAS No. 154 to have a material  impact
on the Company's financial statements.


         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 will apply the principles of
SAB 107 in conjunction with its adoption of SFAS 123(R).

         In December 2004,  the Financial  Accounting  Standards  Board ("FASB")
issued   Statement  of  Financial   Accounting   Standards  No.  123  (Revised),
"Share-Based  Payment"  ("SFAS  123(R)").  SFAS  123(R)  replaces  SFAS  123 and
supersedes  APB 25. SFAS 123(R) is  effective  as of the  beginning of the first
annual  reporting  period that  begins  after  December  15,  2005.  SFAS 123(R)
requires that the costs resulting from all share-based  payment  transactions be
recognized  in the  financial  statements.  SFAS  123(R)  applies  to all awards
granted after the required  effective date and shall not apply to awards granted
in periods before the required  effective date, except if prior awards vest, are
modified,  repurchased or cancelled  after the effective  date. SFAS 123(R) also
amends Statement of Financial  Accounting  Standards No. 95,  "Statement of Cash
Flows",  to require  that excess tax  benefits  be reported as a financing  cash
inflow rather than as a reduction of taxes paid. The Company adopted SFAS 123(R)
effective January 1, 2006.

                                       14
<PAGE>


Capital and Liquidity Resources
-------------------------------

         The Company  anticipates that if sufficiently  funded, it will increase
expenditures  moderately  to  substantially  over the next  twelve  months as it
markets,  sells and  supports the ANTs Data Server and hires  additional  sales,
marketing,  and technical  personnel.  The Company's cash balance as of March 1,
2006 was approximately $4.5 million which, it believes, will be adequate to fund
its activities through July 2006 at its expected rate of spending.  There can be
no assurance that the Company's continued product development and infrastructure
development  will not require a much higher rate of  spending.  The Company will
pursue a number of avenues to raise  additional  operating funds: 1) in the past
the Company has been successful in raising funds through  private  placements of
its stock and  anticipates  that it will continue to raise funds through private
placements,  2) as the Company develops close relationships with large partners,
it will pursue  strategic  investments  from those partners,  and 3) the Company
expects to continue generating revenue in 2006, and if successful,  this will be
a source of operating funds. The Company is pursuing all three avenues, however,
it believes,  that due to an uncertain  investment climate,  securing additional
investment will be difficult.

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

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

         Market  acceptance  of  the  Company's  products  and  services  is not
guaranteed.  The Company is at an early stage of  development  and its  earnings
will depend upon market  acceptance and utilization of its intended products and
services.  Customer evaluation cycles are long and customers will look carefully
at the  Company's  ability  to  support  its  product  before  making a purchase
decision.  There can be no assurance  that the Company's  product and technology
development  efforts will result in new products and  services,  that the market
will broadly accept the Company's products,  or that the Company's products will
be successfully introduced, accepted and purchased.

         The  Company  faces  competition  from  large  companies.  The  Company
operates in a highly  competitive  industry.  Although the Company believes that
its  technology  is unique,  can be  protected,  and,  if  adopted,  will confer
benefits that will be otherwise  unavailable for some significant time, it faces
very large competitors with greater  resources who may adopt various  strategies
to block or slow its market  penetration,  thereby  straining the Company's more
limited  resources.  Such  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  focuses on the research and development of its proprietary
technologies and the marketing of its first product. The Company's present focus
is on the  marketing  and  sales  of its  first  product  and  on  research  and
development of its  proprietary  technologies.  The Company  believes that these
technologies are the basis for highly marketable  commercial products.  However,
there can be no assurance  that a commercial  market will develop in the future,
and it is possible that the Company's proprietary technologies and products will
have no  commercial  benefit  or  potential.  In  addition,  from the  Company's
inception  through  December  31,  2005,  it has  recognized  minimal  operating
revenues.

                                       15
<PAGE>


         The Company will need to continue its product development  efforts. The
Company's  product is relatively new. The Company believes that (i) it will have
to continue to offer more and better  features  and expand the  performance  and
capability of its product,  as well as, (ii)  continue to provide  increased and
specialized  technical  expertise.  The Company believes that its market will be
characterized  by increasing  technical  sophistication  and robust  competitive
product  features.  There  is no  assurance  that  the  Company  will  not  fall
technologically  behind  competitors with greater resources or that new features
of  competitive  products will not yield more or better market  acceptance  than
features in the Company's product.  Although the Company believes that it enjoys
a lead in its product  development  and  introduction,  and is hopeful  that its
patents  provide some  protection,  it will likely need  significant  additional
capital in order to continue to enjoy a technological lead over competitors with
more resources,  and ensure that it's product includes capabilities and features
desired by customers.

         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  product
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.

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

         A failure to obtain additional financing could prevent the Company from
executing its business plan. A failure to raise additional funding could prevent
the Company from  continuing its business  after July.  The Company  anticipates
that current cash  resources  will be  sufficient  to fund its  operations  only
through July 2006 at its expected rate of spending.  The Company  believes that,
due to an uncertain investment climate, securing additional sources of financing
to  enable  it  to  complete  the  development  and   commercialization  of  its
proprietary  technologies  is uncertain and there is no assurance of its ability
to secure such financing.  A failure to obtain additional  funding could prevent
the Company from making expenditures that are needed to pay current obligations,
allow it to hire additional personnel, continue development of the technology or
attract customers who are concerned about its ability to continue operations. If
the Company raises additional funds by selling equity  securities,  the relative
equity ownership of its existing investors could be diluted or the new investors
could obtain terms more  favorable  than previous  investors.  In the past,  the
Company has sold  restricted  shares of common  stock in private  offerings at a
price  discounted from that of the then current market price for freely tradable
stock,  which  could  increase  this  dilutive  affect.  If the  Company  raises
additional funds through debt financing,  it could incur  significant  borrowing
costs.

         If the  Company is unable to protect  its  intellectual  property,  its
competitive  position would be adversely affected.  The Company relies on patent
protection,  as well as trademark and copyright law, trade secret protection and
confidentiality  agreements  with  its  employees  and  others  to  protect  its
intellectual  property.  Despite the Company's  precautions,  unauthorized third
parties may copy its products and services or reverse engineer or obtain and use
information  that it  regards  as  proprietary.  The  Company  has filed  patent
applications  and  intends to file  more.  The  Company  has been  granted  four
patents,  however the Company does not know if the pending  applications will be
granted or whether it will be successful in prosecuting any future  patents.  In
addition,  the laws of some foreign countries do not protect  proprietary rights
to the same extent as do the laws of the United States.  The Company's  means of

                                       16
<PAGE>


protecting  its  proprietary  rights may not be adequate  and third  parties may
infringe or  misappropriate  its  patents,  copyrights,  trademarks  and similar
proprietary  rights.  If the Company fails to protect its intellectual  property
and  proprietary  rights,  its  business,  financial  condition  and  results of
operations would suffer. The Company believes that it does not infringe upon the
proprietary  rights of any third party, and no third party has asserted a patent
infringement claim against it. It is possible,  however, that such a claim might
be asserted  successfully  against the Company in the future.  In such an event,
the Company may be forced to suspend its operations to pay  significant  amounts
to  defend  its  rights,  and a  substantial  amount  of  the  attention  of its
management  may be diverted  from its  ongoing  business,  which can  materially
affect its ability to attain and maintain profitability.

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

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

         The Company could face information and product  liability risks and may
not have adequate  insurance.  The Company's  product may be used to manage data
from  critical  business  applications.  The  Company  may become the subject of
litigation  alleging  that its  product was  ineffective  or  disruptive  in its
treatment of data, or in the compilation, processing or manipulation of critical
business  information.  Thus, the Company may become the target of lawsuits from
injured or disgruntled  businesses or other users.  The Company  carries product
and information  liability or 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  recognized
minimal operating  revenues totaling  approximately  $466,000 for the year ended
December  31,  2005.  There is no  assurance  that the  Company's  plans will be
realized,  that it will be able to generate substantial  additional revenues, or
that it will achieve profitability in the future.

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

                                       17
<PAGE>


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

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

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

         The Company will incur significant costs in compliance with Section 404
of the  Sarbanes-Oxley  Act of 2002.  During the 2006  fiscal  year the  Company
anticipates  it will  incur  significant  costs in  ensuring  that its system of
internal controls over financial reporting is implemented through clear policies
and  procedures  and  appropriate  delegation  of authority and  segregation  of
responsibility,  all in compliance with Section 404 of the Sarbanes-Oxley Act of
2002. In doing this, the Company will need to ensure that its system of internal
controls is  reviewed,  tested,  modified  and  improved as they are created and
implemented,  and ensure that appropriate changes are made in response to events
which occur in the Company's business and operations.


Item 7.  Financial Statements.

         See the Financial Statements annexed hereto.

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

         None

Item 8A. Controls and Procedures

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

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

                                       18
<PAGE>


Item 8B. Other Information

         None

                                    PART III

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

         The  following  table  sets  forth  information  with  respect  to  the
Company's  current  executive  officers,  principal  employees,  consultants and
directors as of March 1, 2006.

Name                     Age    Position

Francis K. Ruotolo........68    Chairman, Class 3 Director, term expires
                                in 2006

Boyd Pearce...............61    Chief Executive Officer, Class 1 Director,
                                term expires in 2007

Joseph Kozak..............55    President

Homer G. Dunn.............65    Class 2 Director, term expires in 2008

John R. Gaulding..........59    Class 3 Director, term expires in 2006

Thomas Holt...............60    Class 1 Director, term expires in 2007

Robert Henry Kite.........51    Class 2 Director, term expires in 2008

Clifford Hersh............58    Managing Director and Chief Scientist

Kenneth Ruotolo...........45    Chief Financial Officer, Executive Vice
                                President, Finance and Administration,
                                and Secretary

Jeffrey R. Spirn, Ph.D....57    Vice President, Research and Development

Girish Mundada............38    Vice President, Engineering


Francis K. Ruotolo, Age 68

         Francis  Ruotolo is Chairman of the Board of the Company.  Mr.  Ruotolo
became Chairman of the Board,  Chief Executive  Officer and President in January
2001.  Prior to that  time,  he was a member  of the Board of  Advisors.  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.

                                       19
<PAGE>


Boyd Pearce, Age 61

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

Homer G. Dunn, Age 65

         Homer G. Dunn joined the Company's  Board of Directors in January 2001.
Mr. Dunn has over 35 years of business experience encompassing sales, marketing,
product  management,  and  consulting.  At  present,  he is Chairman of New Vine
Logistics.,  the leading provider of direct to consumer fulfillment services for
the wine industry.

John R. Gaulding, Age 60

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

Thomas Holt, Age 60

         Thomas Holt joined the Company's  Board of Directors in November  2000.
Mr. Holt is currently Vice President of Information  Technology for Lucent, Inc.
Mr.  Holt was VP of  Information  Services  and  Chief  Information  Officer  at
International  Network Services from May 1997 before its merger with Lucent.  He
has also acted as VP of MIS and CIO at  Informix  and held senior  positions  at
Motorola after starting his career with IBM.

Robert Henry Kite, Age 51

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

                                       20
<PAGE>


Joseph Kozak, Age 55
President

         Mr. Kozak,  has been  President of the Company since June 10, 2005. Mr.
Kozak was retained as a consultant  of the Company for the period from April 18,
2005 to June 10,  2005.  Commencing  in March 2003,  Mr.  Kozak worked as a vice
president of industry sales at Oracle Corporation.  At Oracle, Mr. Kozak defined
and executed global strategies for retail,  distribution,  life science, process
manufacturing,  and consumer  packaged goods  industries.  Prior to Oracle,  Mr.
Kozak served as the CEO of Lombardi Software, a manufacturer of business process
management  solutions,  from August 2000 to April 2002.  From  February  1999 to
August 2000, Mr. Kozak served as equity  partner for Ernst and Young,  LLP where
he was a member of the retail,  distribution  and consumer goods management team
for North America.

Clifford Hersh, Age 58
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, Age 45
Chief Financial Officer, Executive Vice President,
Finance and Administration, 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. a content  developer and syndicator.  Prior to eStar,
Mr. Ruotolo was a partner for twelve years with era2, an interactive  design and
internet  consulting  agency.  Mr. Ruotolo holds a B.A. degree in Economics from
the  University  of  California  at  Davis  and  an  M.B.A.   from  Northeastern
University.

Jeffrey R. Spirn, Ph.D., Age 57
Vice President, Research and Development

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

Girish Mundada, Age 38
Vice President, Engineering

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

Board of Directors

         The Company's Amended and Restated Bylaws, as amended, provide that the
Board of Directors is divided into three classes, each as nearly equal in number
as the then total number of directors permits,  so that each director will serve
for three years,  with one class of directors being elected each year. The Board
is currently comprised of three Class 1 Directors, two Class 2 Directors and two
Class 3  Directors.  The  terms of the Class 1,  Class 2 and  Class 3  Directors
expire at the end of each  respective  three-year term and upon the election and
qualification of successor  directors at annual meetings of stockholders held at
the end of each fiscal year.  The term of the present Class 3 Directors  ends at
the annual meeting of the stockholders for the year ending December 31, 2005.

                                       21
<PAGE>


Board Committees

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

         The Company also has a Compensation Committee, which was formed in June
2001 and  consists  of Homer G.  Dunn and  Thomas  Holt.  Richard  LaBarbera,  a
director  of the  Company  and  former  member  of the  Compensation  Committee,
resigned on February 13, 2006. This committee,  among other things,  reviews the
compensation policies applicable to the Company's senior officers.


         The Board established a Nominating and Governance Committee in October,
2005, which consists of Robert Kite and John R. Gaulding.  Richard LaBarbera,  a
director of the  Company  and former  member of the  Nominating  and  Governance
Committee,  resigned on February 13, 2006. This  committee,  among other things:
(i)  identifies,  reviews and suggests  nominees  for election to the  Company's
Board,  (ii)  recommends to the Board  individuals to fill  vacancies  occurring
between  annual  meetings  of  stockholders,  (iii)  identifies  and  recommends
directors for nomination as members of the standing committees of the Board, and
(iv)  develops and  recommends  to the Board  appropriate  corporate  governance
principles applicable to the Company.

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

         To the best of the Company's  knowledge,  all the  Company's  officers,
directors  and 10%  shareholders  timely filed the reports  required to be filed
under Section 16(a) of the Securities  Exchange Act of 1934, as amended,  during
the fiscal year ended December 31, 2005.

Code of Ethics

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

Item 10. Executive Compensation

Summary Compensation Table

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

                                       22
<PAGE>


<TABLE>
<CAPTION>
<S>                          <C>    <C>         <C>                                           <C>                   <C>
                                             Annual compensation                            Long term compensation
                            ---------------------------------------------------------------------------------------------------

                                                                                      Award                   Payouts
                                                                            ---------------------------------------------------

                                                             Other Annual    Restricted     Securities
                                                             Compensation      stock        underlying    LTIP      All other
Name and principal position  Year     Salary       Bonus          (2)         award(s)     options/SARs  Payouts   Compensation
-------------------------------------------------------------------------------------------------------------------------------
Francis K. Ruotolo (3)       2005   $175,000                   $ 33,333
Chairman of the board        2004   $181,250                   $106,667
                             2003   $183,333

Boyd Pearce (4)              2005   $175,000    100,000(1)     $ 33,333                       750,000
Chief Executive Officer      2004   $ 25,001                                                  750,000
and Director                 2003

Joseph Kozak-                2005   $ 98,910    100,000(1)                                    635,000(6)            $37,000(6)
President (5)                2004
                             2003

Clifford Hersh               2005   $192,500                   $ 36,667                        50,000
Managing Director            2004   $170,958                   $ 60,500                        20,000
and Chief Scientist          2003   $110,000

Kenneth Ruotolo              2005   $175,000                   $ 33,333
Secretary, Chief             2004   $155,416                   $ 46,667                       130,000
Financial Officer and        2003   $108,333
Executive Vice
President of Finance and
Administration

Jeffrey Spirn                2005   $153,127                   $ 29,167                       140,000
Vice President, Research     2004   $135,990                   $ 48,125                        20,000
and Development              2003   $ 87,500

Girish Mundada               2005   $187,500                   $ 33,333                       210,000
Vice President,              2004   $160,313    $25,000                                       130,000
Engineering                  2003   $124,323    $25,675                                       150,000
</TABLE>

                                       23
<PAGE>


(1)  Earned in 2005, paid in 2006.
(2)  Represents  salary  deferred  during 2003 and 2004,  which the Company paid
     back during 2004 and 2005, respectively.
(3)  Mr. Ruotolo has been Chairman of the Board since January 2001 and also held
     the position of Chief  Executive  Officer from January 2001 through January
     2005.
(4)  Mr. Pearce joined the Company as President and Chief  Operating  Officer in
     October  2004 and was named Chief  Executive  Officer and  appointed to the
     board of directors in February 2005.
(5)  Mr.  Kozak was a  consultant  to the Company from April 18, 2005 until June
     10, 2005, when he was named  President.
(6)  Mr. Kozak was paid $37,000 and granted an option to purchase 125,000 shares
     of the Company's  Common Stock while  providing  consulting  services.  Mr.
     Kozak was  granted  options to  purchase  510,000  shares of the  Company's
     Common Stock after he joined the Company as President.


Option/SAR grants in the Last Fiscal Year

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


<TABLE>
<CAPTION>
<S>                   <C>                   <C>                  <C>             <C>   <C>
                     Number of
                     securities        Percent of total
                     underlying      options/ SARs granted    Per share
                   options/ SARs       to employees in      exercise price
Name                  granted          fiscal year (1)            (2)         Expiration date
----------------------------------------------------------------------------------------------
Boyd Pearce           750,000               20.65                $1.45           10/18/14
Joseph Kozak (3)      125,000                3.44                $2.36             5/3/15
Joseph Kozak          375,000               10.33                $3.01             6/9/15
Joseph Kozak          135,000                3.72                $2.60           10/12/15
Clifford Hersh         50,000                1.38                $2.95            5/18/15
Girish Mundada         75,000                2.07                $2.95            5/18/15
Girish Mundada        135,000                3.72                $2.60           10/12/15
Jeffrey Spirn         140,000                3.86                $2.31            4/24/15
</TABLE>


(1)  During the fiscal year ended December 31, 2005, the Company  granted to its
     employees and directors options covering 3,631,500 shares of Common Stock.

(2)  The  exercise  price is equal to the closing sale price of the common stock
     of the Company  traded on the Over the Counter  Bulletin Board on the grant
     date.
(3)  Granted to Mr. Kozak while he was a consultant to the Company.

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

         The following table sets forth  information  concerning the exercise of
options  and  warrants  during 2005 and the number and value of shares of common
stock  underlying  unexercised  options and warrants held by the named executive
officers as of December  31,  2005.  The table sets forth the  aggregate  dollar
value  realized upon the exercise of stock options and warrants  during the last
fiscal  year,  which is  calculated  by  multiplying  (i) the  number  of shares
exercised  by (ii) the fair market  value of the  Company's  common stock on the
date of  exercise,  as  determined  by the closing  price of its common stock as
traded on the Over-The-Counter  Bulletin Board, less the exercise price paid for
the  shares.  The value of  unexercised  in-the-money  options  and  warrants is
calculated  by  multiplying  the number of shares  underlying  each  exercisable
option and warrant by the positive  spread  between its exercise price and $2.08
(which was the fair market  value of the  Company's  common stock as of December
30, 2005).

                                       24
<PAGE>


<TABLE>
<CAPTION>
<S>                                                      <C>                                 <C>
                           Aggregated Option/Warrant Exercises in 2005 and Fiscal Year-End Option/Warrant Values

                        Shares
                       Acquired                       Number of Securities                  Value of Unexercised
                          On                     Underlying Unexercised Options            In-the-Money Options &
                       Exercise         Value     & Warrants at Year-End(#) (1)            Warrants at Year-End($)

Name                      (#)        Realized($)   Exercisable       Unexercisable       Exercisable  Unexercisable
---------------------------------------------------------------------------------------------------------------------
Francis K. Ruotolo.......       -             -          1,002,500                  -        $75,200               -
Boyd Pearce..............       -             -          1,500,000                  -       $472,500               -
Joseph Kozak                                               635,000                  -              -               -
Kenneth Ruotolo..........       -             -            429,000                  -       $164,922               -
Clifford Hersh ..........                                  354,000                  -        $68,120               -
Jeff Spirn...............       -             -            300,000                  -        $67,200               -
Girish Mundada                  -             -            660,000                  -        276,650               -
</TABLE>


         (1) Does not include  warrants issued in connection with investments by
executive officers in private offerings  conducted by the Company.  See Security
Ownership by Directors and Executive Officers.

Director Compensation

     Directors who are employees of the Company do not receive any  compensation
for  service  on the  Board.  The  Company  does  not  currently  pay  any  cash
compensation to non-employee directors.  The Company generally grants options to
purchase up to 125,000  shares of Common  Stock to its  non-employee  directors,
subject to a two-year vesting schedule.  The Company granted options to purchase
67,500  shares of Common  Stock each to the  following  continuing  non-employee
directors:  Mr.  Dunn,  Mr.  Gaulding  and Mr. Holt during the fiscal year ended
December 31, 2005.

Separation Agreements

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

                                       25
<PAGE>


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

Security Ownership by Beneficial Owners

         The  following  table  sets  forth,  as of March 1,  2006,  information
regarding ownership of the Company's common stock by any person or entity, known
by the  Company  to be the  beneficial  owner of more than five  percent  of the
outstanding  shares of common stock. The percentages are calculated on the basis
of the number of  outstanding  shares of common stock on March 1, 2006 which was
45,239,120  plus, for each person,  any securities  that person has the right to
acquire within 60 days following March 1, 2006 pursuant to options or warrants.

<TABLE>
<CAPTION>
<S>                 <C>                  <C>   <C>          <C>                 <C>
                                                        Amount and Nature
                                                          of Beneficial       Percent of
         Name and Address of Beneficial Owner               Ownership           Class
         ------------------------------------               ---------           -----
Constantin Zdarsky, c/o Tim Hanlon, Alley, Maas, Rogers
& Lindsay, P.O. Box 431,  Palm Beach, FL 33480-0431         5,010,000(1)        11.07%

Donald R. Hutton, 10995 Boas Road
Sidney, B. C. Canada V8L 5J1 ..........................     3,502,500(2)         7.74%

Alison B. Hicks, 10995 Boas Road
Sidney, B. C. Canada V8L 5J1 ..........................     3,502,500(3)         7.74%

Whistler Design, 94 Dowdeswell Street
Box N-75-71, Nassau ...................................     2,502,500            5.53%

Perry Logan, PO Box 30370,
Las Vegas, NV  89173-370 ..............................     3,285,000            7.26%
</TABLE>


(1)  Includes 3,160,000 shares of Common Stock owned by Mr. Zdarsky and warrants
     to purchase up to 1,850,000 shares of Common Stock.

(2)  Includes  600,000  shares of Common  Stock owned by Mr.  Hutton,  2,502,500
     shares of Common Stock in the name of Whistler  Design,  controlled  by Mr.
     Hutton,  and 400,000  shares of Common  Stock in the name of Ms.  Alison B.
     Hicks,  Mr.  Hutton's wife;  does not include 90,000 shares of Common Stock
     which Mr. Hutton held in joint tenancy with Ms.  Josephine C. Hutton and in
     which Mr. Hutton has disclaimed any beneficial interest or ownership.

(3)  Includes  400,000  shares of Common  Stock  owned by Ms.  Hicks,  2,502,500
     shares of Common Stock in the name of Whistler Design, controlled by Donald
     R. Hutton,  Ms. Hicks'  husband,  and 600,000 shares of Common Stock in the
     name of Mr.  Hutton;  does not include  90,000 shares of Common Stock which
     Mr. Hutton held in joint tenancy with Ms.  Josephine C. Hutton and in which
     Mr. Hutton has disclaimed any beneficial interest or ownership.

Security Ownership by Directors and Executive Officers

         The  following  table  sets forth  certain  information  regarding  the
beneficial  ownership of the shares of Common Stock as of March 1, 2006, by each
of the  Company's  directors and  executive  officers.  The table also shows the
beneficial  ownership of the  Company's  stock by all  directors  and  executive
officers  as a group.  The  table  includes  the  number of  shares  subject  to
outstanding  options  and  warrants  to  purchase  shares of Common  Stock.  The
percentages  are calculated on the basis of the amount of outstanding  shares of
Common Stock on March 1, 2006 which was 45,239,120  plus,  for each person,  any
securities  that the person has the right to  acquire  within 60 days  following
March 1, 2006, pursuant to options or warrants.

                                       26
<PAGE>


<TABLE>
<CAPTION>
<S>                                                            <C>       <C>      <C>
                                                                 Shares of
                                                                Common Stock    Percent
                                                                Beneficially      of
                 Name and Address of Beneficial Owner (1)          Owned         Class
                                                               ------------------------
       Directors and Nominees for Director
           Francis K. Ruotolo ......................           1,042,500 (2)      2.30
           Boyd Pearce .............................           1,510,000 (3)      3.34
           Homer G. Dunn ...........................             187,500 (4)         *
           John R. Gaulding ........................             187,500 (5)         *
           Thomas Holt .............................             187,500 (6)         *
           Robert Henry Kite .......................             625,000 (7)      1.38

       Executive Officers
           Joseph Kozak ............................             635,000 (8)      1.40
           Clifford Hersh ..........................             616,000 (9)      1.36
           Kenneth Ruotolo .........................             439,000(10)         *
           Jeffrey Spirn ...........................             380,000(11)         *
           Girish Mundada ..........................             660,000(12)      1.46
                                                             --------------------------
              11 directors and executive officers as a group   6,470,000         14.30
               * less than 1%
</TABLE>


(1) Unless otherwise indicated,  the address of each director and officer is c/o
ANTs software inc., 700 Airport Blvd. Suite 300, Burlingame, CA 94010.

(2) Includes 20,000 shares of Common Stock purchased through a private offering,
approved by the Company's board of directors and directed to certain  accredited
investors,  a Warrant to purchase  20,000  shares of Common Stock and Options to
purchase up to  1,002,500  shares of Common  Stock.  Pursuant to his Warrant and
Option  agreements,  Mr.  Ruotolo can acquire up to 1,022,5000  shares of Common
Stock in the next 60 days.

(3) Includes 5,000 shares of Common Stock purchased  through a private offering,
approved by the Company's board of directors and directed to certain  accredited
investors,  a Warrant to purchase  5,000  shares of Common  Stock and Options to
purchase  up to  1,500,000  shares of Common  Stock.  Pursuant to his Option and
Warrant  agreements,  Mr. Pearce can acquire 1,505,000 shares of Common Stock in
the next 60 days.

(4) Includes Options to purchase up to 187,500 shares of Common Stock.  Pursuant
to his Option agreements, Mr. Dunn can acquire 187,500 shares of Common Stock in
the next 60 days.  The  address of Mr.  Dunn is: c/o Evant Inc.  235  Montgomery
Street, San Francisco, CA 94104.

(5) Includes Options to purchase up to 187,500 shares of Common Stock.  Pursuant
to his Option  agreements,  Mr.  Gaulding can acquire  187,500  shares of Common
Stock in the next 60 days.  The address of Mr.  Gaulding is: 115 Margarita  Dr.,
San Rafael, CA 94901.

                                       27
<PAGE>


(6) Includes Options to purchase up to 187,500 shares of Common Stock.  Pursuant
to his Option agreements, Mr. Holt can acquire 187,500 shares of Common Stock in
the next 60 days.  The  address of Mr.  Holt is: c/o  Lucent  Technologies,  600
Mountain Ave, Murray Hill, NJ 07059.

(7)  Includes  250,000  shares  of  Common  Stock  purchased  through  a private
offering,  approved by the Company's  board of directors and directed to certain
accredited  investors,  125,000  shares of Common  Stock  purchased  through the
exercise of warrants,  warrants to purchase  125,000 shares of Common Stock, and
an Option to  purchase  up to 125,000  shares of Common  Stock.  Pursuant to his
Option and Warrant  agreements,  Mr. Kite can acquire  250,000  shares of Common
Stock in the next 60 days.  The address of Mr.  Kite is, 6910 East Fifth  Avenue
Scottsdale, Arizona 85251.

(8) Includes Options to purchase up to 635,000 shares of Common Stock.  Pursuant
to his Option agreements, Mr. Kozak can acquire 65,000 shares of Common Stock in
the next 60 days.

(9) Includes 262,000 shares of Common Stock purchased through a warrant exercise
during  2003 and  Options  to  purchase  up to 354,000  shares of Common  Stock.
Pursuant to his Option agreements, Mr. Hersh can acquire up to 354,000 shares of
Common Stock in the next 60 days.

(10) Includes 5,000 shares of Common Stock purchased through a private offering,
approved by the Company's board of directors and directed to certain  accredited
investors, a Warrant to purchase up to 5,000 shares of Common Stock, and Options
to purchase  up to 429,000  shares of Common  Stock.  Pursuant to his Option and
Warrant  agreements,  Mr. Ruotolo can acquire  434,000 shares of Common Stock in
the next 60 days.

(11)  Includes  40,000  shares  of  Common  Stock  purchased  through  a private
offering,  approved by the Company's  board of directors and directed to certain
accredited  investors,  40,000  shares of Common  Stock  purchased  through  the
exercise of a warrant,  and  Options to purchase up to 300,000  shares of Common
Stock.  Pursuant to his Option  agreements,  Mr. Spirn can acquire 198,917 fully
vested shares and 101,083  unvested  shares of Common Stock in the next 60 days,
however  purchase of unvested  shares would be subject to the Company's right to
repurchase.

(12) Includes Options to purchase up to 660,000 shares of Common Stock. Pursuant
to his Option agreements, Mr. Mundada can acquire 660,000 shares of Common Stock
in the next 60 days.

Securities  authorized  for  issuance  under  equity  compensation  plans  as of
December 31, 2005.

<TABLE>
<CAPTION>
<S>                                         <C>                           <C>                      <C>
                                     Number of securities to
                                     be issued upon exercise    Weighted average exercise    Number of securities
           Plan category             of outstanding options,      price of outstanding      remaining available for
                                       warrants, and rights   options, warrants and rights         issuance
Equity compensation plans
   Approved by security holders             8,060,801                     $2.17                    1,818,940
Equity compensation plans not
   Approved by security holders                 -                           -                          -
                                    ---------------------------                            --------------------------
Total                                       8,060,801                     $2.17                    1,818,940
</TABLE>


Item 12. Certain Relationships and Related Transactions.

         None.

                                       28
<PAGE>


Item 13. Exhibits and Reports on form 8-K.

         (a)      Exhibits

                  3.1      Amended and Restated  Certificate of Incorporation of
                           the  Company,   as  listed  in  Exhibit  3.1  to  the
                           Company's  10-QSB filed on August 14, 2003, is hereby
                           incorporated by reference.
                  3.2      Amended and Restated Bylaws of the Company, as listed
                           in Exhibit 3.2 to the Company's 10-KSB filed on March
                           22, 2001, are hereby incorporated by reference.
                  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 2002
                  31.2     Certification of the Chief Financial Officer required
                           by Rule 13a-14(a) of the  Securities  Exchange Act of
                           1934, as amended,  as adopted pursuant to Section 302
                           of the Sarbanes-Oxley Act of 2002
                  32.1     Certification of the Chief Executive Officer pursuant
                           to 18 U.S.C.  Section  1350 as  adopted  pursuant  to
                           Section 906 of the Sarbanes-Oxley Act of 2002
                  32.2     Certification of the Chief Financial Officer pursuant
                           to 18 U.S.C.  Section  1350 as  adopted  pursuant  to
                           Section 906 of the Sarbanes-Oxley Act of 2002

         (b)      Reports on Form 8-K

         The Company filed the following  reports on Form 8-K  during the period
starting  October 1, 2005 through  December  31,  2005:  On October 19, 2005 the
Company  summarized the  disclosures  made during a conference call held for the
purpose of updating shareholders on Company progress and answering questions; on
November  15, 2005 the Company  issued a letter to  shareholders  to discuss the
Company's then current  situation and progress during the Company's third fiscal
quarter, and on December 29, 2005, the Company's board of directors approved the
acceleration  of  vesting  for all  unvested  stock  options  granted  under the
Company's 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 those held by certain  employees  who did not consent to such  acceleration.
The disclosure of options vesting  acceleration  was made on form 8-K on January
3, 2006.


                                       29
<PAGE>


Item 14. Principal Accountant Fees and Services

Auditor's Fees

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

For the fiscal year ended December 31, 2004: $34,500
Expected billing for the fiscal year ended December 31, 2005:  $45,000

Audit-Related Fees

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

For the fiscal year ended December 31, 2004: $16,995
For the fiscal year ended December 31, 2005: $26,300

Tax Fees

Tax Fees include  preparation of Federal and State income tax returns for fiscal
years ended December 31, 2004 and 2005. The aggregate fees billed in each of the
last two  fiscal  years for  professional  services  rendered  by the  principal
accountant for tax compliance, tax advice, and tax planning are as follows:

For the fiscal year ending December 31, 2004: $8,350
Expected billing for the fiscal year ending December 31, 2005: $11,000


All Other Fees

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

For the fiscal year ending December 31, 2004: $3,708
For the fiscal year ending December 31, 2005: $12,562

The Company's  Audit  Committee  pre-approved  the  principal  types of services
(audit,  audit  assurance  and  tax  preparation)   provided  by  the  principal
accountant  during the year ended  December  31,  2005.  One hundred  percent of
"Audit-Related  Fees",  100% of "Tax  Fees" and 100% of "All  Other  Fees"  were
approved by the Company's Audit Committee pursuant to Rule  2-01(c)(7)(i)(C)  of
Regulation  S-X.  The  Company's  Audit  Committee  has  considered  whether the
provision of services rendered by its accountants is compatible with maintaining
the  accountant's  independence.  The Audit  Committee  reviews in advance,  and
grants  any  appropriate  pre-approvals  of,  (i) all  auditing  services  to be
provided  by the  principal  accountant  and (ii) all  non-audit  services to be
provided  by  the  principal  accountant  as  permitted  by  Section  10A of the
Securities  Exchange  Act of 1934,  and not  specifically  prohibited  under the
Sarbanes-Oxley  Act of 2002, and in connection  therewith  approves all fees and
other terms of engagement.

                                       30
<PAGE>


                                   SIGNATURES

         In  accordance  with  Section  13 or 15(d)  of the  Exchange  Act,  the
registrant  caused  this report to be signed on its behalf as of the 29th day of
March 2006 by the undersigned, thereunto duly authorized.

                                    ANTs software inc.

                                    By    /s/ Boyd Pearce
                                          --------------------------------------
                                          Boyd Pearce,
                                          Chief Executive Officer and President

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

                                    By    /s/ Boyd Pearce
                                          --------------------------------------
                                          Boyd Pearce,
                                          Chief Executive Officer and President

                                    Date  March 29, 2006
                                          --------------------------------------


                                    By    /s/ Kenneth Ruotolo
                                          --------------------------------------
                                          Kenneth Ruotolo, Secretary and
                                          Chief Financial Officer

                                    Date  March 29, 2006
                                          --------------------------------------

                                    DIRECTORS


                                    By    /s/ Francis K. Ruotolo
                                          --------------------------------------
                                          Francis K. Ruotolo, Chairman of the
                                          Board Of Directors

                                    Date  March 29, 2006
                                          --------------------------------------



                                    By    /s/ Boyd Pearce
                                          --------------------------------------
                                          Boyd Pearce, Director

                                    Date  March 29, 2006
                                          --------------------------------------



                                    By    /s/ Homer G. Dunn
                                          --------------------------------------
                                          Homer G. Dunn, Director

                                    Date  March 29, 2006
                                          --------------------------------------

                                       31
<PAGE>


                                    By    /s/ John R. Gaulding
                                          --------------------------------------
                                          John R. Gaulding, Director

                                    Date  March 29, 2006
                                          --------------------------------------



                                    By    /s/ Thomas Holt
                                          --------------------------------------
                                          Thomas Holt, Director

                                    Date  March 29, 2006
                                          --------------------------------------



                                    By    /s/ Robert H. Kite
                                          --------------------------------------
                                          Robert H. Kite, Director

                                    Date  March 29, 2006
                                          --------------------------------------

                                       32

<PAGE>


                               ANTS SOFTWARE INC.
                               ------------------

                    REPORT ON AUDITS OF FINANCIAL STATEMENTS

                 for the years ended December 31, 2005 and 2004


<PAGE>


                               ANTS SOFTWARE INC.
                               ------------------



                                    CONTENTS


                                                                            Page

Report of Independent Registered Public Accounting Firm                        1

Balance Sheets as of December 31, 2005 and 2004                                2

Statements of Operations for the years ended December 31, 2005 and 2004        3

Statements of Stockholders' Equity for the years ended
December 31, 2005 and 2004                                                     4

Statements of Cash Flows for the years ended December 31, 2005 and 2004        5

Notes to Financial Statements                                               6-23





<PAGE>


             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.  (the
"Company")  as of December  31,  2005,  and 2004 and the related  statements  of
operations,  stockholders'  equity, and cash flows for the years then ended. The
financial  statements are the  responsibility of the Company's  management.  Our
responsibility  is to express an opinion on these 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, 2005 and 2004 and the results of their  operations  and their cash
flows for the  years  then  ended,  in  conformity  with  accounting  principles
generally accepted in the United States of America.

The  accompanying  financial  statements  have been  prepared  assuming that the
Company  will  continue  as a  going  concern.  As  discussed  in  Note 1 to the
financial  statements,  the Company has  incurred  losses  since  inception  and
expects to fully  utilize its existing  cash prior to December  31, 2006.  These
conditions  raise  substantial  doubt  about its  ability to continue as a going
concern.  Management's  plans regarding those matters are also described in Note
1. The  financial  statements do not include any  adjustments  that might result
from the outcome of this uncertainty.


/s/ Burr, Pilger & Mayer LLP

San Francisco, CA
March 13, 2006

                                       1
<PAGE>


<TABLE>
<CAPTION>
<S>                                                       <C>                  <C>
                               ANTS SOFTWARE INC.
                                 BALANCE SHEETS
                           December 31, 2005 and 2004
                           --------------------------

                                    ASSETS                   2005                 2004
                                                       -----------------    ----------------
Current assets:
  Cash and cash equivalents                               $   6,381,932        $  1,448,724
  Accounts receivable ( net of allowance for
   doubtful accounts of $16,000 in 2005)                         45,228                   -
  Prepaid insurance and other expenses                           73,560              86,667
                                                       -----------------    ----------------
        Total current assets                                  6,500,720           1,535,391
                                                       -----------------    ----------------
Restricted cash                                                 105,399                   -
Prepaid expense from warrant issued to customer                 173,021                   -
Property and equipment, net                                     622,515             324,125
Other assets                                                     34,702               9,100
                                                       -----------------    ----------------
        Total assets                                      $   7,436,357        $  1,868,616
                                                       =================    ================


                      LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
  Accounts payable, current portion of
    accrued rent, and other accrued expenses              $     548,178        $    127,525
  Accrued bonuses and commissions payable                       218,750             153,179
  Accrued vacation payable                                      149,573              53,212
  Capital lease payable - current portion                             -               4,871
  Deferred revenues                                              58,603                   -
                                                       -----------------    ----------------
        Total current liabilities                               975,104             338,787
                                                       -----------------    ----------------
Long-term liabilities:
  Capital lease payable                                              -                  648
  Accrued rent                                                  48,667                    -
                                                       -----------------    ----------------
        Total liabilities                                    1,023,771             339,435
                                                       -----------------    ----------------

Commitment and contingencies (Note 4)                                 -                   -

Stockholders' equity:
  Preferred stock, $0.0001 par value;
    50,000,000 shares authorized,
         no shares issued and outstanding                             -                   -
  Common stock, $0.0001 par value;
    100,000,000 shares authorized;
    44,862,058 and 35,298,817 shares issued
     and outstanding, respectively                                4,487               3,530
  Common stock subscribed, not issued                           243,608              30,000
  Additional paid-in capital                                 49,690,324          36,316,987
  Accumulated deficit                                      (43,525,833)        (34,821,336)
                                                       -----------------    ----------------
        Total stockholders' equity                            6,412,586           1,529,181
                                                       -----------------    ----------------
      Total liabilities and stockholders' equity          $   7,436,357        $  1,868,616
                                                       =================    ================
</TABLE>


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

                                       2
<PAGE>


<TABLE>
<CAPTION>
<S>                                                        <C>                   <C>
                                                           ANTS SOFTWARE INC.
                                                        STATEMENTS OF OPERATIONS
                                                    For the years ended December 31,
                                                    --------------------------------

                                                        2005                      2004
                                             ----------------------------------------------
Revenues:
   Licenses                                           $      397,500        $            -
   Maintenance                                                49,620                     -
   Professional services                                      19,500                     -
                                             ----------------------------------------------
         Total revenues                                      466,620                     -

Expenses:
   Sales and marketing                                     3,618,324             1,564,424
   Research and development                                3,589,565             2,109,452
   General and administrative                              1,947,090             1,386,416
                                             ----------------------------------------------
         Total expenses                                    9,154,979             5,060,292
                                             ----------------------------------------------
          Loss from operations                            (8,688,359)           (5,060,292)
                                             ----------------------------------------------
Other income (expense):
   Income earned from expired contract                             -               310,943
   Interest income                                            24,170                17,214
   Gain on legal settlement                                    6,000                 5,500
   Write off note receivable from
     former officer                                                -               (45,000)
   Write off assets related to
     office move, net                                        (41,294)                    -
   Interest expense                                           (5,014)             (288,426)
                                             ----------------------------------------------
         Other income (expense), net                         (16,138)                  231
                                             ----------------------------------------------
           Net loss                                   $   (8,704,497)       $   (5,060,061)
                                             ==============================================

Basic and diluted net loss per common share           $        (0.22)       $        (0.16)
                                             ==============================================
Shares used in computing basic and diluted
   net loss per share                                     40,418,575            32,501,014
                                             ==============================================
</TABLE>


    The accompanying notes are an integral part of these financial statements

                                       3
<PAGE>


<TABLE>
<CAPTION>
<S>                      <C> <C>            <C>         <C>       <C>          <C>       <C>          <C>            <C>
                               ANTS SOFTWARE INC.
                       STATEMENTS OF SHAREHOLDERS' EQUITY
                 For the years ended December 31, 2005 and 2004
                 ----------------------------------------------


                                                                                Notes
                                                                              Receivable
                                                                                from
                                               Common Stock         Common      Officer    Additional
                                          ----------------------    Stock      for Stock    Paid-in    Accumulated
                                              Shares     Amount   Subscribed   Purchases    Capital      Deficit       Total
                                          -------------------------------------------------------------------------------------
Ending balance, December 31, 2003           26,381,004  $ 2,638   $       -    $(45,000) $29,668,322  $(29,761,275)  $(135,315)
Proceeds from private placements, net of
   cash commissions of $334,100              7,263,159      726           -           -    5,602,552             -   5,603,278
Common stock subscribed, not issued                  -        -      30,000           -            -             -      30,000
Common stock issued to finders and
   placement agent                             437,269       44           -           -          (44)            -           -
Common stock issued to replace escheated
 shares                                             66        -           -           -            -             -           -
Options exercised through cash
 consideration                                 354,019       35           -           -      388,717             -     388,752
Common stock issued in settlement of note
   payable to former officer                    60,000        6           -           -       74,994             -      75,000
Officer note forgiveness                             -        -           -      45,000            -             -      45,000
Discount on convertible promissory note              -        -           -           -      (46,373)            -     (46,373)
Beneficial interest on convertible
 promissory note                                     -        -           -           -      280,000             -     280,000
Conversion of convertible promissory  notes
   to common stock                             800,000       80           -           -      289,070             -     289,150
Non-employee compensation expense                3,300        1           -           -       59,749             -      59,750
Net loss and comprehensive net loss                  -        -           -           -            -    (5,060,061) (5,060,061)
                                          -------------------------------------------------------------------------------------
Ending balance, December 31, 2004           35,298,817    3,530      30,000           -   36,316,987   (34,821,336)  1,529,181

Proceeds from private placements, net of
   cash commissions of $353,850              5,461,125      546           -           -    7,823,604             -   7,824,150
Common stock issued for shares subscribed
   at December 31, 2004                         30,000        3     (30,000)                  29,997             -           -
Common stock subscribed as payment to
   vendors                                           -        -      45,158           -            -             -      45,158
Common stock issued to finders and
   placement agent                              67,556        7           -           -           (7)            -          (-)
Common stock subscribed as commissions
   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             -   5,343,527
Options exercised through cash
 consideration                                 103,704       11           -           -      125,581             -     125,592
Non-employee compensation expense               12,886        1           -           -       51,921             -      51,922
Employee compensation expense                    9,000        1           -           -       20,789             -      20,790
Compensation expense recognized on
   accelerated vesting of employee options           -        -           -           -        3,742             -       3,742
Prepaid expense for future customer support
   services recognized on issuing warrants           -        -           -           -      173,021             -     173,021
Net loss and comprehensive net loss                                                                     (8,704,497) (8,704,497)
                                          -------------------------------------------------------------------------------------
Ending balance, December 31, 2005           44,862,058  $ 4,487   $ 243,608    $      -  $49,690,324  $(43,525,833) $6,412,586
                                          =====================================================================================
</TABLE>



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

                                       4
<PAGE>


<TABLE>
<CAPTION>
<S>                                                                       <C>             <C>
                                          ANTS SOFTWARE INC.
                                       STATEMENTS OF CASH FLOWS
                                  For the years ended December 31,
                                                                              2005            2004
                                                                         -------------   -------------
Cash flows from operating activities:
 Net loss                                                                 $(8,704,497)    $(5,060,061)
 Adjustments to reconcile net loss to net cash used in operating
  activities:
   Depreciation                                                               285,423         181,656
   Amortization of rent for new office facilities, net                         53,047               -
   Bad debt expense                                                            16,000               -
   Amortization of debt discount and beneficial conversion feature                  -         285,973
   Compensation expense recognized on options granted to non-employees         51,922          59,750
   Compensation expense recognized on options granted to employee              20,790
   Compensation expense recognized on "H" units granted to non-employees       15,158               -
   Compensation expense recognized on restricted shares of common stock
              granted to non-employee                                          30,000               -
   Compensation expense recognized on accelerated vesting of employee
    options                                                                     3,742               -
   Write-off of note receivable to officer for stock purchases                      -          45,000
   Disposal of leasehold improvements at old office facilities, net            36,194               -
   Write-off of unrecoverable security deposits related to old office
    facilities                                                                  8,818               -
 Changes in operating assets and liabilities:
   Accounts receivable                                                        (61,228)              -
   Prepaid insurance and expenses                                              13,107         (39,638)
   Other assets                                                               (34,420)              -
   Accounts payable and accrued rent (current and long-term portion in
    2005)                                                                     416,273          44,336
   Accrued bonuses and commissions payable                                     65,571         153,179
   Accrued vacation                                                            96,361          53,212
   Deferred salaries                                                                -        (340,505)
   Deferred revenue                                                            58,603        (310,943)
                                                                         -------------   -------------
      Net cash used in operating activities                                (7,629,136)     (4,928,041)
                                                                         -------------   -------------

Cash flows used in investing activities:
   Investment in certificate of deposit - restricted cash                    (105,399)              -
   Purchases of office furniture, fixtures and equipment                     (620,007)       (182,280)
                                                                         -------------   -------------
      Net cash used in investing activities                                  (725,406)       (182,280)
                                                                         -------------   -------------

Cash flows from financing activities:
 Proceeds from private placements, net of commissions                       7,824,150       5,603,278
 Common stock subscribed                                                            -          30,000
 Proceeds from exercise of options                                            125,592         388,752
 Proceeds from exercise of warrants, net of commissions                     5,343,527               -
 Payments on capital lease obligations                                         (5,519)         (4,710)
                                                                         -------------   -------------
      Net cash provided by financing activities                            13,287,750       6,017,320
                                                                         -------------   -------------
Net increase (decrease) in cash and cash equivalents                        4,933,208         906,999
                                                                         -------------   -------------
Cash and cash equivalents at beginning of year                              1,448,724         541,725
                                                                         -------------   -------------
Cash and cash equivalents at end of year                                  $ 6,381,932     $ 1,448,724
                                                                         =============   =============

Supplemental disclosures of cash flow information:
 Cash paid during the period for:
       Interest                                                           $     5,014     $     2,454
          Taxes                                                                     -               -
Non-cash investing and financing activities:
    Common stock issued for subscribed shares                             $    30,000     $         -
    Common stock subscribed to be issued to  private placement agent
       for commissions                                                        198,450               -
    Issuance of warrant to purchase 100,000 shares of common stock            173,021
    Conversion of convertible promissory note into common stock, net                -         289,070
    Issuance of common stock in settlement of note payable to former
     officer                                                                        -          75,000
</TABLE>


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

                                       5
<PAGE>


                               ANTS SOFTWARE INC.
                          NOTES TO FINANCIAL STATEMENTS

1.   The Company and its Significant Accounting Policies

     Nature of Operations

     The Company is engaged in the  development  and  marketing  of a relational
     database  management  system,  the ANTs Data  Server,  that it believes can
     dramatically  reduce costs and can improve  performance  in a wide range of
     applications.  The ANTs Data Server is a standards-compliant SQL relational
     database  management  system  that  incorporates  the  Company's  universal
     compatibility   and  lock-free  data  structure   technologies  to  provide
     customers with a low cost, high-performance alternative to most traditional
     database management systems.

     Basis of Presentation

     The Company's  financial  statements have been presented on a going-concern
     basis, which contemplates the realization of assets and the satisfaction of
     liabilities  in the normal course of business.  As of December 31, 2005 and
     2004 and for the fiscal  years then  ended,  the  Company had a net loss of
     $8,704,497 and $5,060,061 and an accumulated capital deficit of $43,525,833
     and $34,821,336,  respectively.  These conditions raise  substantial  doubt
     about its ability to continue as a going concern.

     To carry out the Company's plan of operation,  it anticipates that over the
     next twelve months it will need to raise  additional funds of approximately
     $8 to $10  million.  The  Company  will pursue a number of avenues to raise
     these  operating  funds:  1) in the past the Company has been successful in
     raising funds through  private  placements of its stock and it  anticipates
     that it will continue to raise funds through private placements,  2) as the
     Company develops close  relationships  with large partners,  it will pursue
     strategic  investments  from those partners,  and 3) the Company expects to
     continue  generating  revenue in 2006,  and if  successful,  this will be a
     source of  operating  funds.  The  Company is pursuing  all three  avenues,
     however, it believes, that due to an uncertain investment climate, securing
     additional investment will be difficult.

     The  financial  statements do not include any  adjustments  relating to the
     recoverability of assets and  classifications  of liabilities that might be
     necessary should the Company be unable to continue as a going concern.

     Use of Estimates

     The  preparation of the financial  statements in accordance with accounting
     principles  generally  accepted  in the United  States of America  requires
     management to make estimates and assumptions  that affect reported  amounts
     of  assets  and  liabilities  and  disclosure  of  contingent   assets  and
     liabilities  at the  date of the  financial  statements  and  the  reported
     amounts of  revenues  and  expenses  during the  reporting  period.  Actual
     results could differ from those and other estimates.

     Revenue Recognition

     We recognize  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.

                                       6
<PAGE>


1.   The Company and its Significant Accounting Policies, continued

         We use  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,
         we defer 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, we defer 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:

               o    Persuasive evidence of an arrangement exists.
               o    Delivery has  occurred and there are no future  deliverables
                    except post-contract customer support ("PCS").
               o    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.
               o    Collection is probable.

     Revenue  from  professional  fees,   consisting   primarily  of  consulting
     services,  is  recognized  as services  are  provided  and the revenues are
     earned.

     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.

     Our  research  and  development   ("R&D")  expenses  consist  primarily  of
     personnel-related   expenses,  lab  supplies  and  operational  costs,  and
     depreciation  on equipment.  To date, we have expensed all of our R&D costs
     in the periods in which they were  incurred,  as our process for developing
     our  products  has  been   essentially   completed   concurrent   with  the
     establishment of technological feasibility.

     Advertising Costs

     The Company's policy is to include all advertising  costs in current period
     expense.  The expense  recognized for the years ended December 31, 2005 and
     2004 was $73,000 and $7,000, 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 $105,000,  held by Silicon Valley Bank, with an annual
     interest rate of 0.85%, maturing on July 22, 2006. The funds are pledged to
     collateralize  the Company's  revolving  credit card  facility  which has a
     total  credit  limit  of  $105,000.  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.

                                       7
<PAGE>


1.   The Company and its Significant Accounting Policies, continued

     Accounts Receivable

     Receivables  are stated at net realizable  value.  The Company  provides an
     allowance for bad debts based on  management's  evaluation  of  outstanding
     accounts receivable.

     Property and Equipment

     Property and  equipment,  which  includes  assets  recorded  under  capital
     leases, are carried at cost and are depreciated on the straight-line  basis
     over their  estimated  useful lives of three 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 statement of operations.

     Deferred Revenues

     As of December 31, 2005,  deferred revenues consisted of annual support and
     maintenance fees paid in advance by customers.  The fees are amortized into
     revenue ratably over a twelve month period from the contract dates.

     Income Taxes

     The Company accounts for income taxes using the asset and liability method.
     Under this method,  deferred tax assets and  liabilities are recognized for
     operating  loss  and  tax  credit  carryforwards  and for  the  future  tax
     consequences   attributable  to  differences  between  financial  statement
     carrying  amounts of existing assets and  liabilities and their  respective
     tax bases.  Deferred tax assets and  liabilities are measured using enacted
     tax rates  expected to apply to taxable  income in the years in which those
     temporary differences are expected to be recovered or settled.

     A  valuation  allowance  is  recorded  to reduce  the  carrying  amounts of
     deferred tax assets unless it is more likely than not that such assets will
     be realized.

     Long-Lived Assets

     Long-lived  assets  such  as  property  and  equipment  are  evaluated  for
     impairment  when  events or  changes  in  circumstances  indicate  that the
     carrying amount of the assets may not be  recoverable.  When the indicators
     of impairment are present and the estimated  undiscounted future cash flows
     from the use of these assets are less than the assets'  carrying value, the
     related assets will be written down to fair value.

     Operating Segment Information

     The  Company  operates in a single  industry  segment,  computer  software.
     Substantially  all of the Company's assets and employees are located at the
     corporate headquarters in Burlingame, California.

     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.

                                       8
<PAGE>


1.   The Company and its Significant Accounting Policies, continued

     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.

     Stock-Based Compensation

     At December 31, 2005, the Company has a stock-based  employee  compensation
     plan,  which is described  more fully in Note 12. The Company  accounts for
     this plan under the recognition  and  measurement  principles of Accounting
     Principles  Board  (APB)  Opinion  25,   Accounting  for  Stock  Issued  to
     Employees, and related Interpretations.

     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.  This
     action  was  taken  so that the  Company  would  not  incur  $4,562,438  in
     compensation expense,  which, under SFAS 123(R), would have been recognized
     as compensation expense in the financial statements in the 2006-2008 fiscal
     years. The board of directors took this action in the best interests of the
     shareholders.

     Excluded from this action were stock options held by non-employee directors
     with an  exercise  price  less than  $2.10,  and  options  held by  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 compensation expense of $3,742 in the financial statements
     associated with vesting the in the money options.

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

                                                 Year ended December 31,
                                                2005               2004
                                          ----------------   ----------------
Net loss, as reported                         $ (8,704,497)    $ (5,060,061)
Add: Stock-based employee compensation
expense derived from a cash exercise of
stock options                                       20,790                -
Add: Stock-based employee compensation
expense recognized from acceleration of
vesting of in-the-money stock options on
December 29, 2005                                    3,742                -
Less: Stock-based employee compensation
expense determined under the fair-value
based method                                    (2,677,569)      (1,118,888)
Less: Stock-based employee compensation
expense associated with acceleration of
vesting of out-of-the-money stock options
on December 29, 2005                            (4,562,438)               -
                                          ----------------   ----------------
    Net loss, pro forma                       $(15,919,972)    $ (6,178,949)
                                          ================   ================
    Basic and diluted loss per share:
       As reported                            $      (0.22)    $      (0.16)
                                          ================   ================
       Pro forma                              $      (0.40)    $      (0.19)
                                          ================   ================



                                       9
<PAGE>


1.   The Company and its Significant Accounting Policies, continued

     The weighted average fair value of options granted during the periods ended
     December 31, 2005 and 2004 were $2.05 and $1.19 respectively. The pro forma
     amounts were estimated using the  Black-Scholes  option-pricing  model with
     the following assumptions for the periods ended December 31, 2005 and 2004,
     respectively.

                                          December 31,
                                          ------------
                                     2005             2004
                                     ----             ----

         Interest rate               4.02%            3.37%
         Dividend yield              0.00%            0.00%
         Expected volatility        116.40%          116.22%
         Expected life in years      5.00             5.00

     Basic Net Loss per Share

     Basic net loss per share is calculated using the weighted-average number of
     common shares outstanding during the period.  Diluted net loss per share is
     computed using the  weighted-average  number of common and dilutive  common
     equivalent shares  outstanding  during the period.  Since common equivalent
     shares outstanding during the periods were antidilutive,  basic and diluted
     loss per share are the same.

     Reclassification

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


     Recent Accounting Pronouncements

     In June 2005, the Emerging Issues Task Force ("EITF") reached  consensus on
     Issue  No.  05-6  ("Issue"),   "Determining  the  Amortization  Period  for
     Leasehold  Improvements".  This Issue provides guidance on determination of
     the  amortization  period for  leasehold  improvements  that are  purchased
     subsequent  to the  inception  of the lease.  Such  leasehold  improvements
     should be amortized over the lesser of the useful life of the asset, or the
     lease term that includes  reasonably assured lease renewals.  This Issue is
     effective  for  leasehold  improvements  acquired in the periods  beginning
     after July 1, 2005.  The Company  does not expect the  adoption of EITF No.
     05-6 to have a material effect on its financial statements.


     In May 2005,  the FASB  issued  SFAS  154,  "Accounting  Changes  and Error
     Corrections".  SFAS No. 154  establishes  new standards on  accounting  for
     changes in  accounting  principles.  Pursuant  to the new  rules,  all such
     changes must be accounted for by retrospective application to the financial
     statements of prior periods unless it is  impracticable  to do so. SFAS No.
     154 supersedes  Accounting Principles Bulletin (APB) Opinion 2, "Accounting
     for  Changes"  and SFAS No. 3  "Reporting  Accounting  Changes  in  Interim
     Financial  Statements",  though it carries  forward  the  guidance of those
     pronouncements with respect to accounting for changes in estimates, changes
     in the reporting entity, and error corrections.

                                       10
<PAGE>


1.   The Company and its Significant Accounting Policies, continued

     This  statement is effective for accounting  changes and error  corrections
     made in years  beginning  after  December  15,  2005,  with early  adoption
     permitted for changes and  corrections  made in years  beginning  after May
     2005.  The  Company  does not  expect  adoption  of SFAS No.  154 to have a
     material impact on the Company's financial statements.

     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 will apply the  principles of SAB 107 in  conjunction  with its
     adoption of SFAS 123(R).

     In December 2004, the Financial  Accounting Standards Board ("FASB") issued
     Statement of Financial Accounting Standards No. 123 (Revised), "Share-Based
     Payment" ("SFAS 123(R)").  SFAS 123(R) replaces SFAS 123 and supersedes APB
     25.  SFAS  123(R) is  effective  as of the  beginning  of the first  annual
     reporting  period that begins after December 15, 2005. SFAS 123(R) requires
     that the costs  resulting  from all  share-based  payment  transactions  be
     recognized in the financial  statements.  SFAS 123(R) applies to all awards
     granted  after the  required  effective  date and shall not apply to awards
     granted in periods  before the  required  effective  date,  except if prior
     awards vest,  are modified,  repurchased  or cancelled  after the effective
     date. SFAS 123(R) also amends Statement of Financial  Accounting  Standards
     No. 95,  "Statement of Cash Flows",  to require that excess tax benefits be
     reported as a financing  cash  inflow  rather than as a reduction  of taxes
     paid. The Company adopted SFAS 123 (R) effective January 1, 2006.

2.   Property and Equipment

     Property  and  equipment  are  summarized  by major  category as follows at
     December 31, 2005 and 2004:

                                                    2005            2004
                                                 ----------      ----------
         Computers and software                  $1,437,068      $  949,046
         Furniture and fixtures                      85,215          29,386
         Leasehold improvements                      46,662          16,675
                                                 ----------      ----------
             Total property and equipment         1,568,945         955,107
         Less: accumulated depreciation
                 and amortization                  (946,430)       (670,982)
                                                 ----------      ----------

              Property and equipment, net        $  622,515      $  324,125
                                                 ==========      ==========

     Depreciation  included in the statements of operations amounted to $285,423
     and $181,656 for the years ended December 31, 2005 and 2004,  respectively.
     During  2005,  $9,975 of  accumulated  depreciation  related  to  leasehold
     improvements  at the Company's  former office  facilities  was written off.
     Included in property and  equipment  is 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 $11,874 and $5,159 at December 31, 2005
     and 2004, respectively.

                                       11
<PAGE>


3.   Prepaid Expenses

     As of December 31, 2005,  prepaid expenses 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.  The  warrant  has an  exercise  price of $3.50 per share and may be
     exercised  until July 2008. The prepaid expense related to the warrant will
     be amortized on a straight-line basis over 36 months, commencing in January
     2006.  The prepaid  expense  will be  evaluated  periodically  for signs of
     impairment, and will be written down as deemed necessary.

4.   Commitments and Contingencies

     Lease Commitments

       As of December 31, 2005, the Company leased office facilities and certain
       computer equipment under non-cancelable  operating leases. Future minimum
       lease payments required under the noncancelable leases are as follows:

              Years Ending December 31,                Operating Leases
              -------------------------                ----------------
                     2006                                   $206,752
                     2007                                    233,600
                     2008                                     81,760
                                                            --------
                       Total minimum lease payments         $522,112
                                                            --------

       Of the total  minimum  lease  payments  due during  fiscal  2006,  $2,350
       related to the computer equipment  operating lease. The Company paid this
       lease in full in March 2006.

       At December 31, 2004, the Company had an outstanding obligation under two
       capital  leases of $5,519.  These  capital  leases  were fully paid as of
       December 31, 2005.

       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.

                                       12
<PAGE>


4.   Commitments and Contingencies, continued

     The Company is recognizing  rent expense for this lease in accordance  with
     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 May 1, 2005  through  December 31,
     2005. During the fiscal years ended December 31, 2005 and 2004, the Company
     recognized a total of $133,344 and $0  respectively,  in rental expense for
     this lease.

     Contingencies

     On October 29, 2004, the Company entered into a Salary  Agreement with each
     of the following  persons:  Francis K. Ruotolo,  the Company's then current
     Chief  Executive  Officer and Chairman,  Boyd Pearce,  the  Company's  then
     current  President  and  Chief  Operating  Officer,  Kenneth  Ruotolo,  the
     Company's  Chief  Financial  Officer and  Secretary,  Clifford  Hersh,  the
     Company's Chief  Scientist,  Girish Mundada,  the Company's Vice President,
     Engineering  and Jeffrey R. Spirn,  Ph.D.,  the Company's Vice President of
     Research  and  Development  (each an  "Officer").  Pursuant  to the  Salary
     Agreements,  each Officer's  salary (the "Original  Salary") was reduced 50
     percent and the Company  agreed to pay each  Officer a bonus,  equal to the
     aggregate  amount that such Officer's  salary had been reduced,  should the
     Company raise a certain  amount of financing  between  October 16, 2004 and
     February 1, 2005.  Effective  January 1, 2005,  each  Officer's  salary was
     increased  to 75 percent of the  Original  Salary  pursuant to an Amendment
     Agreement.  The Company did not raise the required financing by February 1,
     2005 and no bonus was paid to the  Officers  at that time.  On  February 1,
     2005,  the Company  and the  Officers  agreed that if the Company  raised a
     certain amount of financing between February 1, 2005 and June 30, 2005, the
     Officers  would be paid a bonus  equal to the  aggregate  amount  that such
     Officers'  salaries had been reduced  since  October 16, 2004. On April 15,
     2005 an aggregate  bonus of $199,167  was paid to the Officers  pursuant to
     the Amendment Agreement, thereby satisfying the Agreement in full.

     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 shall be
     exercisable  for a period of three  years  from the  Effective  Date of the
     warrant.  If the warrant is not granted  within  thirty (30) 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.

5.   Deferred Revenues

     During fiscal 2005, the Company  invoiced  customers in the total 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 a 12 month period
     beginning on the contract  dates.  The total amortized in 2005 was $49,620.
     The amount of deferred  revenues on the Balance  Sheet at December 31, 2005
     was $58,603.

                                       13
<PAGE>


5.   Deferred Revenues, continued

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

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

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

6.   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, 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, 2005 and 2004 are as follows:

                                       14
<PAGE>


6.   Income Taxes, continued

         Deferred tax assets:                         2005            2004
                                                      ----            ----

          Net operating loss carryforward         $ 13,412,485    $  9,909,028
          Research tax credit carryforward           1,371,851         945,858
          Expenses deductible in later years            76,768           2,024
                                              ---------------------------------

          Gross deferred tax assets                 14,861,104      10,856,910

          Less: valuation allowance                (14,861,104)    (10,856,910)

                                              ---------------------------------
          Net deferred tax assets                 $          -    $          -
                                              =================================

     At December 31, 2005 the Company had net operating  loss  carryforwards  of
     approximately  $33.0 million for federal tax purposes and $32.3 million for
     state tax purposes. If not earlier utilized, the federal net operating loss
     carryforwards  will expire in various years from 2008 through 2025, and the
     state net operating  loss  carryforwards  will expire in various years from
     2006 through 2015.

     At December 31, 2005, the Company also had research credit carryforwards of
     approximately  $0.9 million for federal tax purposes,  and $0.7 million for
     state tax purposes.  If not earlier  utilized,  the federal research credit
     carryforwards  will expire in various  years from 2017  through  2025.  The
     state research credit carries forward indefinitely until realized.

     The effective rate applied to net losses in calculating  the gross deferred
     tax assets is higher than the Federal statutory rate due to the recognition
     of state  income tax benefits  and an increase in the  valuation  allowance
     with  respect to federal  and state  deferred  tax  assets.  The  valuation
     allowance  was  increased in 2005 and 2004 by  $4,004,194  and  $2,021,880,
     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.

7.   Stockholders' Equity

     A comprehensive  summary of transactions  occurring in stockholders' equity
     for the years  ending  December 31, 2005 and 2004 is presented in the table
     below.

                                       15
<PAGE>


7.   Stockholders' Equity, continued

<TABLE>
<CAPTION>
<S>                                                                     <C>              <C>
                                                                        Changes in Stockholders' Equity
                                                                        For the years ended December 31,
                                                                        --------------------------------

                                                                             2005             2004
                                                                             ----             ----

Total stockholders' equity, beginning of year                           $  1,529,181     $  (135,315)

Cash transactions:
   Proceeds from private placements:
      Sales of "D" Units at $0.75 per unit                                         -       4,277,378
      Cash commissions on sales of "D" units                                       -        (269,100)
      Commissions and finders' fees paid by issuing 400,906
         "D" units to placement agents                                             -               -
      Sales of "E" units at $1.25 per unit                                         -         500,000
      Cash commissions on sales of "E" units                                       -         (65,000)
      Commissions and finders' fees paid by issuing 36,363
         "E" units to placement agents                                             -               -
      Sales of "F" units at $1.00 per unit                                   933,000       1,160,000
      Cash commissions on sales of "F" units                                 (90,350)              -
      Commissions and finders' fees paid by issuing 63,181
         "F" units to placement agents                                             -               -
      Sales of "G" units at $1.60 per unit                                 3,042,000               -
      Cash commissions on sales of "G" units                                 (75,000)              -
      Commissions and finders' fees paid by issuing 29,829
         "G" units to placement agents                                             -               -
      Sales of "H" units at $1.60 per unit                                 2,603,000               -
      Cash commissions on sales of "H" units                                (188,500)              -
      Commissions and finders' fees paid by issuing 82,927
         "H" units to placement agents                                             -               -
      Sales of "I" units at $1.60 per unit                                 1,600,000               -
                                                                        -------------    ------------
                Net proceeds from private placements                       7,824,150       5,603,278
   Funds received for "F" units subscribed and unissued
         at year-end                                                               -          30,000
   Proceeds from warrant exercises:
      Warrants with exercise price of $2.00 exercised at
         discount price of $1.40 per share                                 3,935,796               -
              Cash commissions on exercise of warrants                      (193,800)              -
      Warrants with exercise price of $2.00 exercised at
         discount price of $1.50 per share                                 1,601,531               -
                                                                        -------------    ------------
                Net proceeds from warrant exercises                        5,343,527               -

   Funds received from exercise of stock options                             125,592         388,752
                                                                        -------------    ------------
                Total cash transactions                                   13,293,269       6,022,030
</TABLE>


                                       16
<PAGE>


7.   Stockholders' Equity, continued

<TABLE>
<CAPTION>
<S>                                                                           <C>             <C>
Non-cash transactions:
   Common stock issued in settlement of note payable
      to former officer                                                            -          75,000
   Forgiveness of officer note receivable                                                     45,000
   Amortization of discount on convertible promissory notes                        -         (46,373)
   Recognize beneficial interest on convertible promissory notes                   -         280,000
   Conversion of convertible promissory notes into common
      stock                                                                        -         289,150
   Employee compensation expense from exercise of stock options               20,790               -
   Employee compensation expense from the acceleration of
      vesting on certain stock options                                         3,742               -
   Prepaid expense recognized from issuance of warrant to purchase
      100,000 shares of common stock                                         173,021               -
   Non-employee compensation expense:
        Extension of time period to former contractor and officer
           to exercise stock options after termination of employment          30,130          29,498
        Stock options issued to vendor for domain name                             -           6,204
        Stock options issued to vendors                                       15,158               -
        Stock options issued to and exercised by executive
           recruiter in payment for search for new president                   3,526          21,473
        Restricted stock issued as finders' fees                              30,000               -
        Vesting of stock options issued to contractors                        18,266           2,575
                                                                        -------------    ------------
                 Total non-employee compensation expense                      97,080          59,750
                                                                        -------------    ------------
                 Total non-cash transactions                                 294,633         702,527
                                                                        -------------    ------------

Net loss and comprehensive net loss for the year                          (8,704,497)     (5,060,061)
                                                                        -------------    ------------
                 Total stockholders' equity, end of year                $  6,412,586     $ 1,529,181
                                                                        =============    ============
</TABLE>


     Details of these  transactions by quarter for the years ending December 31,
     2005 and 2004 are presented below.

     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  approximately  $90,350  and issued  63,181 F Units to a 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.

                                       17
<PAGE>


7.   Stockholders' Equity, continued

     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.  A
     total of 2,140,283  warrants was exercised,  resulting in gross proceeds to
     the Company of $2,996,396. The Company paid cash commissions of $109,800 to
     a placement agent in connection  with these warrant  exercises 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.

     On February  25, 2005,  a prior  consultant  exercised an option for 12,886
     shares.  The option was  previously  granted in lieu of cash  compensation.
     Non-employee stock  compensation  expense of $3,526 related to the exercise
     was  recognized  during  fiscal  2005.  In  2004,  the  Company  recognized
     compensation expense of $21,473 related to this option.

     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 was exercised, resulting in gross proceeds to the
     Company of  $939,400.  The Company  paid cash  commissions  of $84,000 to a
     placement agent 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.

     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 in
     February  2006  to a  placement  agent  in  connection  with  this  private
     offering.  At December 31, 2005,  the shares were  recorded in Common Stock
     Subscribed  at a value of $52,499 or $1.76 per G Unit,  the purchase  price
     paid by the placement  agent.  The sales of these  securities  were made in
     reliance upon Rule 506 and Section 4(2) of the Securities Act of 1933.

     On May 1, 2005,  the Company  recognized  non-employee  stock  compensation
     expense of $30,130 related to the extension of a former sales  consultant's
     option grant. In January 2005 the sales consultant's  contract  terminated,
     and as part of the termination agreement,  the Company agreed to extend the
     period during which the consultant  could  exercise the stock option,  from
     the standard 90 days as provided in the Company's stock option plan, to one
     year.

     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.

     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.

                                       18
<PAGE>


7.   Stockholders' Equity, continued

     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.

     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 H Unit,  the purchase price
     paid by 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.

     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 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 was 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 warrant  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.

     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.

                                       19
<PAGE>


7.   Stockholders' Equity, continued

     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.

     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.

     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.

     From January 1, 2004 through March 31, 2004, the Company sold to accredited
     investors,  through a  private  offering,  5,703,159  D Units at a price of
     seventy-five  cents ($0.75) per D Unit,  with each D Unit consisting of (i)
     one (1)  share of  common  stock of the  Company,  and  (ii) a  warrant  to
     purchase up to one (1) share of common  stock of the Company at a per share
     price of two dollars ($2.00),  exercisable  until March 31, 2006. The gross
     proceeds  from the  offering  were  $4,277,378.  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.

     On or about February 17, 2004,  the Company sold to an accredited  investor
     66 shares  of common  stock at a price of $.75 per  share.  The  accredited
     investor paid for the shares by assigning  all rights in certain  shares of
     common stock of the Company, which shares had been escheated.

     On or about  April 23,  2004,  the Company  and Gary  Ebersole,  its former
     President and Chief Operating Officer, agreed to amend Mr. Ebersole's Stock
     Option  Agreements  to extend the period  during which Mr.  Ebersole  could
     exercise  the vested  portion of his stock  options  from April 30, 2004 to
     June 30, 2004. The Company recognized non-employee  compensation expense of
     $29,498  in  the   statement  of   operations   (included  in  general  and
     administrative expenses) related to this transaction.  As of June 30, 2004,
     Mr. Ebersole had exercised all his vested stock options.

                                       20
<PAGE>


7.   Stockholders' Equity, continued

     On or about May 31,  2004,  the Company  sold to one  accredited  investor,
     through a private  offering,  400,000 E units at a price of one  dollar and
     twenty-five  cents ($1.25) per E unit for gross proceeds of $500,000,  with
     each E Unit consisting of (i) one (1) share of common stock of the Company,
     and (ii) a warrant to purchase  up to one (1) share of common  stock of the
     Company  at a per  share  price of two  dollars  and fifty  cents  ($2.50),
     exercisable  until May 31, 2007.  In  connection  with this  offering,  the
     Company paid $65,000 in cash  commissions  and issued 36,363 E Units to the
     placement  agent.  The sale of these  securities  was made in reliance upon
     Rule 506 and Section 4(2) of the Securities Act of 1933.

     On or about July 14, 2004, the holders of two convertible  promissory notes
     elected to convert  such  notes.  Pursuant  to the terms of the notes,  the
     company  issued  each 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.

     In August 2004, a former officer purchased 60,000 E Units. The E Units were
     issued in lieu of a $75,000  cash  payment  due on August 4, 2004 on a note
     payable to the former  officer.  The sale of these  securities  was made in
     reliance upon Rule 506 and Section 4(2) of the Securities Act of 1933.

     From  November  12, 2004  through  January 12,  2005,  the Company  sold to
     accredited  investors,  through a private offering,  2,123,000 F Units at a
     price of one dollar ($1.00) per F Unit,  with each F Unit consisting of (i)
     one (1)  share of  common  stock of the  Company,  and  (ii) a  warrant  to
     purchase up to one (1) share of common  stock of the Company at a per share
     exercise price of two dollars ($2.00), exercisable until November 12, 2007.
     The gross proceeds from the offering were  $2,123,000,  of which $1,190,000
     was  received by December  31, 2004 and  $933,000  was  received in January
     2005.  Of the total  amount  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.

     During the fiscal year ended  December 31, 2004,  354,019  shares of common
     stock of the Company were  purchased  through the exercise of stock options
     that  resulted in cash  proceeds to the Company of  $388,752.  A vendor was
     awarded  3,300  options on August  19,  2004 as  partial  compensation  for
     selling the sole and exclusive rights to the domain name, www.ants.com.  to
     the Company.  The vendor  exercised  the options on the same date they were
     granted at an exercise price of $1.88,  resulting in non-cash consideration
     of $6,204 in the third  quarter of 2004,  which was  charged  to  marketing
     expense. The total number of shares purchased through the exercise of stock
     options for cash and services in 2004 was 357,319.

     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.

8.   Per Share Data

     Basic net loss per share is computed using the  weighted-average  number of
     shares of common stock outstanding during the periods. Diluted earnings per
     share is computed  using the  weighted-average  number of common shares and
     common  share  equivalents  outstanding  during  the  period.  The  Company
     excluded all common share equivalents from the calculation because all such
     securities are antidilutive for the two periods presented.

                                       21
<PAGE>


8.   Per Share Data, continued

     The computation of the basic and diluted net loss per share was as follows:

<TABLE>
<CAPTION>
<S>                                                  <C>                <C>           <C>
                                                           Loss            Shares     Per Share
                                                       (Numerator)     (Denominator)    Amount
                                                       ----------------------------------------
        Year ended December 31, 2005
              Basic and diluted net loss per share   $  (8,704,497)     40,418,575    $  (0.22)
        Year ended December 31, 2004
              Basic and diluted net loss per share   $  (5,060,061)     32,501,014    $  (0.16)
</TABLE>


     At December  31, 2005 and 2004,  options and  warrants  for the purchase of
     21,182,381  and  16,414,176  common shares at prices  ranging from $0.52 to
     $6.38, and $0.52 to $10.50 per share, were antidilutive,  respectively, and
     therefore not included in the computation of diluted earnings per share.

9.   Concentration of Credit Risk-Cash

     The Company maintains cash balances at two major financial  institutions in
     excess of the  federally  insured  limit of $100,000  per  institution.  At
     December  31,  2005,  the  Company's   uninsured   cash  balances   totaled
     $6,188,800.

10.  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,   2005  and  2004.
     Administrative  fees for the plan totaled  approximately  $3,200 and $2,900
     for the years ended December 31, 2005 and 2004, respectively.

11.  Warrants

     As of December  31,  2005,  warrants to purchase  13,121,580  shares of the
     Company's Common Stock were  outstanding.  These securities give the holder
     the right to purchase  shares of the Company's  restricted  common stock in
     accordance with the terms of the instrument as follows:

<TABLE>
<CAPTION>
<S>             <C>                          <C>     <C>                 <C>    <C>
        Number of Warrants Issued      Exercise Price per Share      Year of Expiration
        -------------------------      ------------------------      ------------------
                8,469,606                    $2.00 - $2.50               2006 - 2007
                4,641,974                    $3.25 - $3.50               2008 - 2009
                   10,000                        $7.25                      2006
                   ------
               13,121,580
               ==========
</TABLE>


12.  Stock Compensation Plan

     In September 2000, the Company's  shareholders approved a stock option plan
     under which  incentive  stock options and  non-qualified  stock options are
     granted to employees,  directors or  consultants  at not less than the fair
     market value on the date of grant for  incentive  stock  options and 85% of
     fair market for non-qualified  options.  Options granted under the plan are
     generally  vested  within three years after the date of grant and expire 10
     years after issuance. Options are granted at the discretion of the Board of
     Directors.

                                       22
<PAGE>


12.  Stock Compensation Plan, continued

     The  following  table  summarizes  stock option plan activity for the years
     ended December 31, 2005 and 2004:

<TABLE>
<CAPTION>
<S>                        <C> <C>     <C>             <C>           <C>
                                                       Outstanding Options
                                                       -------------------
                                                                      Weighted
                                         Shares                       Average
                                       Available       Number of      Exercise
                                       For Grant        Shares         Price
                                       ---------        ------         -----
       Balance at December 31, 2003    1,521,488       3,841,162     $     2.26
       Granted                        (2,202,936)      2,202,936           1.44
       Exercised through cash
          consideration                        -        (354,019)          1.11
       Exercised through non-cash
          consideration                        -          (3,300)          1.88
       Retired and other                 717,331        (717,331)          1.47
                                     -----------     -----------           ----
       Balance at December 31, 2004       35,883       4,969,448     $     1.93
                                     -----------     -----------           ====

       Additional shares reserved      5,000,000
       Granted                        (3,671,500)      3,671,500     $     2.48
       Exercised through cash
           consideration                       -        (103,704)          1.21
       Exercised through non-cash
          consideration                        -         (21,886)          2.09
       Retired and other                 454,557        (454,557)          2.25
                                     -----------     -----------           ----

       Balance at December 31, 2005    1,818,940       8,060,801     $     2.17
                                     ===========     ===========           ====
</TABLE>


       The options  vested at December  31, 2005 and 2004 were  7,328,472  and
       3,413,868,  with an average weighted exercise price of $2.17 and $2.11,
       respectively.

       The  weighted  average fair value of options  granted  during the years
       ended December 31, 2005 and 2004 were $2.05 and $1.19, respectively.

     The  following  table  summarizes   information   regarding  stock  options
     outstanding at December 31, 2005:

<TABLE>
<CAPTION>
<S>       <C>   <C>         <C>           <C>                   <C>             <C>            <C>
                                                                                            Weighted
                                            Weighted          Weighted         Number        Average
             Exercise       Number           Average           Average         Vested       Exercise
               Price      Outstanding    Remaining Life    Exercise Price    at 12/31/05      Price
            ----------    -----------    --------------    --------------    -----------    ---------

          $0.52-$0.99       508,500       7.44 years            $0.72           496,697        $0.71
          $1.00-$1.99     2,213,953       8.28 years             1.53         2,045,836         1.52
          $2.00-$2.99     4,562,907       7.99 years             2.46         4,010,498         2.47
          $3.00-$6.38       775,441       7.26 years             3.26           775,441         3.26
                          ---------                             -----        ----------        -----
                          8,060,801       7.96 years            $2.17         7,328,472        $2.17
                          =========                             =====        ==========        =====
</TABLE>

                                       23