UNITED
STATES SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549


_____________________




FORM
10-Q


(Mark
One)





[X]
            QUARTERLY
      REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934





For
the quarterly period ended: June 30, 2009





OR





[   ]
            TRANSITION
      REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934





For
the transition period from _________________ to ________________





Commission
file number:  000-16299


________________




ANTS
SOFTWARE INC.


(Exact
name of registrant as specified in its charter)





Delaware
              13-3054685(State
      or other jurisdiction of
              (IRS
      Employer Identification Number)Incorporation
      or Organization)71
      Stevenson St., Suite 400, San Francisco, CA
              94105(Address
      of principal executive offices)
              (Zip
      Code)





(650)
931-0500


(Registrant’s
Telephone Number, including area code)








Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes [X]  No [ ]





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes [ ]
 No [ ]





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated  filer or a smaller reporting
company.   See definition of “accelerated filer and large
accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
one):  Large accelerated filer [ ]  Accelerated filer [
]  Non-accelerated filer [ ]  Smaller reporting company
[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]





ANTs
software inc. had 95,237,795 shares of Common Stock outstanding as of August 14,
2009.










TABLE
OF CONTENTS
 
  PART I.  Financial
  InformationItem 1.
                                                                                              Consolidated Financial StatementsConsolidated Balance Sheets as of June 30, 2009 and
      December 31, 2008
                                                                                              3Consolidated Statements of Operations for the Three and
      Six Months ended June 30, 2009 and 2008 (restated)
                                                                                              4Consolidated Statements of Stockholders’ Equity for the Six
      Months ended June 30, 2009 and 2008 (restated)
                                                                                              5Consolidated Statements of Cash Flows for the Six Months
      ended June 30, 2009 and 2008 (restated)
                                                                                              6Notes to Consolidated Financial
    Statements
                                                                                              7-21Item 2.
                                                                                              Management’s Discussion and Analysis of Financial
      Condition and Results of Operations
                                                                                              22-29Item 3.
                                                                                              Quantitative and Qualitative Disclosures About Market
      Risk
                                                                                              30Item 4.
                                                                                              Controls and Procedures
                                                                                              30PART II.  Other
    InformationItem 1.
                                                                                              Legal Proceedings
                                                                                              31Item 1A.
                                                                                              Risk Factors
                                                                                              31Item 2.
                                                                                              Unregistered Sales of Equity Securities and Use of
      Proceeds
                                                                                              31Item 3.
                                                                                              Defaults Upon Senior Securities
                                                                                              31Item 4.
                                                                                              Submission of Matters to a Vote of Security
      Holders
                                                                                              32Item 5.
                                                                                              Other Information
                                                                                              32Item 6.
                                                                                              Exhibits
                                                                                              32Signatures
                                                                                              33




2


PART I.  FINANCIAL INFORMATION





ITEM 1.  CONSOLIDATED FINANCIAL STATEMENTS





ANTS
      SOFTWARE INC.CONSOLIDATED BALANCE SHEETSJune
      30,ASSETS
                        
                        2009
                        
                        
                        December
      31,(Unaudited)
                        
                        
                        2008Current
      assets:Cash
      and cash equivalents
                        
                        $
                        1,155,183
                        
                        
                        $
                        2,051,807Accounts
      receivable
                        
                        
                        418,374
                        
                        
                        
                        383,445Note
      receivable from customer
                        
                        
                        500,000
                        
                        
                        
                        2,000,000Restricted
      cash
                        
                        
                        125,000
                        
                        
                        
                        125,000Current
      portion of prepaid debt issuance cost
                        
                        
                        -
                        
                        
                        
                        4,121Prepaid
      expenses and other current assets
                        
                        
                        205,020
                        
                        
                        
                        160,723Total
      current assets
                        
                        
                        2,403,577
                        
                        
                        
                        4,725,096Property
      and equipment, net
                        
                        
                        309,440
                        
                        
                        
                        399,093Other
      intangible assets, net
                        
                        
                        5,087,584
                        
                        
                        
                        5,504,081Goodwill
                        
                        
                        22,761,517
                        
                        
                        
                        22,761,517Other
      assets
                        
                        
                        36,698
                        
                        
                        
                        67,018Total
      assets
                        
                        $
                        30,598,816
                        
                        
                        $
                        33,456,805LIABILITIES
      AND STOCKHOLDERS' EQUITYCurrent
      liabilities:Accounts
      payable and other accrued expenses
                        
                        $
                        2,435,788
                        
                        
                        $
                        1,445,043Line
      of credit
                        
                        
                        250,000
                        
                        
                        
                        200,000Current
      portion of long-term debt
                        
                        
                        54,350
                        
                        
                        
                        -Current
      portion of convertible promissory notes, net of debtdiscount
      of $- and $15,916, respectively
                        
                        
                        200,000
                        
                        
                        
                        234,084Deferred
      revenue
                        
                        
                        326,507
                        
                        
                        
                        487,121Total
      current liabilities
                        
                        
                        3,266,645
                        
                        
                        
                        2,366,248Long-term
      liabilities:Convertible
      promissory notes, net of debt discount of $6,537,168and
      $8,549,964, respectively
                        
                        
                        3,966,058
                        
                        
                        
                        2,703,260Deferred
      tax liability
                        
                        
                        344,000
                        
                        
                        
                        344,000Total
      liabilities
                        
                        
                        7,576,703
                        
                        
                        
                        5,413,508Commitments
      and contingenciesStockholders’
      equity:Preferred
      stock, $0.0001 par value; 50,000,000 shares authorized;no
      shares issued and outstanding (see Note 11)
                        
                        
                        -
                        
                        
                        
                        -Common
      stock, $0.0001 par value; 200,000,000 shares authorized;95,237,795
      and 90,648,369 shares issued and outstanding as ofJune
      30, 2009 and December 31, 2008, respectively
                        
                        
                        9,524
                        
                        
                        
                        9,065Additional
      paid-in capital
                        
                        
                        117,955,250
                        
                        
                        
                        115,963,846Accumulated
      deficit
                        
                        
                        (94,942,661
                        )
                        
                        
                        (87,929,614
                        )Total
      stockholders’ equity
                        
                        
                        23,022,113
                        
                        
                        
                        28,043,297Total
      liabilities and stockholders' equity
                        
                        $
                        30,598,816
                        
                        
                        $
                        33,456,805See
      accompanying Notes to Consolidated Financial Statements




3




ANTS
      SOFTWARE INC.CONSOLIDATED STATEMENTS OF OPERATIONS(Unaudited)For
      the Three Months Ended
                          
                          
                          For
      the Six Months EndedJune
      30,
                          
                          
                          June
      30,2008
                          
                          
                          
                          
                          
                          20082009
                          
                          
                          (restated)
                          
                          
                          2009
                          
                          
                          (restated)Revenues:Products
                          
                          $
                          -
                          
                          
                          $
                          4,900,000
                          
                          
                          $
                          -
                          
                          
                          $
                          4,904,165Services
                          
                          
                          1,369,587
                          
                          
                          
                          522,539
                          
                          
                          
                          2,757,944
                          
                          
                          
                          550,758Total
      revenues
                          
                          
                          1,369,587
                          
                          
                          
                          5,422,539
                          
                          
                          
                          2,757,944
                          
                          
                          
                          5,454,923Cost
      of revenues:Products
                          
                          
                          -
                          
                          
                          
                          555,248
                          
                          
                          
                          -
                          
                          
                          
                          599,667Services
                          
                          
                          1,231,834
                          
                          
                          
                          359,732
                          
                          
                          
                          2,457,603
                          
                          
                          
                          359,732Total
      cost of revenues
                          
                          
                          1,231,834
                          
                          
                          
                          914,980
                          
                          
                          
                          2,457,603
                          
                          
                          
                          959,399Gross
      profit
                          
                          
                          137,753
                          
                          
                          
                          4,507,559
                          
                          
                          
                          300,341
                          
                          
                          
                          4,495,524Operating  expenses:Sales
      and marketing
                          
                          
                          505,998
                          
                          
                          
                          671,302
                          
                          
                          
                          1,023,303
                          
                          
                          
                          998,194Research
      and development
                          
                          
                          398,331
                          
                          
                          
                          1,787,383
                          
                          
                          
                          934,288
                          
                          
                          
                          4,388,506General
      and administrative
                          
                          
                          1,504,871
                          
                          
                          
                          1,455,312
                          
                          
                          
                          2,645,340
                          
                          
                          
                          2,448,538Total
      operating expenses
                          
                          
                          2,409,200
                          
                          
                          
                          3,913,997
                          
                          
                          
                          4,602,931
                          
                          
                          
                          7,835,238Operating
      (loss) income
                          
                          
                          (2,271,447
                          )
                          
                          
                          593,562
                          
                          
                          
                          (4,302,590
                          )
                          
                          
                          (3,339,714
                          )Other
      (expense) income:Interest
      income
                          
                          
                          237
                          
                          
                          
                          20,634
                          
                          
                          
                          2,720
                          
                          
                          
                          47,636Loss
      on conversion / extinguishment of convertible promissory
    notes
                          
                          
                          (495,833
                          )
                          
                          
                          (49,940
                          )
                          
                          
                          (495,833
                          )
                          
                          
                          (49,940
                          )Other
                          
                          
                          (1,590
                          )
                          
                          
                          -
                          
                          
                          
                          (3,805
                          )
                          
                          
                          -Interest
      expense
                          
                          
                          (1,141,052
                          )
                          
                          
                          (719,668
                          )
                          
                          
                          (2,213,539
                          )
                          
                          
                          (1,549,854
                          )Total
      other (expense) income
                          
                          
                          (1,638,238
                          )
                          
                          
                          (748,974
                          )
                          
                          
                          (2,710,457
                          )
                          
                          
                          (1,552,158
                          )Net
      loss before income taxes
                          
                          
                          (3,909,685
                          )
                          
                          
                          (155,412
                          )
                          
                          
                          (7,013,047
                          )
                          
                          
                          (4,891,872
                          )Income
      taxes
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -Net
      loss
                          
                          $
                          (3,909,685
                          )
                          
                          $
                          (155,412
                          )
                          
                          $
                          (7,013,047
                          )
                          
                          $
                          (4,891,872
                          )Basic
      and diluted net loss per common share
                          
                          $
                          (0.04
                          )
                          
                          $
                          -
                          
                          
                          $
                          (0.08
                          )
                          
                          $
                          (0.08
                          )Shares
      used in computing basic and dilutednet
      loss per share
                          
                          
                          92,518,076
                          
                          
                          
                          71,986,666
                          
                          
                          
                          91,588,388
                          
                          
                          
                          64,906,422See
      accompanying Notes to Consolidated Financial Statements




4




ANTS
      SOFTWARE INC.CONSOLIDATED STATEMENTS OF STOCKHOLDERS'
      EQUITY(Unaudited)AdditionalCommon
      Stock
                                            
                                            
                                            Paid-in
                                            
                                            
                                            AccumulatedShares
                                            
                                            
                                            Amount
                                            
                                            
                                            Capital
                                            
                                            
                                            Deficit
                                            
                                            
                                            TotalBalance
      at December 31, 2008
                                            
                                            
                                            90,648,369
                                            
                                            
                                            $
                                            9,065
                                            
                                            
                                            $
                                            115,963,846
                                            
                                            
                                            $
                                            (87,929,614
                                            )
                                            
                                            $
                                            28,043,297Proceeds
      from private placements
                                            
                                            
                                            847,500
                                            
                                            
                                            
                                            85
                                            
                                            
                                            
                                            338,915
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            339,000Issuance
      of 287,500 Common Stock warrants inconnection
      with the issuance of two 1% convertible notes
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            78,693
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            78,693Beneficial
      conversion feature of two 1% convertible notes
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            20,125
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            20,125Conversion
      of 1% notes
                                            
                                            
                                            287,500
                                            
                                            
                                            
                                            29
                                            
                                            
                                            
                                            114,971
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            115,000Conversion
      of 10% convertiblepromissory
      notes, net of commission
                                            
                                            
                                            1,770,833
                                            
                                            
                                            
                                            177
                                            
                                            
                                            
                                            758,783
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            758,960Stock
      issued to placement agent as commission forconversion
      of 10% convertible promissory notes
                                            
                                            
                                            23,850
                                            
                                            
                                            
                                            2
                                            
                                            
                                            
                                            12,354
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            12,356Stock
      issuable for the extension of a 10%convertible
      promissory note and interest payments
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            11,450
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            11,450Stock
      and 300,000 warrants issued for a consultingarrangement,
      subject to vesting
                                            
                                            
                                            200,000
                                            
                                            
                                            
                                            20
                                            
                                            
                                            
                                            35,306
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            35,326Stock
      issued for employee compensationunder
      the 2008 Stock Plan, subject to vesting
                                            
                                            
                                            1,264,743
                                            
                                            
                                            
                                            126
                                            
                                            
                                            
                                            62,479
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            62,605Stock
      issued for non-employee compensationunder
      the 2008 Stock Plan, subject to vesting
                                            
                                            
                                            195,000
                                            
                                            
                                            
                                            20
                                            
                                            
                                            
                                            9,632
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            9,652Stock
      issuable for a consulting arrangement
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            5,000
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            5,000Share-based
      compensation expense- employees
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            525,858
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            525,858Share-based
      compensation expense-non-employees
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            17,838
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            17,838Net
      loss
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            (7,013,047
                                            )
                                            
                                            
                                            (7,013,047
                                            )Balance
      at June 30, 2009
                                            
                                            
                                            95,237,795
                                            
                                            
                                            $
                                            9,524
                                            
                                            
                                            $
                                            117,955,250
                                            
                                            
                                            $
                                            (94,942,661
                                            )
                                            
                                            $
                                            23,022,113Balance
      at December 31, 2007 (restated)
                                            
                                            
                                            57,398,445
                                            
                                            
                                            $
                                            5,740
                                            
                                            
                                            $
                                            74,957,098
                                            
                                            
                                            $
                                            (76,301,030
                                            )
                                            
                                            $
                                            (1,338,192
                                            )Proceeds
      from private placements, net of cashcommissions
      of $367,200
                                            
                                            
                                            13,202,424
                                            
                                            
                                            
                                            1,320
                                            
                                            
                                            
                                            7,246,485
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            7,247,805Shares
      issued in connection with acquisition ofInventa
      Technologies, Inc.
                                            
                                            
                                            20,000,000
                                            
                                            
                                            
                                            2,000
                                            
                                            
                                            
                                            23,998,000
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            24,000,000Beneficial
      conversion feature
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            1,355,586
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            1,355,586Fair
      value of conversion feature upon modification ofconvertible
      promissory notes
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            5,226,069
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            5,226,069Proceeds
      from option and warrant exercises
                                            
                                            
                                            47,500
                                            
                                            
                                            
                                            5
                                            
                                            
                                            
                                            32,665
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            32,670Share-based
      compensation expense- employees
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            2,283,538
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            2,283,538Share-based
      compensation expense- non-employees
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            123,783
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            123,783Net
      loss
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            (4,891,872
                                            )
                                            
                                            
                                            (4,891,872
                                            )Balance
      at June 30, 2008 (restated)
                                            
                                            
                                            90,648,369
                                            
                                            
                                            $
                                            9,065
                                            
                                            
                                            $
                                            115,223,224
                                            
                                            
                                            $
                                            (81,192,902
                                            )
                                            
                                            $
                                            34,039,387See
      accompanying Notes to Consolidated Financial Statements




5




ANTS
      SOFTWARE INC.CONSOLIDATED STATEMENTS OF CASH FLOWS(Unaudited)For
      the Six Months Ended June 30,20082009
                                
                                
                                (restated)Cash
      flows from operating activities:Net
      loss
                                
                                $
                                (7,013,047
                                )
                                
                                $
                                (4,891,872
                                )Adjustments
      to reconcile net loss to net cash used in operating
      activities:Depreciation
      and amortization
                                
                                
                                529,209
                                
                                
                                
                                267,875Amortization
      of accrued rent, net of cash payments
                                
                                
                                -
                                
                                
                                
                                3,772Amortization
      of warrant issued to a third party
                                
                                
                                -
                                
                                
                                
                                57,674Amortization
      of discount on notes payable
                                
                                
                                1,657,136
                                
                                
                                
                                980,640Amortization
      of debt issuance costs
                                
                                
                                -
                                
                                
                                
                                72,189Stock-based
      compensation expense
                                
                                
                                615,953
                                
                                
                                
                                2,407,321Stock-based
      interest expense
                                
                                
                                11,450
                                
                                
                                
                                -Stock-based
      consulting expense
                                
                                
                                40,326
                                
                                
                                
                                -Loss
      on conversion / extinguishment of convertible promissory
      notes
                                
                                
                                495,833
                                
                                
                                
                                49,490Changes
      in operating assets and liabilities:Accounts
      receivable
                                
                                
                                (34,929
                                )
                                
                                
                                219,889Restricted
      cash
                                
                                
                                -
                                
                                
                                
                                67,574Prepaid
      expenses and other current assets
                                
                                
                                44,418
                                
                                
                                
                                (11,686
                                )Notes
      receivable from customer
                                
                                
                                1,500,000
                                
                                
                                
                                (2,500,000
                                )Other
      assets
                                
                                
                                30,320
                                
                                
                                
                                -Accounts
      payable and other accrued expenses
                                
                                
                                990,745
                                
                                
                                
                                (49,720
                                )Deferred
      revenue
                                
                                
                                (160,614
                                )
                                
                                
                                (324,182
                                )Net
      cash used in operating activities
                                
                                
                                (1,293,200
                                )
                                
                                
                                (3,651,036
                                )Cash
      flows from investing activities:Purchases
      of property
                                
                                
                                (23,059
                                )
                                
                                
                                (38,838
                                )Acquisition
      of Inventa, net of cash acquired
                                
                                
                                -
                                
                                
                                
                                (3,047,444
                                )Net
      cash used in investing activities
                                
                                
                                (23,059
                                )
                                
                                
                                (3,086,282
                                )Cash
      flows from financing activities:Proceeds
      from line of credit
                                
                                
                                50,000
                                
                                
                                
                                -Proceeds
      from private placements - equity, net of cash commissions
                                
                                
                                339,000
                                
                                
                                
                                7,247,800Proceeds
      from private placements - 1% convertible promissory notes
                                
                                
                                115,000
                                
                                
                                
                                -Proceeds
      from exercise of options
                                
                                
                                -
                                
                                
                                
                                32,679Principal
      payments on long-term debt
                                
                                
                                (84,365
                                )
                                
                                
                                (5,000
                                )Net
      cash provided by financing activities
                                
                                
                                419,635
                                
                                
                                
                                7,275,479Net
      (decrease) increase in cash and cash equivalents
                                
                                
                                (896,624
                                )
                                
                                
                                538,161Cash
      and cash equivalents at beginning of period
                                
                                
                                2,051,807
                                
                                
                                
                                4,480,694Cash
      and cash equivalents at end of period
                                
                                $
                                1,155,183
                                
                                
                                $
                                5,018,855Supplemental
      disclosure of cash flow information:Cash
      paid for interest
                                
                                $
                                313,636
                                
                                
                                $
                                241,030Noncash
      investing and financing activities:Prepaid
      insurance premiums financed by a loan
                                
                                $
                                69,514
                                
                                
                                $
                                -Conversion
      of 10% promissory notes to Common Stock
                                
                                $
                                771,316
                                
                                
                                $
                                -Conversion
      of 1% promissory notes to Common Stock
                                
                                $
                                115,000
                                
                                
                                $
                                -Common
      Stock issued to placement agent for note conversion
                                
                                $
                                13,356
                                
                                
                                $
                                -See
      accompanying Notes to Consolidated Financial Statements




6




ANTS
SOFTWARE INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)





1.
Restatement





The
Company has restated its financial statements for the six months ended June 30,
2008 to correct errors in such financial statements.





The
restatement of the Company’s financial statements is based upon a review of the
accounting treatment of certain transactions entered into by the Company with
certain investors in 2006 and 2007. During this review, the Company discovered
that it had incorrectly applied a restriction discount to the market value of
its Common Stock based on a long history of selling restricted Common Stock to a
group of investors.  The discounted stock price was then used in the
allocation of proceeds between debt and equity for units of convertible
promissory notes and restricted common shares that were sold to investors in
late 2006 and early 2007. The discounted stock price was also used to determine
if there was a beneficial conversion related to the convertible promissory
notes. The same methodology was used in late 2007 when the Company issued
convertible promissory notes along with Common Stock warrants.





The
following tables present the effects of the restatement adjustments on the
Company’s balance sheet as of June 30, 2008, its statements of operations for
the three and six months ended June 30, 2008 and its cash flows for the six
months ended June 30, 2008.




7




ANTS
SOFTWARE INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)


1.
Restatement (Continued)


RESTATED
      UNAUDITED BALANCE SHEETJune
      30, 2008ASSETS
                                                                                        
                                                                                        As
      Previously Reported
                                                                                        
                                                                                        
                                                                                        Adjustments
                                                                                        
                                                                                        
                                                                                        
                                                                                        As
      RestatedCurrent
      assets:Cash
      and cash equivalents
                                                                                        
                                                                                        $
                                                                                        5,018,855
                                                                                        
                                                                                        
                                                                                        $
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        $
                                                                                        5,018,855Accounts
      receivable
                                                                                        
                                                                                        
                                                                                        523,201
                                                                                        
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        
                                                                                        523,201Notes
      receivable from customer
                                                                                        
                                                                                        
                                                                                        2,500,000
                                                                                        
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        
                                                                                        2,500,000Restricted
      cash
                                                                                        
                                                                                        
                                                                                        125,000
                                                                                        
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        
                                                                                        125,000Current
      portion of prepaid debt issuance cost
                                                                                        
                                                                                        
                                                                                        10,800
                                                                                        
                                                                                        
                                                                                        
                                                                                        (10,800
                                                                                        )
                                                                                        (a)
                                                                                        
                                                                                        
                                                                                        -Prepaid
      expenses and other current assets
                                                                                        
                                                                                        
                                                                                        244,584
                                                                                        
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        
                                                                                        244,584Total
      current assets
                                                                                        
                                                                                        
                                                                                        8,422,440
                                                                                        
                                                                                        
                                                                                        
                                                                                        (10,800
                                                                                        )
                                                                                        
                                                                                        
                                                                                        
                                                                                        8,411,640Long-term
      portion of debt issuance cost
                                                                                        
                                                                                        
                                                                                        223,385
                                                                                        
                                                                                        
                                                                                        
                                                                                        (211,606
                                                                                        )
                                                                                        (b)
                                                                                        
                                                                                        
                                                                                        11,779Property
      and equipment, net
                                                                                        
                                                                                        
                                                                                        496,315
                                                                                        
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        
                                                                                        496,315Goodwill
                                                                                        
                                                                                        
                                                                                        23,354,931
                                                                                        
                                                                                        
                                                                                        
                                                                                        (593,414
                                                                                        )
                                                                                        (g)
                                                                                        
                                                                                        
                                                                                        22,761,517Intangible
      assets, net
                                                                                        
                                                                                        
                                                                                        3,635,416
                                                                                        
                                                                                        
                                                                                        
                                                                                        2,292,996
                                                                                        
                                                                                        (g)
                                                                                        
                                                                                        
                                                                                        5,928,412Other
      assets
                                                                                        
                                                                                        
                                                                                        54,435
                                                                                        
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        
                                                                                        54,435Total
      assets
                                                                                        
                                                                                        $
                                                                                        36,186,922
                                                                                        
                                                                                        
                                                                                        $
                                                                                        1,477,176
                                                                                        
                                                                                        
                                                                                        
                                                                                        $
                                                                                        37,664,098LIABILITIES
      AND STOCKHOLDERS' EQUITYCurrent
      liabilities:Accounts
      payable and other accrued expenses
                                                                                        
                                                                                        $
                                                                                        854,039
                                                                                        
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        $
                                                                                        854,039Accrued
      bonuses and commissions payable
                                                                                        
                                                                                        
                                                                                        163,905
                                                                                        
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        
                                                                                        163,905Accrued
      vacation payable
                                                                                        
                                                                                        
                                                                                        180,213
                                                                                        
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        
                                                                                        180,213Line
      of credit
                                                                                        
                                                                                        
                                                                                        170,000
                                                                                        
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        
                                                                                        170,000Current
      portion of convertible promissory notes, net ofpremium
      of $239,949 and discount of $-0- (restated),respectively
                                                                                        
                                                                                        
                                                                                        264,254
                                                                                        
                                                                                        
                                                                                        
                                                                                        (264,254
                                                                                        )
                                                                                        (c)
                                                                                        
                                                                                        
                                                                                        -Accrued
      interest on convertible promissory notes
                                                                                        
                                                                                        
                                                                                        254,247
                                                                                        
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        
                                                                                        254,247Deferred
      revenue
                                                                                        
                                                                                        
                                                                                        253,823
                                                                                        
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        
                                                                                        253,823Total
      current liabilities
                                                                                        
                                                                                        
                                                                                        2,140,481
                                                                                        
                                                                                        
                                                                                        
                                                                                        (264,254
                                                                                        )
                                                                                        
                                                                                        
                                                                                        
                                                                                        1,876,227Long-term
      liabilities:Deferred
      tax liability
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        344,000
                                                                                        
                                                                                        (g)
                                                                                        
                                                                                        
                                                                                        344,000Convertible
      promissory notes, net of debt discount of $239,949 and$10,098,697
      (restated), respectively
                                                                                        
                                                                                        
                                                                                        11,493,175
                                                                                        
                                                                                        
                                                                                        
                                                                                        (10,088,691
                                                                                        )
                                                                                        (d)
                                                                                        
                                                                                        
                                                                                        1,404,484Total
      liabilities
                                                                                        
                                                                                        
                                                                                        13,633,656
                                                                                        
                                                                                        
                                                                                        
                                                                                        (10,008,945
                                                                                        )
                                                                                        
                                                                                        
                                                                                        
                                                                                        3,624,712Commitments
      and contingenciesStockholders’
      equity:Preferred
      stock, $0.0001 par value; 50,000,000 shares authorized,no
      shares issued and outstanding
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        
                                                                                        -Common
      stock, $0.0001 par value; 200,000,000 shares authorized;90,648,369
      shares issued and outstanding
                                                                                        
                                                                                        
                                                                                        9,065
                                                                                        
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        
                                                                                        9,065Additional
      paid-in capital
                                                                                        
                                                                                        
                                                                                        104,366,721
                                                                                        
                                                                                        
                                                                                        
                                                                                        10,856,503
                                                                                        
                                                                                        (e)(g)
                                                                                        
                                                                                        
                                                                                        115,223,224Accumulated
      deficit
                                                                                        
                                                                                        
                                                                                        (81,822,520
                                                                                        )
                                                                                        
                                                                                        
                                                                                        629,618
                                                                                        
                                                                                        (f)
                                                                                        
                                                                                        
                                                                                        (81,192,902
                                                                                        )Total
      stockholders’ equity
                                                                                        
                                                                                        
                                                                                        22,553,266
                                                                                        
                                                                                        
                                                                                        
                                                                                        11,486,121
                                                                                        
                                                                                        
                                                                                        
                                                                                        
                                                                                        34,039,387Total
      liabilities and stockholders' equity
                                                                                        
                                                                                        $
                                                                                        36,186,922
                                                                                        
                                                                                        
                                                                                        $
                                                                                        1,477,176
                                                                                        
                                                                                        
                                                                                        
                                                                                        $
                                                                                        37,664,098(a)
      — Adjustment to eliminate prepaid debt issuance costs related to issuance
      of Convertible Promissory Notes(b)
      — Adjustment to correct prepaid debt issuance costs related to issuance of
      Convertible Promissory Notes(c)
      & (d) — Adjustment to record discount related to issuance of "J"
      Units(e)
      — Adjustment to record discount related to issuance of "J"
      Units(f)
      — Adjustment to record net impact to 2007 and 2006 Statements of
      Operations(g) — Adjustment to
      correct Inventa purchase
accounting




8


ANTS
SOFTWARE INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)





1.
Restatement (Continued)





RESTATED
      UNAUDITED STATEMENT OF OPERATIONSFor
      the Three Months Ended June 30, 2008As
      Previously Reported
                                              
                                              Adjustments
                                              
                                              
                                              
                                              As
      RestatedRevenues:Products
                                              
                                              $
                                              4,900,000
                                              
                                              
                                              $
                                              -
                                              
                                              
                                              
                                              $
                                              4,900,000Services
                                              
                                              
                                              522,539
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              
                                              522,539Total
      revenues
                                              
                                              
                                              5,422,539
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              
                                              5,422,539Cost
      of Revenues:Products
                                              
                                              
                                              511,993
                                              
                                              
                                              
                                              43,255
                                              
                                              (a)
                                              
                                              
                                              555,248Services
                                              
                                              
                                              359,732
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              359,732Gross
      profit
                                              
                                              
                                              4,550,814
                                              
                                              
                                              
                                              (43,255
                                              )
                                              
                                              
                                              
                                              4,507,559Operating  Expenses:Sales
      and marketing
                                              
                                              
                                              714,557
                                              
                                              
                                              
                                              (43,255
                                              )
                                              
                                              
                                              
                                              671,302Research
      and development
                                              
                                              
                                              1,787,383
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              
                                              1,787,383General
      and administrative
                                              
                                              
                                              1,558,630
                                              
                                              
                                              
                                              (103,318
                                              )
                                              (b)
                                              
                                              
                                              1,455,312Total
      operating expenses
                                              
                                              
                                              4,060,570
                                              
                                              
                                              
                                              (146,573
                                              )
                                              
                                              
                                              
                                              3,913,997Loss
      from operations
                                              
                                              
                                              490,244
                                              
                                              
                                              
                                              103,318
                                              
                                              
                                              
                                              
                                              593,562Other
      (expense) income:Interest
      income
                                              
                                              
                                              20,634
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              
                                              20,634Loss
      on extinguishment
                                              
                                              
                                              (2,238,206
                                              )
                                              
                                              
                                              2,188,266
                                              
                                              (c)
                                              
                                              
                                              (49,940
                                              )Interest
      expense
                                              
                                              
                                              (954,190
                                              )
                                              
                                              
                                              234,522
                                              
                                              (d)
                                              
                                              
                                              (719,668
                                              )Total
      other (expense) income
                                              
                                              
                                              (3,171,762
                                              )
                                              
                                              
                                              2,422,788
                                              
                                              
                                              
                                              
                                              (748,974
                                              )Net
      loss
                                              
                                              $
                                              (2,681,518
                                              )
                                              
                                              $
                                              2,526,106
                                              
                                              
                                              
                                              $
                                              (155,412
                                              )Basic
      and diluted net lossper
      common share
                                              
                                              $
                                              (0.04
                                              )
                                              
                                              $
                                              0.04
                                              
                                              
                                              
                                              $
                                              (0.00
                                              )Shares
      used in computing basic and dilutednet
      loss per share
                                              
                                              
                                              71,986,666
                                              
                                              
                                              
                                              71,986,666
                                              
                                              
                                              
                                              
                                              71,986,666
  (a)
      — Adjustment to reclassify warrant amortization costs related to sales to
      a major customer(b)
      — Adjustment to reverse amortization of Prepaid Debt Issuance
      Costs(c)
      — Adjustment to reduce overstated expenses related to Discount
      onConvertible Promissory Notes(d)
      — Adjustment to correct the treatment of the extinguished Convertible
      Promissory Notes




9


ANTS
SOFTWARE INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)





1.
Restatement (Continued)





RESTATED
      UNAUDITED STATEMENT OF OPERATIONSFor
      the Six Months Ended June 30, 2008As
      Previously Reported
                                            
                                            Adjustments
                                            
                                            
                                            
                                            As
      RestatedRevenues:Products
                                            
                                            $
                                            4,904,165
                                            
                                            
                                            $
                                            -
                                            
                                            
                                            
                                            $
                                            4,904,165Services
                                            
                                            
                                            550,758
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            
                                            550,758Total
      revenues
                                            
                                            
                                            5,454,923
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            
                                            5,454,923Cost
      of Revenues:Products
                                            
                                            
                                            511,993
                                            
                                            
                                            
                                            87,674
                                            
                                            (a)
                                            
                                            
                                            599,667Services
                                            
                                            
                                            359,732
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            359,732Gross
      profit
                                            
                                            
                                            4,583,198
                                            
                                            
                                            
                                            (87,674
                                            )
                                            
                                            
                                            
                                            4,495,524Operating  Expenses:Sales
      and marketing
                                            
                                            
                                            1,085,868
                                            
                                            
                                            
                                            (87,674
                                            )
                                            
                                            
                                            
                                            998,194Research
      and development
                                            
                                            
                                            4,388,506
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            
                                            4,388,506General
      and administrative
                                            
                                            
                                            2,660,513
                                            
                                            
                                            
                                            (211,975
                                            )
                                            (b)
                                            
                                            
                                            2,448,538Total
      operating expenses
                                            
                                            
                                            8,134,887
                                            
                                            
                                            
                                            (299,649
                                            )
                                            
                                            
                                            
                                            7,835,238Loss
      from operations
                                            
                                            
                                            (3,551,689
                                            )
                                            
                                            
                                            211,975
                                            
                                            
                                            
                                            
                                            (3,339,714
                                            )Other (expense)
      income:Interest
      income
                                            
                                            
                                            47,636
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            
                                            47,636Loss
      on extinguishment
                                            
                                            
                                            (2,238,206
                                            )
                                            
                                            
                                            2,188,266
                                            
                                            (c)
                                            
                                            
                                            (49,940
                                            )Interest
      expense
                                            
                                            
                                            (1,115,302
                                            )
                                            
                                            
                                            (434,552
                                            )
                                            (d)
                                            
                                            
                                            (1,549,854
                                            )Total
      other (expense) income
                                            
                                            
                                            (3,305,872
                                            )
                                            
                                            
                                            1,753,714
                                            
                                            
                                            
                                            
                                            (1,552,158
                                            )Net
      loss
                                            
                                            $
                                            (6,857,561
                                            )
                                            
                                            $
                                            1,965,689
                                            
                                            
                                            
                                            $
                                            (4,891,872
                                            )Basic
      and diluted net lossper
      common share
                                            
                                            $
                                            (0.11
                                            )
                                            
                                            $
                                            0.03
                                            
                                            
                                            
                                            $
                                            (0.08
                                            )Shares
      used in computing basic and dilutednet
      loss per share
                                            
                                            
                                            64,906,422
                                            
                                            
                                            
                                            64,906,422
                                            
                                            
                                            
                                            
                                            64,906,422
  (a)
      — Adjustment to reclassify warrant amortization costs related to sales to
      a major customer(b)
      — Adjustment to reverse amortization of Prepaid Debt Issuance
      Costs(c)
      — Adjustment to reduce overstated expenses related to Discount
      onConvertible Promissory Notes(d)
      — Adjustment to correct the treatment of the extinguished Convertible
      Promissory Notes




10


ANTS
SOFTWARE INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)





1.
Restatement (Continued)




RESTATED
      UNAUDITED STATEMENT OF CASH FLOWSFor
      the Six Months Ended June 30, 2008As
      Previously Reported
                                                                                        
                                                                                        
                                                                                        
                                                                                        Adjustments
                                                                                        
                                                                                        
                                                                                        
                                                                                        
                                                                                        As
      RestatedCash
      flows from operating activities:Net
      loss
                                                                                        
                                                                                        $
                                                                                        (6,857,561
                                                                                        )
                                                                                        
                                                                                        $
                                                                                        1,965,689
                                                                                        
                                                                                        (a)
                                                                                        
                                                                                        $
                                                                                        (4,891,872
                                                                                        )Adjustments
      to reconcile net loss to net cash used in operating
      activities:Depreciation
      and amortization
                                                                                        
                                                                                        
                                                                                        267,875
                                                                                        
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        
                                                                                        267,875Interest
      expense related to convertible promissory note issuance
                                                                                        
                                                                                        
                                                                                        750,000
                                                                                        
                                                                                        
                                                                                        
                                                                                        (750,000
                                                                                        )
                                                                                        (b)
                                                                                        
                                                                                        
                                                                                        -Amortization
      of accrued rent, net of cash payments
                                                                                        
                                                                                        
                                                                                        3,772
                                                                                        
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        
                                                                                        3,772Amortization
      of warrant issued to customer
                                                                                        
                                                                                        
                                                                                        57,674
                                                                                        
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        
                                                                                        57,674Amortization
      of premium and discount on notes payable
                                                                                        
                                                                                        
                                                                                        (132,174
                                                                                        )
                                                                                        
                                                                                        
                                                                                        1,112,814
                                                                                        
                                                                                        (c)
                                                                                        
                                                                                        
                                                                                        980,640Amortization
      of debt issuance costs
                                                                                        
                                                                                        
                                                                                        211,976
                                                                                        
                                                                                        
                                                                                        
                                                                                        (139,787
                                                                                        )
                                                                                        (d)
                                                                                        
                                                                                        
                                                                                        72,189Stock-based
      compensation expense
                                                                                        
                                                                                        
                                                                                        2,407,321
                                                                                        
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        
                                                                                        2,407,321Loss
      on extinguishment of convertible promissory notes
                                                                                        
                                                                                        
                                                                                        2,238,206
                                                                                        
                                                                                        
                                                                                        
                                                                                        (2,188,716
                                                                                        )
                                                                                        (e)
                                                                                        
                                                                                        
                                                                                        49,490Changes
      in operating assets and liabilities:Accounts
      receivable
                                                                                        
                                                                                        
                                                                                        219,889
                                                                                        
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        
                                                                                        219,889Restricted
      cash
                                                                                        
                                                                                        
                                                                                        67,574
                                                                                        
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        
                                                                                        67,574Prepaid
      expenses and other current assets
                                                                                        
                                                                                        
                                                                                        (11,686
                                                                                        )
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        
                                                                                        (11,686
                                                                                        )Notes
      receivable from customer
                                                                                        
                                                                                        
                                                                                        (2,500,000
                                                                                        )
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        
                                                                                        (2,500,000
                                                                                        )Accounts
      payable and other accrued expenses
                                                                                        
                                                                                        
                                                                                        (206,238
                                                                                        )
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        
                                                                                        (206,238
                                                                                        )Accrued
      bonuses and commissions payable
                                                                                        
                                                                                        
                                                                                        20,155
                                                                                        
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        
                                                                                        20,155Accrued
      vacation payable
                                                                                        
                                                                                        
                                                                                        90,896
                                                                                        
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        
                                                                                        90,896Accrued
      interest on convertible promissory notes
                                                                                        
                                                                                        
                                                                                        45,467
                                                                                        
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        
                                                                                        45,467Deferred
      revenue
                                                                                        
                                                                                        
                                                                                        (324,182
                                                                                        )
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        
                                                                                        (324,182
                                                                                        )Net
      cash used in operating activities
                                                                                        
                                                                                        
                                                                                        (3,651,036
                                                                                        )
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        
                                                                                        (3,651,036
                                                                                        )Cash
      flows from investing activities:Purchases
      of property and other assets
                                                                                        
                                                                                        
                                                                                        (38,838
                                                                                        )
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        
                                                                                        (38,838
                                                                                        )Acquisition
      of inventa, net of cash acquired
                                                                                        
                                                                                        
                                                                                        (3,047,444
                                                                                        )
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        
                                                                                        (3,047,444
                                                                                        )Net
      cash used in investing activities
                                                                                        
                                                                                        
                                                                                        (3,086,282
                                                                                        )
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        
                                                                                        (3,086,282
                                                                                        )Cash
      flows from financing activities:Proceeds
      from private placements - equity, net of cash commissions
                                                                                        
                                                                                        
                                                                                        7,247,800
                                                                                        
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        
                                                                                        7,247,800Proceeds
      from exercise of options
                                                                                        
                                                                                        
                                                                                        32,679
                                                                                        
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        
                                                                                        32,679Principle
      payments on line of credit
                                                                                        
                                                                                        
                                                                                        (5,000
                                                                                        )
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        
                                                                                        (5,000
                                                                                        )Net
      cash provided by financing activities
                                                                                        
                                                                                        
                                                                                        7,275,479
                                                                                        
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        
                                                                                        7,275,479Net
      increase in cash and cash equivalents
                                                                                        
                                                                                        
                                                                                        538,161
                                                                                        
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        
                                                                                        538,161Cash
      and cash equivalents at beginning of period
                                                                                        
                                                                                        
                                                                                        4,480,694
                                                                                        
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        
                                                                                        4,480,694Cash
      and cash equivalents at end of period
                                                                                        
                                                                                        $
                                                                                        5,018,855
                                                                                        
                                                                                        
                                                                                        $
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        $
                                                                                        5,018,855
  (a)
      — Adjustment to record net impact to the  Statement of
      Operations(b)
      — Adjustment to correct treatment of discount on note
      issuance(c)
      — Adjustment to record the amortization of Discount on Convertible
      Promissory Notes(d)
      — Adjustment to record the reversal of amortization of Debt Issuance
      Costs(e)
      — Adjustment to correct the accounting for the extinguishment of
      debt




11




2.    Summary
of Significant Accounting Policies





Basis
of Presentation and Continuation as a Going Concern





The
accompanying unaudited consolidated financial statements are presented in
accordance with the requirements for Form 10-Q and contemplates continuation of
ANTs software inc. (the “Company”) as a going concern.  However, the
Company has suffered recurring losses from operations and has a net capital
deficiency that raises substantial doubt about the Company’s ability to continue
as a going concern. The Company has had minimal revenues since inception,
incurred losses from operations since its inception and has a net accumulated
deficit during its years of operations totaling $94,942,661, as of June 30,
2009. The Company’s ability to continue as a going concern is dependent upon
management’s ability to generate profitable operations in the future and/or
obtain the necessary financing to meet obligations and repay liabilities arising
from normal business operations when they come due.  If further
financing is not obtained, the Company may not have enough operating funds
to continue to operate as a going concern. Securing additional sources of
financing to enable the Company to continue the development and
commercialization of proprietary technologies will be difficult and there is no
assurance of our ability to secure such financing. A failure to obtain
additional financing could prevent the Company from making expenditures that are
needed to pay current obligations, allow the hiring of additional development
personnel and continue development of our product and
technology.The Company is actively in the process of seeking
additional capital through private placements of equity and/or
debt.  At current cash levels, management believes it has sufficient
funds to operate through the third quarter of 2009. Should additional financing
not be obtained, the Company will not be able to execute its business plan and
the recoverability of its intangible assets may become
impaired. Management’s plans, if successful, will mitigate the factors that
raise substantial doubt about the ability to continue as a going
concern.





The
accompanying unaudited consolidated financial statements of the Company have
been prepared in accordance with U.S. generally accepted accounting principles
(“U.S. GAAP”) for interim financial information and with the instructions to
Form 10-Q. Accordingly, they do not include all of the information and footnotes
required for annual financial statements and therefore should be read in
conjunction with the Company’s Annual Report on Form 10-K for the year ended
December 31, 2008. The December 31, 2008 consolidated balance sheet was derived
from audited financial statements filed with our 10-K as of December 31, 2008
and therefore may not include all disclosures required for annual financial
statements.





There have
been no significant changes in the Company’s significant accounting policies
during the six months ended June 30, 2009 as compared to the significant
accounting policies described in the Company’s Annual Report on Form 10-K for
the year ended December 31, 2008. The information furnished reflects all
adjustments (all of which were of a normal recurring nature), which, in the
opinion of management, are necessary to make the consolidated financial
statements not misleading and to fairly present the financial position, results
of operations, and cash flows on a consistent basis. Operating results for the
six months ended June 30, 2009 and 2008 (restated) are not necessarily
indicative of the results that may be expected in the future.





Principles
of Consolidation





The
consolidated financial statements include the accounts of ANTs software inc. and
its wholly-owned subsidiary, Inventa Technologies, Inc. (“Inventa”) from May 30,
2008, the date of acquisition (collectively referred to as the
“Company”).  All significant intercompany transactions and accounts
have been eliminated.





Use
of Estimates





The
preparation of the financial statements in accordance with U.S. GAAP requires
management to make estimates and assumptions that affect reported amounts of
assets and liabilities, the 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
estimates. The significant estimates made by management include allowance for
doubtful accounts receivable, recoverability of long-lived and intangible
assets, the fair value of the warrants and debt issued in conjunction with the
issuance of the promissory notes, and assumptions incorporated in determining
stock-based compensation.




Goodwill
and Intangible Assets
  Under the
provisions of SFAS No. 142 Goodwill and Other Intangible
Assets (“SFAS 142”), goodwill is tested for impairment on an annual basis
as of December 31, or whenever impairment indicators arise.  The
Company utilizes one reporting unit in evaluating goodwill for impairment and
assesses the estimated fair value of the reporting unit based on discounted
future cash flows.  If the carrying value of the reporting unit
exceeds the fair value of the reporting unit, further analysis will take place
to determine whether or not the Company should recognize an impairment
charge.
  The
Company evaluates the recoverability of intangible assets periodically and takes
into account events or circumstances that warrant revised estimates of useful
lives or that indicate that an impairment may exist.  All of our
intangible assets are subject to amortization.  Intangible assets
include proprietary technology, amortized on a straight line basis over a 5-year
period; customer relationships, amortized on a straight-line basis over a
10-year period; and trade name, which has an indefinite useful life and is not
being amortized.
 
 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 is
less than the assets’ carrying value, the related assets will be written down to
fair value.




12





2.    Summary
of Significant Accounting Policies (Continued)





Income Taxes





Deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax
assets, including tax loss and credit carryforwards, 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. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.
Deferred income tax expense represents the change during the period in the
deferred tax assets and deferred tax liabilities. The components of the deferred
tax assets and liabilities are individually classified as current and
non-current based on their characteristics. Deferred tax assets are reduced by a
valuation allowance when, in the opinion of management, it is more likely than
not that some portion or all of the deferred tax assets will not be
realized.





The income
tax benefits generated in the three and six months ended June 30, 2009 and 2008
(restated) as a result of the Company’s net losses have been fully offset by
recording a valuation allowance in each period.





Revenue
Recognition





The
Company recognizes license and royalty revenue in accordance with the provisions
of Statement of Position (“SOP”) 97-2, Software Revenue Recognition(“SOP 97-2”),
and SOP 98-9, Modification of
SOP 97-2, Software Revenue Recognition, With Respect to Certain
Transactions. Revenues consist of product revenues representing sales of
customized platforms using our intellectual property, licenses and royalties and
services revenues representing managed and professional services fees for
maintenance and support services. Maintenance and support revenue is deferred
and recognized over the related contract period, generally twelve months,
beginning with customer acceptance of the product.





The
Company uses the residual method to recognize revenue when a license agreement
includes one or more elements to be delivered at a future date. If there is an
undelivered element under the license arrangement, the Company will defer
revenue based on vendor-specific objective evidence (“VSOE”) of the fair value
of the undelivered element, as determined by the price charged when the element
is sold separately.  If the VSOE of fair value does not exist for all
undelivered elements, the Company defers all revenue until sufficient evidence
exists or all elements have been delivered. Under the residual method, discounts
are allocated only to the delivered elements in a multiple element arrangement
with any undelivered elements being deferred based on VSOE of fair values of
such undelivered elements. Revenue from software license arrangements, which
comprise prepaid license and maintenance and support fees, is recognized when
all of the following criteria are met:





·
            Persuasive
      evidence of an arrangement exists;


·
            Delivery
      has occurred and there are no future deliverables except Post-contract
      Customer Support;


·
            The
      fee is fixed and determinable.  If the Company cannot conclude
      that a fee is fixed and determinable, then assuming all other criteria
      have been met, revenue is recognized as payments become due in accordance
      with paragraph 29 of SOP 97-2; and


·
            Collection
      is probable.




13





2.    Summary
of Significant Accounting Policies (Continued)





Stock-Based
Compensation





The
Company has two stock-based employee and director compensation plans (the ANTs
software inc. 2000 Stock Option Plan and the ANTs software inc. 2008 Stock
Plan). Since January 1, 2006, the Company has been using the provisions of SFAS
123(R), Share-Based Payment ("SFAS 123(R)"), to account for stock-based awards
compensation expense. The Company recognizes compensation expense for stock
option awards on a straight-line basis over the requisite service period of the
award, generally three years; however, the Company has also issued stock options
with performance-based vesting criteria.





All
stock-based awards to nonemployees are accounted for at their fair value in
accordance with Emerging Issues Task Force ("EITF") 96-18, Accounting for Equity
Instruments that are Issued to Other than Employees for Acquiring, or in
Conjunction with Selling, Goods or Services. The Company has recorded the fair
value of each stock option issued to non-employees as determined at the date of
grant using the Black-Scholes option pricing model.





Fair
Value of Financial Instruments





On
January 1, 2008, the Company adopted SFAS No. 157, Fair Value Measurements
(“SFAS 157”), for all financial assets and liabilities and nonfinancial assets
and liabilities that are recognized at fair value in the financial statements
measured at fair value on a recurring basis. In February 2008, the FASB
issued FASB Staff Position 157-2, Effective Date of FASB Statement No. 157,
which delayed the effective date of SFAS No. 157 for the Company to January 1,
2009 for nonfinancial assets and liabilities measured at fair value on a
non-recurring basis.  The Company adopted these remaining provisions
on January 1, 2009.  SFAS 157 defines fair value, establishes a
framework for measuring fair value in generally accepted accounting principles,
and expands disclosures about fair value measurements. This statement does not
require any new fair value measurements, but provides guidance on how to measure
fair value by providing a fair value hierarchy used to classify the source of
the information. Adoption of these standards did not have a significant impact
on our accounting for financial instruments.





On
April 1, 2009, the Company adopted the Financial Accounting Standards Board
(“FASB”) Staff Positions (“FSP”) FAS 157-4, FSP FAS 115-2 and FAS 124-2, and FSP
FAS 107-1 and APB 28-1. These FSPs are intended to provide additional
application guidance and enhance disclosures about fair value measurements and
impairments of securities. FSP FAS 157-4 clarifies the objective and method of
fair value measurement even when there has been a significant decrease in market
activity for the asset being measured. FSP FAS 115-2 and FAS 124-2 established a
new model for measuring other-than-temporary impairments for debt securities,
including establishing criteria for when to recognize a write-down through
earnings versus other comprehensive income. FSP FAS 107-1 and APB 28-1
expand the fair value disclosures required for all financial instruments within
the scope of SFAS No. 107, Disclosures about Fair Value of Financial
Instruments, to interim periods. Adoption of these FSPs did not have a
significant impact on our accounting for financial instruments.





The
Company’s carrying amount reported in the balance sheet for cash and cash
equivalents, accounts receivable, and accounts payable approximates fair value
due to the immediate or short-term maturity of these financial
instruments. The carrying values of the convertible promissory notes
approximate their fair values. To determine the fair value of the convertible
promissory notes, the Company estimated the fair value by first determining the
Company’s effective borrowing rate (see Note 6). The effective borrowing rate
was estimated by considering the Company’s high credit risk and high risk of
nonperformance. The Company then evaluated the present value of the future cash
flows for convertible promissory notes.




14





2.    Summary
of Significant Accounting Policies (Continued)





Recent
Accounting Pronouncements




In June
2009, the FASB issued SFAS No. 167, Amendments to FASB Interpretation
No. 46(R), which is effective for the Company beginning January 1,
2010. This Statement amends FIN 46(R), Consolidation of Variable Interest
Entities an interpretation of ARB No. 51 , to require revised evaluations
of whether entities represent variable interest entities, ongoing assessments of
control over such entities, and additional disclosures for variable interests.
The Company believes the adoption of this pronouncement will not have a material
impact on our financial statements.





In June
2009, the FASB issued SFAS No. 168, the FASB Accounting Standards
CodificationTM and the Hierarchy of Generally Accepted Accounting
Principles. The FASB
Accounting Standards CodificationTM (“Codification”) will become the
source of authoritative U.S. generally accepted accounting principles (“GAAP”)
recognized by the FASB to be applied by nongovernmental entities. Rules and
interpretive releases of the Securities and Exchange Commission (“SEC”) under
authority of federal securities laws are also sources of authoritative GAAP for
SEC registrants. The Codification will supersede all then-existing non-SEC
accounting and reporting standards. All other nongrandfathered non-SEC
accounting literature not included in the Codification will become
nonauthoritative. This Statement is effective for financial statements issued
for interim and annual periods ending after September 15, 2009.


In June 2008, the FASB issued EITF No. 07-5, Determining Whether an Instrument
(or Embedded Feature) is Indexed to an Entity's Own Stock ("EITF 07-5").
EITF 07-5 provides guidance to determine whether an instrument (or an embedded
feature) is indexed to an entity's own stock when evaluating the instrument as a
derivative under SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities(“SFAS No. 133”). An instrument that
is both indexed to an entity's own stock and classified in stockholder's equity
in the entity's statement of financial position is not considered a derivative
for the purposes of applying the guidance in SFAS No. 133. EITF 07-5 provides a
two-step process to determine whether an equity-linked instrument (or embedded
feature) is indexed to its own stock first by evaluating the instrument's
contingent exercise provisions, if any, and second, by evaluating the
instrument's settlement provisions. The Company adopted EITF 07-5 on January 1,
2009 and there was no material impact to the Consolidated Financial
Statements.


3.   Basic
and Diluted Net Loss per Share





Basic net
loss per share is calculated in accordance with SFAS No. 128, Earnings per Share, using the
weighted-average number of common shares outstanding during the period. Diluted
net loss per share is computed using the weighted-average number of common and
dilutive common equivalent shares outstanding during the period.





The
following table presents the calculation of basic and diluted net loss per share
for the three and six months ending June 30, 2009 and 2008 (restated),
respectively. At June 30, 2009 and 2008, the Company had 10,175,346 and
10,625,433 antidilutive shares of Common Stock related to stock options,
respectively. At June 30, 2009 and 2008, the Company had 11,195,700 and
12,106,115 antidilutive shares of Common Stock related to convertible promissory
notes. At June 30, 2009 and 2008, warrants for the purchase of 5,145,441 and
4,557,941 shares of Common Stock, respectively, at prices ranging from $0.60 to
$2.31 per share were antidilutive. These antidilutive instruments are not
included in the calculation of basic and diluted net loss per
share.





Loss
                  
                  
                  Shares
                  
                  
                  Loss
      per(Numerator)
                  
                  
                  (Denominator)
                  
                  
                  ShareThree
      months ended June 30, 2009Basic
      and diluted net loss per share
                  
                  $
                  (3,909,685
                  )
                  
                  
                  92,518,076
                  
                  
                  $
                  (0.04
                  )Three
      months ended June 30, 2008 (restated)Basic
      and diluted net loss per share
                  
                  $
                  (155,412
                  )
                  
                  
                  71,986,666
                  
                  
                  $
                  -Six
      months ended June 30, 2009Basic
      and diluted net loss per share
                  
                  $
                  (7,013,047
                  )
                  
                  
                  91,588,388
                  
                  
                  $
                  (0.08
                  )Six
      months ended June 30, 2008 (restated)Basic
      and diluted net loss per share
                  
                  $
                  (4,891,872
                  )
                  
                  
                  64,906,422
                  
                  
                  $
                  (0.08
                  )




15




4.  Accounts
Payable and Other Accrued Expenses





At June
30, 2009 and December 31, 2008, accounts payable and other accrued expenses
consisted of the following:





June
      30,
                    
                    
                    December
      31,2009
                    
                    
                    2008(unaudited)Trade
      payables and other
                    
                    $
                    1,527,904
                    
                    
                    $
                    900,176Accrued
      bonuses and commissions payable
                    
                    
                    209,205
                    
                    
                    
                    180,111Accrued
      vacation payable
                    
                    
                    168,331
                    
                    
                    
                    77,175Accrued
      interest on convertible promissory notes
                    
                    
                    530,348
                    
                    
                    
                    287,581Total
                    
                    $
                    2,435,788
                    
                    
                    $
                    1,445,043





5.  Deferred Revenue





Deferred
revenue is comprised of license fees and annual maintenance and support fees.
License fees are recognized upon customer acceptance of the product. Annual
maintenance and support fees are amortized ratably into revenue in the
statements of operations over the life of the contract, which is generally a
12-month period beginning with customer acceptance of the product.





Deferred
revenue activity (unaudited) was as follows:





Three
      Months Ended
                
                
                Three
      Months EndedJune
      30, 2009
                
                
                June
      30, 2008Beginning
      of the period
                
                
                
                
                $
                400,530
                
                
                
                
                
                $
                56,999Invoiced
      current period
                
                
                
                
                
                408,380
                
                
                
                
                
                
                446,748Deferred
      revenue recognized from prior periods
                
                
                (315,891
                )
                
                
                
                
                
                
                (20,599
                )Invoiced
      and recognized current period
                
                
                (166,512
                )
                
                
                
                
                
                
                (229,325
                )Total
      revenue recognized current period
                
                
                
                
                
                
                (482,403
                )
                
                
                
                
                
                
                (249,924
                )End
      of the period
                
                
                
                
                
                $
                326,507
                
                
                
                
                
                
                $
                253,823Six
      Months Ended
                
                
                Six
      Months EndedJune
      30, 2009
                
                
                June
      30, 2008Beginning
      of the period
                
                
                
                
                
                $
                487,121
                
                
                
                
                
                
                $
                48,818Invoiced
      current period
                
                
                
                
                
                
                932,747
                
                
                
                
                
                
                
                487,313Deferred
      revenue recognized from prior periods
                
                
                (702,455
                )
                
                
                
                
                
                
                (48,818
                )Invoiced
      and recognized current period
                
                
                (390,906
                )
                
                
                
                
                
                
                (233,490
                )Total
      revenue recognized current period
                
                
                
                
                
                
                (1,093,361
                )
                
                
                
                
                
                
                (282,308
                )End
      of the period
                
                
                
                
                
                $
                326,507
                
                
                
                
                
                
                $
                253,823




16




6.   Debt





As of June
30, 2009, the outstanding balance of the Convertible Promissory Notes was
$4,166,058. This is comprised of notes with a face amount of $10,703,226 less
unamortized debt discount of $6,537,168.





Debt
discount and other issuance costs associated with the Convertible Promissory
Notes are amortized to interest expense over the remaining life of the
Convertible Promissory Notes using the effective interest method or the
straight-line method, whichever is applicable. Upon conversion of Convertible
Promissory Notes into Common Stock, unamortized costs relating to the notes
converted are charged to interest expense. Total charges to interest expense for
debt discount and other issuance costs were $876,003 and $463,672 (restated) for
the three months ended June 30, 2009 and 2008, respectively. Total charges to
interest expense for debt discount and other issuance costs were $1,657,136 and
$1,052,829 (restated) for the six months ended June 30, 2009 and 2008,
respectively. During the six months ended June 30, 2009, Convertible Promissory
Notes totaling $50,000 were repaid by the Company.





During the
quarter ended June 30, 2009, the Company issued two existing shareholders 1%
Convertible Promissory Notes convertible at $0.40 per share and 287,500 Common
Stock Warrants with an exercise price of $0.47 per share for total gross
proceeds of $115,000, when the closing stock price was $0.47 per share. The
relative fair value of the warrants issued in conjunction with these notes
created debt discount totaling $78,693. The fair value of the warrants was
estimated using the Black-Scholes model with the following assumptions: dividend
yield of 0%, expected stock price volatility of 0.982, risk-free interest rate
of 1.39%, and an expected life of three years. In conjunction with the issuance
of these 1% Convertible Promissory Notes, the Company also recorded the
intrinsic value of the related beneficial conversion feature of $20,125 to
Additional Paid-in Capital. Immediately after issuance, the two 1% Convertible
Promissory Notes were converted into 287,500 shares of Common Stock at $0.40 per
share.





During the
quarter ended March 31, 2009, the due date of a $200,000 Convertible Promissory
Note was extended from March 20, 2009 to the earlier of August 20, 2009 or the
receipt of $2,000,000 in financing. The Company also agreed to issue 5,000
shares of the Company’s Common Stock for each month or fraction thereof during
which the note is outstanding, with no other terms being modified. This
extension was not considered a significant modification in accordance with EITF
96-19, Debtors Accounting for Modification or Exchange of Debt
Instruments.  The holder of the note also agreed to accept shares of
the Company’s stock in consideration for interest payments. As of June 30, 2009,
the Company recorded $11,450 to Additional Paid-in Capital related to 11,450
shares of Common Stock were issuable related to the note extension and interest
payments.





During the
quarter ended June 30, 2009, the Company reduced the conversion price of a
$125,000, 10% Convertible Promissory Notes from $1.20 to $0.60 and reduced the
conversion price of three 10% Convertible Promissory Notes totaling $625,000
from $0.80 to $0.40 to induce conversion of the notes into Common Stock. The
other terms of the Notes remained unchanged. Immediately after the reduction in
the conversion price, the 10% Convertible Promissory Note totaling $125,000 was
converted into 208,333 Common Shares at $0.60 per share and the three 10%
Convertible Promissory Notes totaling $625,000 were converted into 1,562,500
Common Shares at $0.40 per share. In accordance with FASB Statement No. 84 (As
Amended), Induced Conversions of Convertible Debt, the Company recorded the fair
value of the additional 885,417 of Common Stock shares issued due to the reduced
conversion price and recorded a loss on the conversion of the convertible
promissory notes totaling $495,833, which is equal to the fair value of the
additional shares of Common Stock transferred resulting from the inducement.
This amount was based on the closing price of the stock on the date of
conversion of $0.56 per share. In conjunction with the conversion, the Company
issued 23,850 shares of Common Stock, with a fair value of $0.56 per share, to
the placement agent as a commission per the original agreement.




17




7.Commitments and
Contingencies





Effective
January 6, 2009, the Company took possession of the additional space at the
facilities located in Mt. Laurel, New Jersey. Accordingly, rent increased from
$10,007 per month to $16,299 per month or approximately $196,000 per
year.  The amendment also restates the end of the lease commitment to
be seven years from the date of the Certificate of Occupancy for the additional
space, or January 6, 2016.  At expiration of the amended lease, the
Company has the option to renew the terms of the lease for an additional five
years at the greater of $18,467 per month or the increase in the consumer price
index multiplied by the rent of $16,299 per month.





On July
10, 2008, Sybase, Inc. (“Sybase”), an enterprise software and services company,
filed a complaint for common law unfair business practices, and tortuous
interference with contractual relations, among other things, in the Superior
Court of the State of California, County of Alameda.  Sybase is
seeking an injunction, and damages, among other legal and equitable relief. The
Company believes that this lawsuit is without merit and intends to continue
vigorously defending itself.





On August
22, 2008, a former Company employee filed a putative class action complaint for
all current and former software engineers, for failure to pay overtime wages,
and failure to provide meal breaks, among other things, in Superior Court of the
State of California, County of San Mateo.  The former employee is
seeking an injunction, damages, attorneys’ fees, and penalties. The Company
believes that this lawsuit is without merit and intends to continue vigorously
defending itself.





On October
14, 2008, Bayside Plaza (“Bayside”), a partnership, filed a complaint for breach
of contract in Superior Court of the State of California, County of San Mateo.
The Company settled the complaint by paying $50,000 in May 2009 and agreeing to
pay $25,000 in each of August 2009, November 2009 and February 2010. The Company
accrued the $75,000 settlement amount in accounts payable at June 30, 2009. The
Company recognized a gain on the settlement of approximately $279,000 as an
offset to rent expense, which is included in General and Administrative Expense
in the Consolidated Statement of Operations at June 30, 2009.





Beginning
in July 2008, the Company leased an executive apartment owned by a shareholder
who owns 500,000 shares of the Company’s Common Stock and who also holds a
Convertible Promissory note totaling $1,000,000 (undiscounted), for $2,900 per
month or $34,800 per annum.  The lease was cancelled in June 2009,
with the last payment to be made in August 2009.





8.   Stockholders’
Equity





As of June
30, 2009, the Company had outstanding options to purchase up to 10,175,346
shares of Common Stock at exercise prices ranging from $0.37 to $3.20 per share,
of which 7,528,296 were exercisable.





As of June
30, 2009, the Company had 5,145,441 warrants outstanding to purchase Common
Stock at exercise prices ranging from $0.01 to $2.31 per share, of which
4,845,441 were exercisable.





For the
three and six months ended June 30, 2009, the Company recognized a total of
$284,989 and $525,858 in compensation expense, respectively, related to the
vesting of employee stock options and $4,087 and $17,838 in professional fees,
respectively, related to the vesting of non-employee stock options.





For the
three and six months ended June 30, 2009, the Company recognized a total of
$62,605 in compensation expense related to the vesting of Common Stock issued to
employees under the 2008 Stock Plan and $9,652 in professional fees related to
the vesting of Common Stock issued to consultants under the 2008 Stock
Plan.




For the
three and six months ended June 30, 2008, the Company recognized a total of
$1,286,336 and $2,407,321 in compensation expense, respectively, related to
the vesting and repricing of employee stock options and $67,715 and $95,749 in
professional fees, respectively, related to the vesting of non-employee stock
options and warrants.




18




8.   Stockholders’
Equity (Continued)





Following
is a summary of equity transactions by for the six months ending June 2009 and
2008, respectively.





Six
months ended June 30, 2009:





Funds raised through private
offerings to accredited investors:





The
Company received $339,000 from accredited investors for the sale of 847,500
shares of Common Stock, at a price of $0.40 per share.





During the
quarter ended June 30, 2009, the Company issued two existing shareholders 1%
Convertible Promissory Notes convertible at $0.40 per share and 287,500 Common
Stock Warrants with an exercise price of $0.47 per share for total gross
proceeds of $115,000, when the closing stock price was $0.47 per share. The fair
value of the warrants issued in conjunction with these notes created debt
discount totaling $78,693. The fair value of the warrants was estimated using
the Black-Scholes model with the following assumptions: dividend yield of 0%,
expected stock price volatility of 0.982, risk-free interest rate of 1.39%, and
an expected life of three years. In conjunction with the issuance of these 1%
Convertible Promissory Notes, the Company also recorded the fair value of the
related beneficial conversion feature of $20,125 to Additional Paid-in Capital.
Immediately after issuance, the two 1% Convertible Promissory Notes were
converted into 287,500 shares of Common Stock at $0.40 per share.





Other equity
transactions:





During the
quarter ended June 30, 2009, the Company issued 1,459,743 shares of Common Stock
to employees and consultants for compensation under the 2008 Stock Plan, all of
which vests on March 31, 2010. The employees and consultants are entitled to one
vote per share and to receive any declared dividends per share as of the
date of the grant, March 31, 2009. The Company issued the Common Stock in
compensation for a reduction in cash compensation and in an effort to increase
employee ownership in the Company. The fair value of the shares on the date of
grant was $0.55 based upon the closing price of the stock on the date of
grant.





During the
quarter ended June 30, 2009, the Company issued 200,000 shares of Common Stock
to an investor relations consultant per the terms of the agreement with the
Company and that was valued at $0.46 per share, of which 50,000 shares vest
every three months. In connection with this same agreement, the Company issued
300,000 Common Stock Warrants, of which 75,000 warrants vest every three months,
with an exercise price of $0.01 per share and expiring on May 1, 2012. The fair
value of the warrants was estimated to be $0.40 per warrant using the
Black-Scholes model with the following assumptions: dividend yield of 0%,
expected stock price volatility of 1.0149, risk-free interest rate of 1.64%, and
an expected life of three years.





During the
quarter ended June 30, 2009, the Company entered into an agreement with an
investor relations firm whereby the Company agreed to issue 39,216 shares of
Common Stock for the first four months of services under the agreement. If the
Company continues to retain their services, the Company is required to issue
Common Stock valued at $5,000 per month thereafter. In accordance with EITF
96-18, the Company has recorded $5,000 to Additional Paid-in Capital related to
a portion of the total fair value of the 39,216 shares of Common Stock to be
issued. These shares are not included as outstanding Common Stock as of June 30,
2009 as they had not yet been issued.




19





8.   Stockholders’
Equity (Continued)





During the
quarter ended June 30, 2009, the Company reduced the conversion price of a
$125,000, 10% Convertible Promissory Notes from $1.20 to $0.60 and reduced the
conversion price of three 10% Convertible Promissory Notes totaling $625,000
from $0.80 to $0.40 to induce conversion of the notes into Common Stock. The
other terms of the Notes remained unchanged. Immediately after the reduction in
the conversion price, the 10% Convertible Promissory Note totaling $125,000 was
converted into 208,333 Common Shares at $0.60 per share and the three 10%
Convertible Promissory Notes totaling $625,000 were converted into 1,562,500
Common Shares at $0.40 per share. In accordance with FASB Statement No. 84 (As
Amended), Induced Conversions of Convertible Debt, the Company recorded the fair
value of the additional 885,417 shares of Common Stock issued due to the reduced
conversion price and recorded a loss on the conversion of the convertible
promissory notes totaling $495,833, which is equal to the fair value of the
additional shares of Common Stock transferred resulting from the inducement.
This amount was based on the closing price of the stock on the date of
conversion of $0.56 per share. In conjunction with the conversion, the Company
issued 23,850 shares of Common Stock, with a fair value of $0.56 per share, to
the placement agent as a commission per the original agreement.





During the
quarter ended June 30, 2009, the Company recorded $11,450 to Additional Paid-in
Capital related to the Common Stock that is issuable as interest on the $200,000
Convertible Promissory Note, as more fully described in Note 6. These shares are
not included as outstanding Common Stock as of June 30, 2009 as they had not yet
been issued.





During the
quarter ended June 30, 2009, the Company granted 30,000 stock options at $0.37
per share with a fair value of $0.25 per share on the date of grant. The fair
value of the options was estimated using the Black-Scholes model with the
following assumptions: dividend yield of 0%, expected stock price volatility of
0.9859, risk-free interest rate of 1.49%, and an expected life of three
years.





During the
quarter ended March 31, 2009, the Company granted 35,000 stock options at $0.35
per share with a fair value of $0.24 per share on the date of grant. The fair
value of the options was estimated using the Black-Scholes model with the
following assumptions: dividend yield of 0%, expected stock price volatility of
1.05, risk-free interest rate of 1.08%, and an expected life of three
years.





Six
months ended June 30, 2008 (restated):




Funds raised through private
offerings to accredited investors:





The
Company received $7,615,000 from accredited investors for the sale of 12,691,667
shares of Common Stock, at a price of $0.60 per share and incurred commission
costs of $367,200. The Company issued 558,257 shares of Common Stock and a
warrant to purchase up to 50,166 shares at an exercise price of $0.60 in
connection with this private placement. The 558,257 shares were valued at $0.66
per share or $368,450.





Other equity
transactions:





On May 30,
2008, the Company acquired Inventa Technologies, Inc. for a total purchase price
of $28.8 million, which included the issuance of 20 million shares of Common
Stock valued at $1.20 per share. The Company also issued $2 million in
promissory notes to the seller, convertible into 2.5 million shares of Common
Stock. The notes had a beneficial conversion feature totaling $2,000,000, which
was allocated to Additional Paid-in Capital.





On March
26 and March 31, 2008, the Board of Directors approved a repricing of certain
stock options and warrants for employees, consultants and Board members to the
then-current market price of the Company’s Common Stock. Officers and Board
members forfeited 1,193,667 vested and unvested shares in connection with the
repricing. In accordance with the provisions of FAS 123(R), the Company
recognized $786,545 in stock compensation expense, net of forfeiture credits, as
a result of the repricing.





For the
six months ended June 30, 2008, a total of 47,500 shares of Common Stock were
purchased through the exercise of stock options with original exercise prices
ranging from $0.52 to $0.81, resulting in gross proceeds of
$32,679.




20





9.   Concentrations





For the
three and six months ended June 30, 2009, two customers accounted for 90%
(Customer A was 65% and Customer D was 25%) and 88% (Customer A was 61% and
Customer D was 27%), respectively, of total revenues.




At June
30, 2009, three customers accounted for 97% (Customer A, B, and C were 67% 20%
and 10%, respectively) of Accounts Receivable. At December 31, 2008, two
customers accounted for 73% (Customer A 34% and Customer D 39%) of Accounts
Receivable.


10.  Related
Party Transactions





During the
three months ended June 30, 2009, the Company paid $5,000 to a member of the
Board of Directors, as a consultant, for assistance in fundraising activities.
There were no amounts payable to this Director as of June 30, 2009.





During the
three months ended June 30, 2009, the Company paid $24,750 to an investor
relations consultant and shareholder who owns approximately 1,000,000 shares of
Common Stock and who purchased a $40,000 1% Convertible Note and 100,000
Warrants during the three months ended June 30, 2009, as mentioned in Notes 6
and 8. There were no amounts payable to this shareholder as of June 30,
2009.





During the
six months ended June 30, 2009, the Company paid $17,400 for an executive
apartment lease to a shareholder who owns 500,000 shares of the Company’s Common
Stock and who also holds a Convertible Promissory note totaling $1,000,000
(undiscounted), as previously mentioned in Note 7. The lease was cancelled in
June 2009, with the last payment to be made in August 2009. There were no
amounts recorded in accounts payable to this shareholder as of June 30,
2009.





11.  Subsequent
Events





The
following subsequent events were recorded through August 19, 2009, the date the
financial statements were issued.




Effective
July 1, 2009, the Company entered into agreements with certain promissory note
holders, in which their notes were converted into Series A Preferred Stock as of
July 1, 2009. Pursuant to the agreements, the total aggregate amount owed under
the notes totaling $8,503,226, plus accrued and unpaid interest through the date
of the conversion totaling $425,161 was converted into 8,928,387 shares of
Series A Preferred Stock at a price of $1.00 per share. In addition to the note
conversion, three outstanding warrants dated November 15, 2005, October 18, 2007
and December 18, 2007, for the purchase of an aggregate amount of 3,002,150
shares of Common Stock at a price of $0.80 per share, had been extended for one
year. All three warrants now expire on January 31, 2012.





The terms
of the Series A Preferred Stock allow the holder to convert their Preferred
shares to Common Stock at $0.35 per share at any time. The Series A Preferred
Stock also contains anti-dilution provisions in the case that the Company issues
Common Stock or any Common Stock equivalent at less than $0.35 per share, other
than to employees, directors or consultants, among other things. The liquidation
preference of the Series A Preferred Stock is $1.00 per share.




On July 30, 2009 Ken
Ruotolo, a former employee and officer of the Company, notified the Company,
through counsel, that he is initiating arbitration against the Company primarily
alleging breach of an employment agreement.  Mr. Ruotolo’s father,
Francis K. Ruotolo, is a Director of the Company. The Company is still
evaluating Mr. Ken Ruotolo’s claims and has not yet responded.




The
Company and Mr. Tom Holt, a member of the Company’s Board of Directors and
Chairman of the Company’s Compensation Committee, entered into a Consulting
Agreement on July 28, 2009. Through August 18, 2009, the Company has paid
$22,000 for work performed.


On August
14, 2009, the Board of Directors elected Rick Cerwonka, President of the Inventa
(as described in Note 2 – Principals of Consolidation), as Chief Operating
Officer of the Company.




21




ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS





The
following information should be read in conjunction with the financial
statements and notes thereto in Part 1 Item 1, Financial Statements for this
Quarterly Report on Form 10-Q and with Item 7, Management’s Discussion and
Analysis of Financial Condition and Results of Operations, in our Annual Report
on Form 10-K for the year ended December 31, 2008.





Certain
statements contained in this Form 10-Q 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 we will have adequate financial resources to fund the
development and operation of our business, that there will be no material
adverse change in our operations or business, that we will meet success in
marketing and selling our products, and that we will be able to continue to
attract and retain skilled employees necessary for our business, among other
things. The foregoing assumptions are based on judgments with respect to, among
other things, information available to our 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 our control.
Accordingly, although we believe 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 our business and operations, which could cause our financial
performance to vary markedly from prior results, or results contemplated by the
forward-looking statements. Such risks include failure of our technology or
products to work as anticipated, failure to develop commercially viable products
or services from our technology, delays or failure in financing efforts, delays
in or lack of market acceptance, failure 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 us to
alter our capital investment and other expenditures, which may also adversely
affect our results of operations. In light of significant uncertainties inherent
in forward-looking information included in this Quarterly Report on Form 10-Q,
the inclusion of such information should not be regarded as a representation by
us that our objectives or plans will be achieved. We undertake no obligation to
revise or publicly release the results of any revision to these forward-looking
statements.





Restatement





The
Company has restated its financial statements for the three and six months ended
June 30, 2008 to correct errors in such financial statements.





The
restatement of our financial statements is based upon a review of the accounting
treatment of certain transactions entered into by the Company with certain
investors in 2006 and 2007. During this review, we discovered that the Company
had incorrectly applied a restriction discount to the market value of its Common
Stock based on a long history of selling restricted Common Stock to a group of
investors.  The discounted stock price was then used in the allocation
of proceeds between debt and equity for units of convertible promissory notes
and restricted common shares that were sold to investors in late 2006 and early
2007. The discounted stock price was also used to determine if there was a
beneficial conversion related to the convertible promissory notes. The same
methodology was used in late 2007 when the Company issued convertible promissory
notes along with Common Stock warrants. See Note 1 of the Consolidated Financial
Statements for the impact of the restatement.




22





Results
of Operations





Our
consolidated results of operations for the three and six months ended June 30,
2009 and 2008 (restated) are summarized below (in thousands):




Three
      Months Ending June 30,
                                    
                                    
                                    Six
      Months Ending June 30,2009
                                    
                                    
                                    2008
                                      (restated)
                                    
                                    
                                    %
      Change
                                    
                                    
                                    2009
                                    
                                    
                                    2008
                                      (restated)
                                    
                                    
                                    %
      ChangeRevenues
                                    
                                    $
                                    1,370
                                    
                                    
                                    $
                                    5,423
                                    
                                    
                                    
                                    -75%
                                    
                                    
                                    $
                                    2,758
                                    
                                    
                                    $
                                    5,455
                                    
                                    
                                    
                                    -49%Cost
      of revenues
                                    
                                    
                                    1,232
                                    
                                    
                                    
                                    915
                                    
                                    
                                    
                                    35%
                                    
                                    
                                    
                                    2,458
                                    
                                    
                                    
                                    960
                                    
                                    
                                    
                                    156%Gross
      profit
                                    
                                    
                                    138
                                    
                                    
                                    
                                    4,508
                                    
                                    
                                    
                                    -97%
                                    
                                    
                                    
                                    300
                                    
                                    
                                    
                                    4,495
                                    
                                    
                                    
                                    -93%Operating
      expenses
                                    
                                    
                                    2,409
                                    
                                    
                                    
                                    3,914
                                    
                                    
                                    
                                    -38%
                                    
                                    
                                    
                                    4,603
                                    
                                    
                                    
                                    7,835
                                    
                                    
                                    
                                    -41%Loss
      from operations
                                    
                                    
                                    (2,271
                                    )
                                    
                                    
                                    594
                                    
                                    
                                    
                                    -482%
                                    
                                    
                                    
                                    (4,303
                                    )
                                    
                                    
                                    (3,340
                                    )
                                    
                                    
                                    -29%Other
      expense
                                    
                                    
                                    (1,638
                                    )
                                    
                                    
                                    (749
                                    )
                                    
                                    
                                    -119%
                                    
                                    
                                    
                                    (2,710
                                    )
                                    
                                    
                                    (1,552
                                    )
                                    
                                    
                                    -75%Net
      loss
                                    
                                    
                                    (3,909
                                    )
                                    
                                    
                                    (155
                                    )
                                    
                                    
                                    -2422%
                                    
                                    
                                    
                                    (7,013
                                    )
                                    
                                    
                                    (4,892
                                    )
                                    
                                    
                                    -43%Net
      loss per share -basic
      and diluted
                                    
                                    $
                                    (0.04
                                    )
                                    
                                    $
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    $
                                    (0.08
                                    )
                                    
                                    $
                                    (0.08
                                    )
                                    
                                    
                                    -Shares
      used in computing basic anddiluted
      net loss per share
                                    
                                    
                                    92,518,076
                                    
                                    
                                    
                                    71,986,666
                                    
                                    
                                    
                                    29%
                                    
                                    
                                    
                                    91,588,388
                                    
                                    
                                    
                                    64,906,422
                                    
                                    
                                    
                                    41%


Revenues





Revenues
for the three and six months ended June 30, 2009 consist of
services revenues representing managed and professional services fees for
maintenance and support services. While there is no guarantee of future
revenues, they are expected to include sales and licenses of our ANTs
Compatibility Server (“ACS”) product and related technology, managed services
revenue related to existing and new contracts and professional services
revenue from pre and post-sales consulting related to ACS and other
database consolidation technologies we may develop.





Revenues
for the three and six months ended June 30, 2008 are from ANTs Data Server
(“ADS”) license fees, recognition of deferred maintenance and support of ADS,
royalties from third parties that resell ADS, professional services fees on ADS
installations, and the sale of ADS technology.





During the
three months ended June 30, 2009, we recognized approximately $1.4 million in
revenue, a decrease of approximately $4.1 million versus the three months ended
June 30, 2008. During the six months ended June 30, 2009, we recognized $2.8
million in revenue, a decrease of approximately $2.7 million versus the six
months ended June 30, 2008. These decreases were primarily due to sale of ADS
technology in 2008. For the
three and six months ended June 30, 2009, two customers accounted for 90%
(Customer A was 65% and Customer D was 25%) and 88% (Customer A 61% and Customer
D was 27%), respectively, of total revenues.The remaining revenues are a
result of ongoing contracts with various other customers.





Cost
of Revenues





Cost of
revenues during the three months ended June 30, 2009 were approximately $1.2
million, an increase of approximately $0.3 million versus the three months ended
June 30, 2008. Cost of revenues during the six months ended June 30, 2009 were
approximately $2.5 million, an increase of approximately $1.5 million versus the
six months ended June 30, 2008, respectively. Cost of revenues for the three and
six months ended June 30, 2009 consists of personnel costs to provide managed
and professional services. Cost of revenues for the three and six months ended
June 30, 2008 consisted primarily of amortization of a warrant from a major
customer and capitalized costs related to ADS technology.




23





Operating
Expenses





Operating
expenses by department for the three and six months ended June 30, 2009 and 2008
were as follows (in thousands):




Three
      Months Ended June 30,2009
                            
                            
                            2008
                              (restated)$
                            
                            
                            
                            %
                            
                            
                            %
      Change
                            
                            
                            $
                            
                            
                            
                            %Sales
      and marketing
                            
                            $
                            506
                            
                            
                            
                            21%
                            
                            
                            
                            -25%
                            
                            
                            $
                            671
                            
                            
                            
                            17%Research
      and development
                            
                            
                            398
                            
                            
                            
                            17%
                            
                            
                            
                            -78%
                            
                            
                            
                            1,788
                            
                            
                            
                            46%General
      and administrative
                            
                            
                            1,505
                            
                            
                            
                            62%
                            
                            
                            
                            3%
                            
                            
                            
                            1,455
                            
                            
                            
                            37%Total
      operating expenses
                            
                            $
                            2,409
                            
                            
                            
                            100%
                            
                            
                            
                            -38%
                            
                            
                            $
                            3,914
                            
                            
                            
                            100%




Six
      Months Ended June 30,2009
                        
                        
                        2008
                          (restated)$
                        
                        
                        
                        %
                        
                        
                        %Change
                        
                        
                        $
                        
                        
                        
                        %Sales
      and marketing
                        
                        $
                        1,023
                        
                        
                        
                        22%
                        
                        
                        
                        3%
                        
                        
                        $
                        998
                        
                        
                        
                        13%Research
      and development
                        
                        
                        934
                        
                        
                        
                        20%
                        
                        
                        
                        -79%
                        
                        
                        
                        4,388
                        
                        
                        
                        56%General
      and administrative
                        
                        
                        2,645
                        
                        
                        
                        58%
                        
                        
                        
                        8%
                        
                        
                        
                        2,449
                        
                        
                        
                        31%Total
      operating expenses
                        
                        $
                        4,602
                        
                        
                        
                        100%
                        
                        
                        
                        -41%
                        
                        
                        $
                        7,835
                        
                        
                        
                        100%




Our
primary expenses are salaries, benefits and consulting fees related to
developing and marketing ACS, marketing and selling managed and professional
services and, for the three and six months ended June 30, 2008, maintenance and
support of ADS. We completed development of ADS in 2005 and began sales and
support of that product during that year.  We sold the ADS technology
during the quarter ended June 30, 2008.  We began development of ACS
in early 2007.





Sales
and Marketing





Sales and
marketing expense consists primarily of employee salaries and benefits,
stock-based compensation, professional fees for marketing and sales services,
travel and entertainment and corporate overhead allocations.





Sales and
marketing expense for the three months ended June 30, 2009 and 2008 (restated)
was as follows (in thousands):




Three
      Months Ended June 30,
                                
                                
                                
                                
                                
                                Six
      Months Ended June 30,2009
                                
                                
                                2008
                                  (restated)
                                
                                
                                %
                                  Change
                                
                                
                                2009
                                
                                
                                2008
                                  (restated)
                                
                                
                                %
                                  ChangeEmployee
      compensation and benefits
                                
                                
                                305
                                
                                
                                
                                268
                                
                                
                                
                                14%
                                
                                
                                
                                653
                                
                                
                                
                                425
                                
                                
                                
                                54%Stock-based
      compensation
                                
                                
                                54
                                
                                
                                
                                231
                                
                                
                                
                                -77%
                                
                                
                                
                                86
                                
                                
                                
                                296
                                
                                
                                
                                -71%Consulting
      fees
                                
                                
                                42
                                
                                
                                
                                90
                                
                                
                                
                                -53%
                                
                                
                                
                                68
                                
                                
                                
                                148
                                
                                
                                
                                -54%Travel
      and entertainment
                                
                                
                                16
                                
                                
                                
                                42
                                
                                
                                
                                -62%
                                
                                
                                
                                34
                                
                                
                                
                                78
                                
                                
                                
                                -56%Corporate
      allocations from general andadministrative
      expenses
                                
                                
                                25
                                
                                
                                
                                10
                                
                                
                                
                                150%
                                
                                
                                
                                57
                                
                                
                                
                                20
                                
                                
                                
                                185%Events
      and promotions and other
                                
                                
                                16
                                
                                
                                
                                30
                                
                                
                                
                                -47%
                                
                                
                                
                                28
                                
                                
                                
                                31
                                
                                
                                
                                -10%Amortization
      of customer relationships
                                
                                
                                48
                                
                                
                                
                                -
                                
                                
                                
                                N/A
                                
                                
                                
                                97
                                
                                
                                
                                -
                                
                                
                                
                                N/ATotal
                                
                                $
                                506
                                
                                
                                $
                                671
                                
                                
                                
                                -25%
                                
                                
                                $
                                1,023
                                
                                
                                $
                                998
                                
                                
                                
                                3%Headcount
      at end of period
                                
                                
                                6
                                
                                
                                
                                5
                                
                                
                                
                                20%
                                
                                
                                
                                6
                                
                                
                                
                                5
                                
                                
                                
                                20%




24





Total
sales and marketing expense for the three months ended June 30, 2009 decreased
by approximately $165,000, a 25% decrease, due primarily to the
following:





·
            Employee
      compensation and benefits increased by 14% primarily due to the
      acquisition of Inventa and the resulting increase in
      head-count.




·
            Stock-based
      compensation decreased 77% due to the issuance of fully-vested and
      expensed stock options granted to our CEO in the second quarter of 2008.
      Compensation to our CEO is recorded 50% to sales and marketing and 50% to
      general and administrative. The stock option was a one-time grant and we
      do not anticipate it will recur in the
future.


·
            Consulting
      fees decreased 53% due to efficiencies achieved in go-to-market strategy.
      By selling through partners rather than selling directly to end-users, we
      eliminated end-user marketing and lead-generation
  programs.


·
            Travel
      and entertainment decreased 62% as we decreased travel activities for our
      sales and marketing staff.


·
            Corporate
      allocations increased 150% due to increased overall activities of our CEO
      in sales and marketing.


·
            Amortization
      of customer relationships resulted from the acquisition of Inventa in the
      prior year.





Total
sales and marketing expense for the six months ended June 30, 2009 increased by
approximately $25,000, a 3% increase, due primarily to the
following:





·
            Employee
      compensation and benefits increased by 54% primarily due to the
      acquisition of Inventa and the resulting increase in
      head-count.




·
            Stock-based
      compensation decreased approximately 71% primarily due the repricing of
      certain stock options and warrants to the market value of our Common Stock
      as of March 26 and March 31, 2008 and the issuance of a fully-vested and
      expensed stock option grant to our CEO during the second quarter of
      2008. Compensation expense related to our CEO is recorded 50% to
      sales and marketing and 50% to general and administrative. The stock
      option grant was a one-time grant and we do not anticipate it will recur
      in the future.


·
            Consulting
      fees decreased 54% due to efficiencies achieved in go-to-market strategy.
      By selling through partners rather than selling directly to end-users, we
      eliminated end-user marketing and lead-generation
  programs.


·
            Travel
      and entertainment decreased 56% as we decreased travel activities for our
      sales and marketing staff.


·
            Corporate
      allocations increased 185% due to increased overall activities of our CEO
      in sales and marketing.


·
            Amortization
      of customer relationships resulted from the acquisition of Inventa in the
      prior year.





25




Research and
Development





Research
and development expense consists primarily of employee compensation and
benefits, contractor fees to research and development service providers,
stock-based compensation and equipment and computer supplies.  During
2007 we began developing ACS, which significantly increased our contract
research and development expense.





Research
and development expense for the three and six months ended June 30, 2009 and
2008 was as follows (in thousands):




Three
      Months Ended June 30,
                                                              
                                                              %
                                                              
                                                              
                                                              Six
      Months Ended June 30,
                                                              
                                                              %2009
                                                              
                                                              
                                                              2008
      (restated)
                                                              
                                                              Change
                                                              
                                                              
                                                              2009
                                                              
                                                              
                                                              2008
      (restated)
                                                              
                                                              ChangeEmployee
      compensation and benefits
                                                              
                                                              $
                                                              140
                                                              
                                                              $
                                                              898
                                                              
                                                              -84%
                                                              
                                                              $
                                                              287
                                                              
                                                              $
                                                              2,080
                                                              
                                                              -86%Contractor
      fees
                                                              
                                                              
                                                              106
                                                              
                                                              
                                                              463
                                                              
                                                              -77%
                                                              
                                                              
                                                              327
                                                              
                                                              
                                                              1,132
                                                              
                                                              -71%Stock-based
      compensation
                                                              
                                                              
                                                              36
                                                              
                                                              
                                                              488
                                                              
                                                              -93%
                                                              
                                                              
                                                              65
                                                              
                                                              
                                                              1,033
                                                              
                                                              -94%Corporate
      allocations from general andadministrative
      expenses
                                                              
                                                              
                                                              25
                                                              
                                                              
                                                              -
                                                              
                                                              N/A
                                                              
                                                              
                                                              57
                                                              
                                                              
                                                              -
                                                              
                                                              N/AEquipment
      and computer supplies
                                                              
                                                              
                                                              37
                                                              
                                                              
                                                              4
                                                              
                                                              825%
                                                              
                                                              
                                                              81
                                                              
                                                              
                                                              11
                                                              
                                                              636%Other
                                                              
                                                              
                                                              54
                                                              
                                                              
                                                              (65
                                                              )
                                                              183%
                                                              
                                                              
                                                              117
                                                              
                                                              
                                                              132
                                                              
                                                              -11%Total
                                                              
                                                              $
                                                              398
                                                              
                                                              $
                                                              1,788
                                                              
                                                              -78%
                                                              
                                                              $
                                                              934
                                                              
                                                              $
                                                              4,388
                                                              
                                                              -79%Headcount
      at end of period
                                                              
                                                              
                                                              4
                                                              
                                                              
                                                              17
                                                              
                                                              -76%
                                                              
                                                              
                                                              4
                                                              
                                                              
                                                              17
                                                              
                                                              -76%





Total
research and development expenses for the three months ended June 30, 2009
decreased by approximately $1.4 million, a 78% decrease, due primarily to the
following:





·
            Employee
      compensation and benefits decreased 84% due to decreases in headcount from
      17 as of June 30, 2008 to 4 as of June 30,
2009.


·
            Stock-based
      compensation decreased 93% due to decreases in headcount from 17 as of
      June 30, 2008 to 4 as of June 30,
2009.


·
            Contractor
      fees decreased 77% as we decreased use of contract research and
      development services on the ACS product and eliminated such services for
      the ADS product.


·
            Equipment
      and computer supplies increased primarily due to the need to acquire
      equipment and other supplies increased due primarily to the replacement of
      various computer and other
supplies.





Total
research and development expenses for the six months ended June 30, 2009
decreased by approximately $3.5 million, a 79% decrease, due primarily to the
following:





·
            Employee
      compensation and benefits decreased 86% due to decreases in headcount from
      17 as of June 30, 2008 to 4 as of June 30,
2009.


·
            Stock-based
      compensation and benefits decreased 94% due to decreases in headcount from
      17 as of June 30, 2008 to 4 as of June 30,
2009.


·
            Contractor
      fees decreased 71% as we decreased use of contract research and
      development services on the ACS product and eliminated such services for
      the ADS product.


·
            Equipment
      and computer supplies increased primarily due to the need to acquire
      equipment and other supplies increased due primarily to the replacement of
      various computer and other
supplies.




26




General
and Administrative





General
and administrative expenses consists primarily of employee salaries and
benefits, professional fees (legal, accounting, and investor relations),
facilities expenses, and corporate insurance.





General
and administrative expensesfor the three months and
six months ended June 30, 2009 and 2008 was as follows (in
thousands):




Three
      Months Ended June 30,
                  
                  
                  
                  
                  
                  Six
      Months Ended June 30,2009
                  
                  
                  2008
                    (restated)
                  
                  
                  %
      Change
                  
                  
                  2009
                  
                  
                  2008
                    (restated)
                  
                  
                  %
      ChangeEmployee
      compensation and benefits
                  
                  $
                  529
                  
                  
                  $
                  249
                  
                  
                  
                  112%
                  
                  
                  $
                  803
                  
                  
                  $
                  392
                  
                  
                  
                  105%Stock-based
      compensation
                  
                  
                  148
                  
                  
                  
                  517
                  
                  
                  
                  -71%
                  
                  
                  
                  300
                  
                  
                  
                  1,056
                  
                  
                  
                  -72%Facilities,
      director fees, insurance and other
                  
                  
                  37
                  
                  
                  
                  362
                  
                  
                  
                  -90%
                  
                  
                  
                  364
                  
                  
                  
                  636
                  
                  
                  
                  -43%Professional
      fees
                  
                  
                  804
                  
                  
                  
                  441
                  
                  
                  
                  82%
                  
                  
                  
                  1,219
                  
                  
                  
                  592
                  
                  
                  
                  106%Travel
      and entertainment
                  
                  
                  37
                  
                  
                  
                  -
                  
                  
                  
                  N/A
                  
                  
                  
                  71
                  
                  
                  
                  -
                  
                  
                  
                  N/ACorporate
      allocations to Sales and marketing andresearch
      and development
                  
                  
                  (50
                  )
                  
                  
                  (114
                  )
                  
                  
                  -56%
                  
                  
                  
                  (112
                  )
                  
                  
                  (227
                  )
                  
                  
                  -51%Total
                  
                  $
                  1,505
                  
                  
                  $
                  1,455
                  
                  
                  
                  3%
                  
                  
                  $
                  2,645
                  
                  
                  $
                  2,449
                  
                  
                  
                  8%Headcount
      at end of period
                  
                  
                  3
                  
                  
                  
                  7
                  
                  
                  
                  -57%
                  
                  
                  
                  3
                  
                  
                  
                  7
                  
                  
                  
                  -57%




Total
general and administrative expenses for the three months ended June 30, 2009
increased by approximately $50,000, a 3% increase, due primarily to the
following:





·
            Employee
      compensation and benefits expense increased 112% due primarily to the
      acquisition of Inventa.


·
            Stock-based
      compensation decreased 71% due to the issuance of fully-vested and
      expensed stock option grant to our CEO in the second quarter of 2008.
      Compensation to our CEO is recorded 50% to sales and marketing and 50% to
      general and administrative. This was a one-time grant and we do not
      anticipate it will recur in the
future.


·
            Facilities,
      director fees, insurance and other expense decreased by approximately
      $325,000 primarily due to a favorable settlement on the Bayview Plaza
      lease, the former corporate headquarters, totaling approximately
      $279,000.


·
            Professional
      fees increased 82% primarily due to expenses relating to the restatement
      of the 2008 financial statements.


·
            Allocations
      of overhead costs decreased 56% versus the prior year. Allocations of
      corporate overhead from general and administrative costs to the other
      functional departments were based on headcount. These allocations
      decreased as the number of personnel in other functional departments
      decreased.





Total
general and administrative expenses for the six months ended June 30, 2009
increased by approximately $196,000, a 8% increase, due primarily to the
following:





·
            Employee
      compensation and benefits expense increased 105% due primarily to the
      acquisition of Inventa.


·
            Stock-based
      compensation decreased approximately 72% primarily due the repricing of
      certain stock options and warrants to the market value of our Common Stock
      as of March 26 and March 31, 2008 and the issuance of a fully-vested and
      expensed stock option grant to our CEO during the second quarter of
      2008. Compensation expense related to our CEO is recorded 50% to
      sales and marketing and 50% to general and administrative. This was a
      one-time grant and we do not anticipate it will recur in the
      future.


·
            Facilities,
      director fees, insurance and other expense decreased by approximately
      $272,000 primarily due to a favorable settlement on the Bayview Plaza
      lease, the former corporate headquarters, totaling approximately
      $279,000.


·
            Professional
      fees increased 106% primarily due to expenses relating to the restatement
      of the 2008 financial statements.


·
            Allocations
      of overhead costs decreased 51% versus the prior year. Allocations of
      corporate overhead from general and administrative costs to the other
      functional departments were based on headcount. These allocations
      decreased as the number of personnel in other functional departments
      decreased.




27




Other
Expense





The
components of other expense for the three and six months ended June 30, 2009 and
2008, were as follows (in thousands):




Three
      Months Ended June 30,
                  
                  
                  
                  
                  
                  Six
      Months Ended June 30,2009
                  
                  
                  2008
                    (restated)
                  
                  
                  %
      Change
                  
                  
                  2009
                  
                  
                  2008
                    (restated)
                  
                  
                  %
      ChangeOther
      expense:Interest
      income
                  
                  $
                  -
                  
                  
                  $
                  21
                  
                  
                  
                  -100%
                  
                  
                  $
                  3
                  
                  
                  $
                  48
                  
                  
                  
                  -94%Loss
      on conversion / extinguishment of convertible promissory
    notes
                  
                  
                  (496
                  )
                  
                  
                  (50
                  )
                  
                  
                  -892%
                  
                  
                  
                  (496
                  )
                  
                  
                  (50
                  )
                  
                  
                  -892%Other
                  
                  
                  (1
                  )
                  
                  
                  -
                  
                  
                  
                  N/A
                  
                  
                  
                  (4
                  )
                  
                  
                  -
                  
                  
                  
                  N/AInterest
      expense
                  
                  
                  (1,141
                  )
                  
                  
                  (720
                  )
                  
                  
                  -58%
                  
                  
                  
                  (2,213
                  )
                  
                  
                  (1,550
                  )
                  
                  
                  -43%Other
      expense
                  
                  $
                  (1,638
                  )
                  
                  $
                  (749
                  )
                  
                  
                  -119%
                  
                  
                  $
                  (2,710
                  )
                  
                  $
                  (1,552
                  )
                  
                  
                  -75%




Other
expense, which primarily consists of interest expense and debt modification
expense on convertible promissory notes and other gains for the three months
ended June 30, 2009 increased by approximately $889,000 or 119%. The following
items significantly impacted other expense:





·
            Interest
      expense increased approximately $421,000 or 58%, for the three months
      ended June 30, 2009 as compared to the three months ended June 30, 2008
      (restated) due to increased amortization of the discount on the
      convertible notes payable, along with the issuance and immediate
      conversion to Common Stock of certain convertible debt
      instruments.


·
            Loss
      on conversion / extinguishment of convertible promissory notes increased
      by approximately $446,000 due to the induced conversion of certain
      Convertible Promissory Notes as compared to a significant modification of
      convertible promissory notes in the prior
  period.


·
            Interest
      income decreased by approximately 100%, due to lower invested cash
      balances and interest rates.





Other
expense, which primarily consists of interest expense on convertible notes
payable and other gains for the six months ended June 30, 2009 increased by $1.2
million or 75%. The following items significantly impacted other
expense:





·
            Interest
      expense increased approximately $663,000 or 43%, for the six months ended
      June 30, 2009 as compared to the six months ended June 30, 2008 (restated)
      due to increased amortization of the discount on the convertible notes
      payable, along with the issuance and immediate conversion to Common Stock
      of certain convertible debt
instruments.


·
            Loss
      on conversion / extinguishment of convertible promissory
      notes increased by approximately $446,000 due to the induced
      conversion of certain Convertible Promissory Notes as compared to a
      significant modification of convertible promissory notes in the prior
      period.


·
            Interest
      income decreased by approximately 94%, due to lower invested cash balances
      and interest rates.




28




Liquidity,
Capital Resources and Financial Condition





Cash flows
for the six months ended June 30, 2009 and 2008 (restated), are as follows (in
thousands):





Six
      Months Ended June 30,2009
                    
                    
                    2008
                      (Restated)Net
      cash used in operating activities
                    
                    $
                    (1,293
                    )
                    
                    $
                    (3,651
                    )Net
      cash used in investing activities
                    
                    
                    (23
                    )
                    
                    
                    (3,086
                    )Net
      cash provided by financing activities
                    
                    
                    419
                    
                    
                    
                    7,275Net
      (decrease) increase in cash and cash equivalents
                    
                    $
                    (897
                    )
                    
                    $
                    538





Since
inception, we have funded operations and investments in operating assets with
cash raised through financing activities in the form of private offerings to
accredited investors. The funds raised have been primarily in the form of sales
of our Common Stock and, to a lesser degree, through the issuance of Convertible
Promissory Notes.





Cash Used in Operating
Activities





During the
six months ended June 30, 2009, cash used in operating activities totaled $1.3
million, a decrease of approximately $2.3 million compared to the six months
ended June 30, 2008. The following items significantly impacted our cash used in
operating activities in the first and second quarters of 2009 versus the same
period of 2008:





·
            The
      collection of the $1.5 million note receivable from a customer in 2009 as
      compared to the issuance of the original note in the amount of $2.0
      million from the same customer during the same period of
    2008.





Cash Used in Investing
Activities





During the
six months ended June 30, 2009, cash used in investing activities totaled
approximately $23,000, a decrease of approximately $3.1 million versus the same
period in 2008, due to the acquisition of Inventa in the prior
year.





Cash Provided by Financing
Activities





During the
six months ended June 30, 2009, cash provided by financing activities resulted
from the following:





·
            $339,000
      in proceeds from the sale of 847,500 shares of our Common Stock at a price
      of $0.40 per share.





·
            $115,000
      for convertible promissory with an interest rate of 1%. The notes were
      immediately converted to 287,500 shares of our Common
    Stock.





During the
six months ended June 30, 2008, cash provided by financing activities resulted
from the following:





·
            $7.2
      million in proceeds, net of commissions, for the sale of 12.7 million
      shares of our Common Stock at a price of $0.60 per
  share.





·
            $32,000
      received as proceeds from the exercise of stock
  options.





Capital Resources and Going
Concern





We
anticipate that current cash resources will be sufficient for us to
execute our business plan into the third quarter of 2009. If further
financing is not obtained we will not be able to continue to operate as a
going concern. We believe that securing additional sources of financing to
enable us to continue the development and commercialization of our
proprietary technologies will be difficult and there is no assurance of our
ability to secure such financing. A failure to obtain additional financing
could prevent us from making expenditures that are needed to pay current
obligations, allow us to hire additional development personnel and continue
development of our product and technology. At current cash levels, management
believes it has sufficient funds to operate through the third quarter of 2009.
Should additional financing not be obtained, the Company will not be able to
execute its business plan and the recoverability of its intangible assets may
become impaired. If we raise additional financing by selling equity or
convertible debt securities, the relative equity ownership of our existing
investors could be diluted or the new investors could obtain terms more
favorable than previous investors. If we raise additional funds through
debt financing, we could incur significant borrowing costs and be subject
to adverse consequences in the event of a default. We are actively engaged
in the process of seeking additional capital through private placements of
equity or debt.
  29





ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK





Interest
Rates





Our
exposure to market risk for changes in interest rates relates primarily to the
increase or decrease in the amount of interest income we earn on our investment
portfolio. Our investment portfolio consists of liquid investments that have
maturities of three months or less. Interest rates on our Convertible Promissory
Notes and long-term debt are generally fixed. Our risk associated with
fluctuating interest income is limited to investments in interest rate sensitive
financial instruments. Under our current policy, we do not use interest rate
derivative instruments to manage this exposure to interest rate changes. We seek
to ensure the safety and preservation of our invested principal by limiting
default risk, market risk, and reinvestment risk. We mitigate default risk by
investing in short-term investment grade securities.





ITEM 4. CONTROLS AND PROCEDURES





(a)           Evaluation of disclosure controls
and procedures





Our
management, with the participation of our Chief Executive Officer, evaluated the
effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15
under the Securities Exchange Act of 1934, as amended (the “Exchange
Act”).  In designing and evaluating the disclosure controls and
procedures, management recognizes that any controls and procedures, no matter
how well designed and operated, can provide only reasonable assurance of
achieving the desired control objectives.





Based on
management’s evaluation, our Chief Executive Officer concluded that, as of June
30, 2009, our disclosure controls and procedures are designed at a reasonable
assurance level and are effective to provide reasonable assurance that
information we are required to disclose in reports that we file or submit under
the Exchange Act is recorded, processed, summarized and reported within the time
periods specified in Securities and Exchange Commission rules and forms, and
that such information is accumulated and communicated to our management,
including our Chief Executive Officer to allow timely decisions regarding
required disclosure.





(b)           Changes in internal control over
financial reporting.





We
regularly review our system of internal control over financial reporting and
make changes to our processes and systems to improve controls and increase
efficiency, while ensuring that we maintain an effective internal control
environment.  Changes may include such activities as implementing new,
more efficient systems, consolidating activities, migrating processes, or
acquisition of subsidiaries.  As a result of the material weaknesses
listed in the 2008 10-K, management has continued using the services of the
third party contract consulting company.  Management is also in the
process of analyzing all existing controls to ensure all major, non-routine
transactions are appropriately recorded.




30




PART II. OTHER INFORMATION





ITEM 1.  LEGAL PROCEEDINGS





On July
10, 2008, Sybase, Inc. (“Sybase”), an enterprise software and services company,
filed a complaint for common law unfair business practices, and tortuous
interference with contractual relations, among other things, in the Superior
Court of the State of California, County of Alameda.  Sybase is
seeking an injunction, and damages, among other legal and equitable
relief.  We believe that this lawsuit is without merit and intend to
continue vigorously defending ourselves.





On August
22, 2008, a former ANTs employee filed a putative class action complaint for all
current and former software engineers, for failure to pay overtime wages, and
failure to provide meal breaks, among other things, in Superior Court of the
State of California, County of San Mateo.  The former employee is
seeking an injunction, damages, attorneys’ fees, and penalties.  We
believe that this lawsuit is without merit and intend to continue vigorously
defending ourselves.





On July
30, 2009 Ken Ruotolo, a former employee and officer of the Company, notified the
Company, through counsel, that he is initiating arbitration against the Company
primarily alleging breach of an employment agreement.  Mr. Ruotolo’s
father, Francis K. Ruotolo, is a Director of the Company. The Company is still
evaluating Mr. Ken Ruotolo’s claims and has not yet responded.





On October
14, 2008, Bayside Plaza (“Bayside”), a partnership, filed a complaint for breach
of contract in Superior Court of the State of California, County of San
Mateo.  Bayside was seeking approximately $50,000 in rent, late fees
and operating expenses per month from October 2008. The Company settled the
complaint by paying $50,000 in May 2009 and agreeing to pay $25,000 in each of
August 2009, November 2009 and February 2010. The Company accrued the $75,000
settlement amount in accounts payable in the Consolidated Balance Sheet as of
June 30, 2009. The Company recognized a gain on the settlement of approximately
$279,000 as an offset to rent expense, which is included in General and
Administrative Expense in the Consolidated Statement of Operations at June 30,
2009.





ITEM 1A.   RISK FACTORS





Other than
the following there has been no material changes during the six months ended
June 30, 2009.





We
might not collect our receivables





Due to the
ongoing worldwide economic crisis, weakness in the credit markets, significant
liquidity problems in the financial services industry and related factors, we
might face increased problems in collecting our accounts, notes, and other
obligations receivable. Since we rely on those receivables to finance our
ongoing business operations, failure to collect our receivables might cause our
business and operations to be severely and materially adversely
affected.





ITEM 2.  UNREGISTERED SALES OF EQUITY
SECURITIESAND USE OF
PROCEEDS





During the
quarter ended June 30, 2009, we received $339,000 from accredited investors for
the sale of 847,500 shares of the Company’s Common Stock at a price of $0.40 per
share. We also received $115,000 from accredited investors for the purchase of
1% Convertible Promissory Notes that were immediately converted into 287,500
shares of the Company’s Common Stock at $0.40 per share. We paid $13,356 by
issuing 23,850 shares of our Common Stock valued at $0.56 per share to a
placement agent. We issued 1,770,833 shares of Common Stock for the
conversion of Convertible Promissory Notes with a total principal amount of
$750,000. We issued 200,000 shares of Common Stock to a consultant for
investor relations services. The sales of these securities were made
in reliance upon Rule 506 and Section 4(2) of the Securities Act of
1933.  These securities (and the securities issued in the other
private placements discussed herein) have not been registered under the
Securities Act of 1933, as amended, and may not be offered or sold in the United
States absent registration or an applicable exemption from registration
requirements.





ITEM 3.  DEFAULTS UPON SENIOR
SECURITIES





None




31




ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS





No matter
was submitted to a vote of security holders during the period covered by this
report.





ITEM 5.  OTHER INFORMATION





The
Company and Mr. Tom Holt, a member of the Company’s Board of Directors and
Chairman of the Company’s Compensation Committee, entered into a Consulting
Agreement on July 28, 2009. Through August 18, 2009, the Company has paid
$22,000 for work performed.
  On August
14, 2009 Mr. Rick Cerwonka, President of Inventa Technologies, Inc., the
Company’s wholly owned subsidiary, was also named Chief Operating Officer of the
Company.




ITEM 6.  EXHIBITS





(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 our 10-K
      filed on March 17, 2008, is hereby incorporated by
    reference.10.1
              Secured
      Promissory Note, dated May 21, 2008 as listed in Exhibit 10.1 to our
      quarterly report on form 10-Q filed on August 18, 2008, is hereby
      incorporated by reference.


10.2
            Convertible
      Promissory Note 1, dated May 30, 2008 (redacted) as listed in Exhibit 10.1
      to our quarterly report on form 10-Q filed on August 18, 2008, is hereby
      incorporated by reference.


10.3
            Convertible
      Promissory Note 2, dated May 30, 2008 (redacted) as listed in Exhibit 10.1
      to our quarterly report on form 10-Q filed on August 18, 2008, is hereby
      incorporated by reference.


10.4
            ANTs
      software inc. 2008 Stock Plan as listed in Exhibit 10.1 to our quarterly
      report on form 10-Q filed on August 18, 2008, is hereby incorporated by
      reference.


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 Principal Financial Officer required by Rule 13a-14(a) of the
      Securities Exchange Act of 1934, as amended, as adopted pursuant to
      Section 302 of the Sarbanes-Oxley Act of 200232.1
              Certification
      of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350 as
      adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
      200232.2
              Certification
      of the Principal Financial Officer pursuant to 18 U.S.C. Section 1350 as
      adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
      2002










32





SIGNATURES





In
accordance with the requirements of the Exchange Act, the registrant caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.




ANTs
      software inc.Date:
      August 18, 2009
                  By:
                  /s/Joe
      KozakJoe
      Kozak, Chief Executive Officer and President













33