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, 2008





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)700
      Airport Blvd. Suite 300, Burlingame, CA
            94010(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 is a large accelerated filer, an
accelerated filer, or a non-accelerated filer.  See definition of
“accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange
Act.


(Check
one):  Large accelerated filer
[   ]      Accelerated filer [X
]    Non-accelerated filer [  ]





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





Indicate
the number of shares outstanding of each of the issuer’s classes of common
stock, as of the latest practicable date:





90,648,369
shares of common stock as of July 31, 2008





TABLE
OF CONTENTS







PART I.  Financial Information




Item 1.
              Condensed Consolidated Financial
      StatementsCondensed Consolidated Balance Sheets as of June 30,
      2008 and December 31, 2007
              3Condensed Consolidated Statements of
      Operations for the Three and Six Monthsended June 30, 2008 and
      2007
              4Condensed Consolidated Statements of Cash Flows for the
      Three and Six Monthsended June 30, 2008 and 2007
              5Notes to Consolidated Condensed Financial
      Statements
              6-23Item 2.
              Management’s Discussion and Analysis of
      Financial Condition andResults of Operations
              24-36Item 3.
              Quantitative and Qualitative Disclosures About Market
      Risk
              36Item 4.
              Controls and Procedures
              36PART II.  Other
InformationItem 1.
              Legal Proceedings
              37Item 1A.
              Risk Factors
              37-42Item 2.
              Unregistered Sales of Equity Securities and Use
      of Proceeds
              42Item 3.
              Defaults Upon Senior Securities
              42Item 4.
              Submission of Matters to a Vote of Security
      Holders
              43Item 5.
              Other Information
              43Item 6.
              Exhibits
              43Signatures
              45




2


PART I.  FINANCIAL INFORMATION


ITEM 1.  CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS




ANTS SOFTWARE  INC.CONDENSED
      CONSOLIDATED BALANCE SHEETSJune
      30,
                
                
                December
      31,ASSETS
                
                2008
                
                
                2007Unaudited
                
                
                AuditedCurrent
      assets:Cash
      and cash equivalents
                
                $
                5,018,855
                
                
                $
                4,480,694Accounts
      receivable
                
                
                523,201
                
                
                
                8,204Notes
      receivable from customer
                
                
                2,500,000
                
                
                
                -Current
      portion of prepaid debt issuance cost
                
                
                10,800
                
                
                
                434,630Restricted
      cash
                
                
                125,000
                
                
                
                192,574Prepaid
      expenses and other current assets
                
                
                244,584
                
                
                
                173,331Prepaid
      expense from warrant issued to customer, net
                
                
                -
                
                
                
                57,674Total
      current assets
                
                
                8,422,440
                
                
                
                5,347,107Long-term
      portion of prepaid debt issuance cost
                
                
                223,385
                
                
                
                47,786Property
      and equipment, net
                
                
                496,315
                
                
                
                510,490Goodwill
                
                
                23,354,931
                
                
                
                -Intangible
      assets, net
                
                
                3,635,416
                
                
                
                -Security
      deposits
                
                
                54,435
                
                
                
                34,420Total
      assets
                
                $
                36,186,922
                
                
                $
                5,939,803LIABILITIES
      AND STOCKHOLDERS' EQUITY (DEFICIT)Current
      liabilities:Accounts
      payable and other accrued expenses
                
                $
                854,039
                
                
                $
                788,460Accrued
      bonuses and commissions payable
                
                
                163,905
                
                
                
                143,750Accrued
      vacation payable
                
                
                180,213
                
                
                
                89,316Line
      of credit
                
                
                170,000
                
                
                
                -Current
      portion of convertible promisory notes, includespremium
      of $14,254 and $60,440, respectively
                
                
                264,254
                
                
                
                1,060,440Accrued
      interest on convertible promissory notes
                
                
                254,247
                
                
                
                208,780Deferred
      revenues
                
                
                253,823
                
                
                
                48,818Total
      current liabilities
                
                
                2,140,481
                
                
                
                2,339,564Commitments
      and contingencies (Note 14)Long-term
      liabilities:Convertible
      promissory notes, includes debt premium of $239,949and
      $380,311, and discount of $0 and $238,418, respectively
                
                
                9,493,175
                
                
                
                8,645,119Convertible
      promissory notes
                
                
                2,000,000
                
                
                
                -Total
      liabilities
                
                
                13,633,656
                
                
                
                10,984,683Preferred
      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
      and 57,398,445 shares issued and outstanding, respectively
                
                
                9,065
                
                
                
                5,740Additional
      paid-in capital
                
                
                104,366,721
                
                
                
                69,914,339Accumulated
      deficit
                
                
                (81,822,520
                )
                
                
                (74,964,959
                )Stockholders’
      equity (deficit)
                
                
                22,553,266
                
                
                
                (5,044,880
                )Total
      liabilities and stockholders' equity
                
                $
                36,186,922
                
                
                $
                5,939,803See
      accompanying notes.


3




ANTS SOFTWARE INC.CONDENSED
      CONSOLIDATED STATEMENTS OF OPERATIONS(Unaudited)For
      the Three Months Ended
              
              
              For
      the Six Months EndedJune
      30,
              
              
              June
      30,2008
              
              
              2007
              
              
              2008
              
              
              2007Revenues:Products
              
              $
              4,900,000
              
              
              $
              -
              
              
              $
              4,904,165
              
              
              $
              50,625Services
              
              
              522,539
              
              
              
              21,467
              
              
              
              550,758
              
              
              
              39,969Total
      revenues
              
              
              5,422,539
              
              
              
              21,467
              
              
              
              5,454,923
              
              
              
              90,594Cost
      of Revenues:Products
              
              
              511,993
              
              
              
              6,764
              
              
              
              511,993
              
              
              
              9,476Services
              
              
              359,732
              
              
              
              -
              
              
              
              359,732
              
              
              
              -Gross
      profit
              
              
              4,550,814
              
              
              
              14,703
              
              
              
              4,583,198
              
              
              
              81,118Operating  Expenses:Sales
      and marketing
              
              
              714,557
              
              
              
              749,630
              
              
              
              1,085,868
              
              
              
              1,849,301Research
      and development
              
              
              1,787,383
              
              
              
              2,395,854
              
              
              
              4,388,506
              
              
              
              4,271,017General
      and administrative
              
              
              1,558,630
              
              
              
              1,620,707
              
              
              
              2,660,513
              
              
              
              2,429,005Total
      operating expenses
              
              
              4,060,570
              
              
              
              4,766,191
              
              
              
              8,134,887
              
              
              
              8,549,323Income
      (loss) from operations
              
              
              490,244
              
              
              
              (4,751,488
              )
              
              
              (3,551,689
              )
              
              
              (8,468,205
              )Other
      (expense) income:Interest
      income
              
              
              20,634
              
              
              
              114,175
              
              
              
              47,636
              
              
              
              200,061Debt
      modification costs
              
              
              (2,238,206
              )
              
              
              -
              
              
              
              (2,238,206
              )
              
              
              -Gain
      on legal settlement and other
              
              
              -
              
              
              
              500
              
              
              
              -
              
              
              
              2,000Interest
      expense
              
              
              (954,190
              )
              
              
              (62,326
              )
              
              
              (1,115,302
              )
              
              
              (103,614
              )Total
      (expense) income
              
              
              (3,171,762
              )
              
              
              52,349
              
              
              
              (3,305,872
              )
              
              
              98,447Net
      loss
              
              $
              (2,681,518
              )
              
              $
              (4,699,139
              )
              
              $
              (6,857,561
              )
              
              $
              (8,369,758
              )Basic
      and diluted net lossper
      common share
              
              $
              (0.04
              )
              
              $
              (0.08
              )
              
              $
              (0.11
              )
              
              $
              (0.15
              )Shares
      used in computing basic and dilutednet
      loss per share
              
              
              71,986,666
              
              
              
              56,460,534
              
              
              
              64,906,422
              
              
              
              56,229,518See
      accompanying notes.


4




ANTS SOFTWARE INC.CONDENSED
      CONSOLIDATED STATEMENTS OF CASH FLOWS(Unaudited)For
      the Six Months Ended June 30,2008
              
              
              2007Cash
      flows from operating activities:Net
      loss
              
              $
              (6,857,561
              )
              
              $
              (8,369,758
              )Adjustments
      to reconcile net loss to net cash used in operating
      activities:Depreciation
      and amortization
              
              
              267,875
              
              
              
              215,908Debt
      modification costs
              
              
              2,238,206
              
              
              
              -Interest
      expense related to convertible promissory note issuance
              
              
              750,000
              
              
              
              -Amortization
      of accrued rent, net of cash payments
              
              
              3,772
              
              
              
              (10,950
              )Amortization
      of warrant issued to customer
              
              
              57,674
              
              
              
              28,836Amortization
      of debt premium and discount, net
              
              
              (132,174
              )
              
              
              (164,214
              )Amortization
      of debt issuance costs
              
              
              211,976
              
              
              
              169,529Stock-based
      compensation
              
              
              2,407,321
              
              
              
              683,247Changes
      in operating assets and liabilities:Accounts
      receivable
              
              
              219,889
              
              
              
              33,453Restricted
      cash
              
              
              67,574
              
              
              
              -Prepaid
      expenses and other current assets
              
              
              (11,686
              )
              
              
              (124,966
              )Notes
      receivable from customer
              
              
              (2,500,000
              )
              
              
              -Accounts
      payable and other accrued expenses
              
              
              (206,238
              )
              
              
              (87,809
              )Accrued
      bonuses and commissions payable
              
              
              20,155
              
              
              
              361,248Accrued
      vacation payable
              
              
              90,896
              
              
              
              23,160Accrued
      interest on convertible promissory notes
              
              
              45,467
              
              
              
              -Deferred
      revenue
              
              
              (324,182
              )
              
              
              (6,029
              )Net
      cash used in operating activities
              
              
              (3,651,036
              )
              
              
              (7,248,345
              )Cash
      flows used in investing activities:Purchases
      of office furniture, fixtures and equipment , net
              
              
              (38,838
              )
              
              
              (191,992
              )Acquisition
      of Inventa, net of cash acquired
              
              
              (3,047,444
              )
              
              
              -Net
      cash used in investing activities
              
              
              (3,086,282
              )
              
              
              (191,992
              )Cash
      flows from financing activities:Proceeds
      from private placements - equity, net of cash commissions
              
              
              7,247,800
              
              
              
              5,018,574Proceeds
      from private placements - convertible promissorynotes,
      net of commission
              
              
              -
              
              
              
              4,881,426Proceeds
      from exercise of options
              
              
              32,679
              
              
              
              60,600Principal
      payments on line of credit
              
              
              (5,000
              )
              
              
              -Net
      cash provided by financing activities
              
              
              7,275,479
              
              
              
              9,960,600Net
      increase in cash and cash equivalents
              
              
              538,161
              
              
              
              2,520,263Cash
      and cash equivalents at beginning of period
              
              
              4,480,694
              
              
              
              4,698,949Cash
      and cash equivalents at end of period
              
              $
              5,018,855
              
              
              $
              7,219,212Supplemental
      disclosure of cash flow information:Cash
      paid during the period for:Interest
              
              $
              241,030
              
              
              $
              104,674See
      accompanying notes.


5


ANTS SOFTWARE INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
 
 1.   Basis
of Presentation
 
 The
accompanying unaudited condensed consolidated financial statements (Interim
Financial Statements) include the accounts of ANTs software, inc. and its
wholly-owned subsidiary Inventa Technologies, Inc. (Inventa). The results
of operation are included in the interim financial statements from May 30, 2008
the date of acquisition. Intercompany accounts and transactions have been
eliminated in consolidation.
 
 These
Interim Financial Statements have been prepared in accordance with generally
accepted accounting principles in the United States (U.S. GAAP) and the rules
and regulations of the Securities and Exchange Commission (SEC) for interim
financial statements and contemplate continuation of ANTs software inc. (the
“Company”) as a going concern.  However, we have suffered recurring
losses from operations that raises substantial doubt about our ability to
continue as a goingconcern.  In
May 2008, we acquired Inventa, a Delaware company, which has not shown
consistent profitability prior to its purchase.  Our ability to
continue as agoingconcern is
dependent upon our ability to generate profitable operations as a consolidated
entity in the future through the operations of either ANTs or our subsidiary
and/or obtain the necessary financing to meet our obligations and repay our
liabilities arising from normal business operations when they come due. We have
plans to seek additional capital through private placements of equity or debt as
necessary.  If we are successful in our efforts to generate revenue
sufficient to cover operating losses in 2008, it will be a source of operating
funds through the end of fiscal 2009.  Our plans, if successful, will
mitigate the factors that raise substantial doubt about our ability to continue
as agoingconcern.
 
 The
December 31, 2007 Condensed Consolidated Balance Sheet included herein was
derived from audited financial statements filed with our 10-K as of December 31,
2007 and therefore may not include all disclosures required by accounting
principles generally accepted in the United States of America (U.S.). Reference
should be made to our Form 10-K for the fiscal year ended December 31, 2007, for
additional disclosures. 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 financial statements not misleading and to
fairly present the financial position, results of operations, and cash flows on
a consistent basis. The results for the interim periods are not necessarily
indicative of the results for the entire year.
 
 There have
been no significant changes in our significant accounting policies during the
six months ended June 30, 2008 as compared to the significant accounting
policies described in our Annual Report on Form 10-K for the fiscal year ended
December 31, 2007.
 
 Management
has evaluated our current financial position and anticipates that cash on hand
will be sufficient to fund operations and investments in capital equipment into
the first fiscal quarter of 2009 at expected levels of revenue and
expenditures.
 
 2.   Business
Combination
 
 On May 30, 2008 we completed the
acquisition of Inventa, a Delaware corporation.  We acquired Inventa
in order to expand our presence in the database compatibility and consolidation
technology market by using its workforce to increase exposure to the market. The
acquisition was accounted for as a purchase business combination and
accordingly, a portion of the purchase price has been allocated to the tangible
assets less liabilities assumed and identifiable intangible
assets.  The balance of the purchase price was allocated to goodwill.
Fair values were estimated using the discounted cash flow method based on
information currently available, including estimates of future operating
results.  The primary method used in determining fair value estimates
was the income approach, which attempts to estimate the income producing
capability of the asset.  The Company issued 20,000,000 shares valued
at $1.10 per share to the shareholders of Inventa. The value of the Company's
stock was valued at the fair market value of the Company's free trading shares
at the time the terms of the acquisition were agreed to and announced. The
purchase price allocation is preliminary and subject to change as the Company
evaluates the value and estimated lives of other identifiable
intangibles.
 6


The
following table summarizes a preliminary estimate of the fair value of the
assets acquired and liabilities assumed at the date of acquisition




Purchase
      price:Cash
      paid to seller
              
              
              
              
              
              $
              3,000,000Fair
      value of common stock issued to seller
              
              
              
              
              
              
              22,000,000Convertible
      notes payable issued to seller
              
              
              
              
              
              
              2,000,000Acquisition
      costs, comprised of legal and accounting fees
              
              
              
              
              
              
              57,357Total
      purchase price
              
              
              
              
              
              $
              27,057,357Net
      assets acquired:Assets
      acquired:Cash
              
              
              9,913Accounts
      Receivable
              
              
              734,886Prepaids
      and other current assets
              
              
              59,567Property
      and Equipment, net
              
              
              153,277Security
      deposit
              
              
              20,015Total
              
              
              
              
              
              
              
              977,658Less liabilities
      assumed:Line
      of credit
              
              
              175,000Trade
      payables and other accrued expenses
              
              
              268,045Deferred
      revenues
              
              
              529,187Total
              
              
              
              
              
              
              
              (972,232
              )Tangible
      assets in excess of liabilities assumed
              
              
              
              
              
              
              
              5,426Intangible
      assets:Developed
      software
              
              
              2,085,000
              
              (5
      year life)Customer
      relationships
              
              
              1,612,000
              
              (5
      year life)Identified
      intangibles
              
              
              
              
              
              
              
              3,697,000Goodwill
              
              
              
              
              
              
              
              23,354,931Total
      purchase price
              
              
              
              
              
              
              $
              27,057,357




The followingunaudited pro forma consolidated results
of operations have been prepared as if the acquisition ofInventahad occurred at January 1, 2007:
 
 Three
      months ended June 30,
                
                
                Six
      months ended June 30,2008
                
                
                2007
                
                
                2008
                
                
                2007Revenues
                
                $
                6,181,648
                
                
                $
                1,369,517
                
                
                $
                7,577,447
                
                
                $
                2,786,694Net
      loss
                
                
                (2,742,400
                )
                
                
                (4,812,750
                )
                
                
                (7,090,624
                )
                
                
                (8,596,980
                )Net
      loss per share - basic and diluted
                
                $
                (0.04
                )
                
                $
                (0.09
                )
                
                $
                (0.11
                )
                
                $
                (0.15
                )
 The pro forma information is presented
for informational purposes only and is not necessarily indicative of the results
of operations that actually would have been achieved had the acquisition been
consummated as of that time, nor is it intended to be a projection of future
results.




3.    Summary
of Significant Accounting Policies
 
 Revenue
Recognition
 
 Total
revenues consist of (i) product sales, which consists of sales of intellectual
property, licenses, and royalties, and (ii) services, which include maintenance
and professional services, and with the acquisition of our wholly-owned
subsidiary, Inventa, managed services.  We recognize revenue on
intellectual property, licenses and royalties in accordance with the provisions
of Statement of Position (“SOP”) 97-2,“Software Revenue
Recognition”, and SOP 98-9, “Modification of SOP 97-2, Software
Revenue Recognition, With Respect to Certain Transactions.”  We
use the residual method to recognize revenue when a license agreement includes
one or more elements to be delivered at a future date.  If there is an
undelivered element under the license arrangement, we defer revenue based on
vendor-specific objective evidence, or VSOE, of the fair value of the
undelivered element, as determined by the price charged when the element is sold
separately.  If VSOE of fair value does not exist for all undelivered
elements, we defer all revenue until sufficient evidence exists or all elements
have been delivered.  Under the residual method, discounts are
allocated only to the delivered elements in a multiple element arrangement with
any undelivered elements being deferred based on VSOE of fair values of such
undelivered elements.  Revenue from software license arrangements,
which comprise prepaid license and maintenance 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 (“PCS”).
 7
 ·
              The
      fee is fixed and determinable.  If we cannot conclude that a fee
      is fixed and determinable, then assuming all other criteria have been met,
      revenue is recognized as payments become due in accordance with paragraph
      29 of SOP 97-2.
 ·
              Collection
      is probable.




Services
revenue relating to maintenance and support is deferred and recognized over the
related contract period, generally twelve months, beginning with customer
acceptance of the product.  Managed services revenue as generated by
Inventa is recognized ratably over the service period of our
contracts.  We recognize consulting revenues (under pre-sales project
contracts) whereby we contract with customers to provide recommendations on
performance and capacity; under these contracts we recognize revenue as the
services are rendered or upon completion of the services contract. If we can
reliably evaluate progress to completion (based on total projected hours to be
incurred as compared with hours already incurred), we recognize the revenue as
the services are rendered and recognize the related costs as they are incurred.
In instances where we cannot reliably estimate the total projected hours, we
recognize revenue and the associated costs upon completion of the services
contract. For fixed price professional services contracts when the current
estimates of total contract revenue and contract cost indicate a loss, the
estimated loss is recognized in the period the loss becomes
evident.
  Revenue
from professional fees, consisting primarily of consulting services, is
recognized as services are provided.
  Research
and Development Expenditures
 
 We account
for research and development (“R&D”) costs in accordance with SFAS No.
86,“Accounting for the Costs
of Computer Software to be Sold, Leased, or Otherwise
Marketed.Costs related to the research, design, and
development of products are charged to research and development expenses as
incurred. Software development costs are capitalized beginning when a product’s
technological feasibility has been established and ending when a product is
available for general release to customers. Generally, our products are released
soon after technological feasibility has been established. As a result, costs
subsequent to achieving technological feasibility have not been significant and
all software development costs have been expensed as incurred.
 
 Stock-Based
Compensation Expense
  We have
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, we have been using the provisions of
SFAS 123(R), “Share-Based
Payment”to account for stock-based award compensation expense. Our
stock-based compensation expense for the three and six months ended June 30,
2008 and 2007, respectively includes compensation expense for all stock-based
compensation awards granted prior to, but not fully vested, as of
January 1, 2006, based on the grant date fair value estimated in accordance
with the original provisions of SFAS 123, “Accounting for Stock
Compensation”.  Stock-based compensation expense for all
stock-based compensation awards granted subsequent to January 1, 2006 is based
on the grant date fair value estimated in accordance with the provisions of SFAS
123(R). We recognize compensation expense for stock option awards on a
straight-line basis over the requisite service period of the award, generally
three years.
 
 In March
2005, the SEC issued Staff Accounting Bulletin No. 107 (“SAB 107”), which offers
guidance on SFAS 123(R).  SAB 107 was issued to assist preparers by
simplifying some of the implementation challenges of SFAS 123(R) while enhancing
the information that investors receive.  SAB 107 creates a framework
that is premised on two over arching themes: (a) considerable judgment will be
required by preparers to successfully implement SFAS 123(R), specifically when
valuing employee stock options; and (b) reasonable individuals, acting in good
faith, may conclude differently on the fair value of employee stock
options.  Key topics covered by SAB 107 include valuation models,
expected volatility and expected term.  We apply the principles of SAB
107 in conjunction with SFAS 123(R).
 
 Income
Taxes
 
 The
carrying value of our deferred tax assets is dependent upon our ability to
generate sufficient future taxable income in certain tax jurisdictions. Until
such time as we establish a taxable income in such jurisdictions, the total
amount of the deferred tax assets shall be offset with a valuation
allowance.
 8


Our
judgment, assumptions and estimates used for the current tax provision take into
account the potential impact of the interpretation of FIN No. 48 (“FIN 48”)
“Accounting for Uncertainty in
Income Taxes, an Interpretation of SFAS No. 109,” issued by the Financial
Accounting Standards Board, and its interpretation of current tax laws and
possible future audits conducted by the U.S. tax authorities.  FIN 48
required that we examine the effects of our tax position, based on the use of
our judgments, assumptions, and estimates when it is more likely than not, based
on technical merits, that our tax position will be sustained if an examination
is performed.  We adopted the provisions of FIN 48 on January 1,
2007.





Business
combinations





We apply
the provisions of SFAS 141, Business Combinations, when accounting for our
acquisitions, which requires us to allocate the purchase price of acquired
companies to the tangible and intangible assets acquired, liabilities assumed,
as well as in-process research and development based on their estimated fair
values.  Such a valuation requires management to make significant estimates
and assumptions, especially with respect to intangible assets.  All
acquisitions are included in our financial statements from the date of
acquisition.





Management
makes estimates of fair value based upon assumptions believed to be reasonable.
These estimates are based on historical experience and information obtained from
the management of the acquired company. Critical estimates in valuing certain of
the intangible assets include but are not limited to: future expected cash
flows; acquired developed technologies and patents; expected costs to develop
the in-process research and development into commercially viable products and
estimating cash flows from the projects when completed; the acquired company’s
brand awareness and market position, as well as assumptions about the period of
time the acquired brand will continue to be used in the combined company’s
product portfolio; and discount rates. These estimates are inherently uncertain
and unpredictable. Assumptions may be incomplete or inaccurate, and
unanticipated events and circumstances may occur which may affect the accuracy
or validity of such assumptions, estimates or other actual results.





Our
financial projections may ultimately prove to be inaccurate and unanticipated
events and circumstances may occur. Therefore, no assurance can be given that
the underlying assumptions used to forecast revenues and costs to develop such
projects will transpire as projected.   We allocate the purchase
price of an acquired company to the tangible and intangible assets acquired and
liabilities assumed, as well as in-process research and development where
appropriate, based on their estimated fair values. We engage independent
third-party appraisal firms to assist in determining the fair values of
intangible assets acquired on all material acquisitions.





Valuation
analysis of intangible assets and goodwill





With our
acquisition of Inventa in May 2008, we have recorded goodwill and other
intangible assets as a result of the allocation of the purchase price to
tangible and intangible assets.  Under SFAS 142, “Goodwill and Other
Intangible Assets” (SFAS 142), we are required to perform an annual impairment
review of goodwill and intangible assets.  We will perform our review
of goodwill in the third quarter of 2008, based upon June 30, 2008
balances, along with our annual impairment review of tangible assets as required
under SFAS 144, “Accounting for the Impairment or Disposal of Long-Lived
Assets”.  We will assess the impairment of identifiable intangibles
and long-lived assets whenever events or changes in circumstances indicate that
the carrying value may not be recoverable or that the life of the asset may need
to be revised. Factors we consider important which could trigger an impairment
review include the following:




•
            
            significant
      changes in the manner of our use of the acquired assets or the strategy
      for our overall business;


•
            
            significant
      negative industry or economic
trends;


•
            
            significant
      decline in our stock price for a sustained period;
  and


•
            
            our
      market capitalization relative to net book
  value.




When we determine that the carrying
value of goodwill, intangibles or long-lived assets may not be recoverable based
upon the existence of one or more of the above indicators of impairment, we
measure any impairment based on a projected discounted cash flow method using a
discount rate determined by our management to be commensurate with the risk
inherent in our current business model. Net intangible assets and goodwill
totaled $27.0 million as of June 30, 2008. Our intangible
assets are amortized over an estimated 5 year useful life.


9


Recent
Accounting Pronouncements




In
September 2006, the FASB issued SFAS No. 157, Fair Value
Measurements.  SFAS 157 defines fair value, establishes a framework
for measuring fair value in generally accepted accounting principles and expands
disclosures about fair value measurements.  SFAS 157 is effective for
financial statements issued for fiscal years beginning after November 15,
2007 and interim periods within those fiscal years.  The adoption of SFAS
157 as of January 1, 2008 did not have a material impact on our financial
position, results of operations, or cash flows.  In February 2008,
FASB issued Staff Position 157-1, Application of FASB Statement
No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements
That Address Fair Value Measurements for Purposes of Lease Classification or
Measurement under Statement 13 (FSP 157-1).  FSP 157-1 excludes from
the scope of SFAS 157 accounting pronouncements that address fair value
measurements for purposes of lease classification or measurement.  This
scope exception does not apply to assets acquired and liabilities assumed in a
business combination that are required to be measured at fair value, regardless
of whether those assets and liabilities are related to leases.  FSP 157-1
was effective upon the initial adoption of SFAS 157.  Adoption of SFAS
157-1 as of January 1, 2008 did not have a material impact on our financial
position, results of operations, or cash flows.  In February 2008,
FASB issued Staff Position 157-2, Effective Date of FASB Statement
No. 157, (FSP 157-2) that, as of February 12, 2008,
indefinitely delayed the effective date of SFAS 157 for nonfinancial assets and
nonfinancial liabilities, except for items that are recognized or disclosed at
fair value in the financial statements on a recurring basis.  We are
evaluating the impact, if any that the adoption of FSP 157-2 will have on our
financial condition results of operations, or cash flows.





In
February 2007, the FASB issued Statement of Financial Accounting Standard No.
159, “The Fair Value Option
for Financial Assets and Financial Liabilities” (“SFAS 159”). SFAS 159
permits companies to choose to measure certain financial instruments and certain
other items at fair value. The standard requires that unrealized gains and
losses on items for which the fair value option has been elected be reported in
earnings. SFAS 159 is effective beginning in the first quarter of
2008.   We have determined that the adoption of this Standard did
not have a material impact on the Company’s financial condition, results of
operations, or cash flows.





In June 2007, the EITF reached a consensus on EITF Issue No.06-11, “Accounting for Income Tax Benefits
of Dividends on Share-Based Payment Awards” (“EITF06-11”).  EITF06-11 provides
that a realized income tax benefit from dividends that is charged to retained
earnings and is paid to employees for equity classified unvested equity shares
and units should be recognized as an increase to additional paid-in capital. The
provisions of this EITF should be applied prospectively to the income tax
benefits of dividends on equity-classified employee share-based payment awards
that are declared in fiscal years beginning after September 15,
2007.  We do not currently pay dividends to employees on shares of
unvested restricted common stock and therefore the provisions of EITF Issue No.
06-11 do not impact our financial condition, results of operations, or cash
flows.




In
December 2007, the FASB issued SFAS No. 141R, “Business Combinations”, which
replaces SFAS No. 141, “Business Combinations” (“SFAS No. 141R”). SFAS No.
141R establishes principles and requirements for determining how an enterprise
recognizes and measures the fair value of certain assets and liabilities
acquired in a business combination, including noncontrolling interests,
contingent consideration, and certain acquired contingencies. SFAS No. 141R also
requires acquisition-related transaction expenses and restructuring costs be
expensed as incurred rather than capitalized as a component of the business
combination. SFAS No. 141R will be applicable prospectively to business
combinations for which the acquisition date is on or after January 1, 2009.
SFAS No. . 141R would have an impact on accounting for any businesses
acquired after the effective date of this pronouncement.


On March
19, 2008, the SFAS issued FASB Statement No. 161, “Disclosures about Derivative
Instruments and Hedging Activities – an Amendment of FASB Statement
133”.  Statement 161 enhances required disclosures regarding
derivatives and hedging activities, including enhanced disclosures regarding how
(a) an entity uses derivative instruments; Statement 161 enhances required
disclosures regarding derivatives and hedging activities, including enhanced
disclosures regarding how: (a) an entity uses derivative instruments; (b)
derivative instruments and related hedged items are accounted for under FASB
Statement No. 133, Accounting for Derivative Instruments and Hedging Activities,
and (c) derivative instruments and related hedged items affect an entity's
financial position, financial performance, and cash flows.  SFAS 161
is effective for fiscal years and interim periods beginning after November 15,
2008. Early application is encouraged.  SFAS is not expected to have a
material impact on our financial condition, results of operations, or cash
flows.





In April
2008, the FASB issued FAS Staff Position No. FSP FAS 142-3, Determination of the Useful Life of
Intangible Assets (“FSP FAS 142-3”). FSP FAS 142-3 amends the list of
factors that an entity should consider in developing renewal or extension
assumptions used in determining the useful life of recognized intangible assets
under SFAS No. 142, both those acquired individually or as part of a group of
other assets, and those acquired in business combinations or asset acquisitions.
The FSP also expands the disclosure requirements of SFAS No. 142. The FSP is
effective for financial statements issued for fiscal years beginning after
December 15, 2008, and interim periods within those fiscal years. Although the
guidance regarding an intangible asset’s useful life is to be applied
prospectively only to intangible assets acquired after FSP FAS 142-3’s effective
date, the disclosure requirements must be applied prospectively to all
intangible assets recognized as of the effective date. The Company is currently
evaluating the impact that FSP FAS 142-3 will have on its financial statements
when adopted.


10


In May
2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted
Accounting Principles (“SFAS No. 162”). SFAS No. 162 is intended to
improve financial reporting by providing a consistent framework for determining
the accounting principles to be used in the preparation of financial statements
in conformity with GAAP. Currently, GAAP hierarchy is outlined in the American
Institute of Certified Public Accountants Statement on Auditing Standards No.
69, “The Meaning
ofPresent Fairly in
Conformity With Generally Accepted Accounting Principles”, which is
directed to auditors rather than to the entities responsible for the preparation
of financial statements. SFAS No. 162 will be effective 60 days following the
SEC’s approval of the Public Company Accounting Oversight Board amendments to AU
Section 411, “The Meaning
of Present Fairly
in Conformity With Generally Accepted Accounting Principles”. The FASB
does not believe that SFAS No. 162 will result in a change to current practice,
but has provided transition provisions. The Company does not believe that the
adoption of SFAS No. 162 will have any effect on its financial
statements.




In May
2008, the FASB issued FASB Staff Position No. FSP 14-1, Accounting for Convertible Debt
Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash
Settlement) (“FSP APB 14-1”). FSP APB 14-1 addresses the accounting for
convertible debt securities that, upon conversion, may be settled by the issuer
fully or partially in cash. It does not change the accounting for traditional
types of convertible debt securities that do not have a cash settlement feature,
and does not apply if, under existing GAAP for derivatives, the embedded
conversion feature must be accounted for separately from the rest of the
instrument. FSP APB 14-1 is effective for fiscal years and interim periods
beginning after December 15, 2008. It should be applied retrospectively to all
past periods presented, even if the convertible debt security has matured, been
converted or otherwise extinguished as of the FSP’s effective date. The Company
is currently evaluating the impact that FSP APB 14-1 will have on its financial
statements when adopted.




On June
25, 2008, the FASB ratified EITF 07-5, Determining Whether an Instrument
(or an Embedded Feature) Is Indexed to an Entity’s Own Stock. The Task
Force reached a consensus on how an entity should evaluate whether an instrument
(or an embedded feature) is indexed to its own stock, how the currency in which
the instrument is denominated affects the determination of whether the
instrument is indexed to a company’s own stock, and how an issuer should account
for market-based employee stock option valuation instruments. EITF 07-5 is
effective for fiscal years and interim periods beginning after December 31,
2008, and must be applied to outstanding instruments as of the beginning of the
fiscal year of adoption, with a cumulative-effect adjustment to the opening
balance of retained earnings. Early adoption is not permitted. The Company is
currently evaluating the impact that EITF 07-5 will have on its financial
statements when adopted.





In April 2008, the FASB issued FSP
No. FAS 142-3, “Determination of the Useful Life of
Intangible Assets.”  FSP No. FAS 142-3 amends the factors that
should be considered in developing renewal or extension assumptions used to
determine the useful life of a recognized intangible asset under SFAS
No. 142, “Goodwill and Other Intangible Assets.”  The intent of the
position is to improve the consistency between the useful life of a recognized
intangible asset under SFAS No. 142 and the period of expected cash flows
used to measure the fair value of the asset under SFAS No. 141R, and other
U.S. generally accepted accounting principles. The provisions of FSP
No. FAS 142-3 are effective for fiscal years beginning after
December 15, 2008.  FSP No. FAS 142-3 is effective for the
Company’s fiscal year ending September 26, 2010. We will evaluate the
impact, if any, that the adoption of FSP No. FAS 142-3 could have on our
consolidated financial statements.





Reclassifications




Certain
reclassifications have been made to conform the prior year financial statements
to be consistent with the current period’s presentation.





4.   Basic
and Diluted Net Loss per Share





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


11


The
following table presents basic and diluted earnings per share for the three and
six months ended June 30, 2008 and 2007.
  Three
      months ended June 30,
                
                
                Six
      months ended June 30,2008
                
                
                2007
                
                
                2008
                
                
                2007Net
      loss available to common shareholders
                
                $
                (2,681,518
                )
                
                $
                (4,699,139
                )
                
                $
                (6,857,561
                )
                
                $
                (8,369,758
                )Weighted
      average common shares outstanding
                
                
                71,986,666
                
                
                
                56,460,534
                
                
                
                64,906,422
                
                
                
                56,229,518Basic
      and diluted net loss per common share
                
                $
                -
                
                
                $
                (0.08
                )
                
                $
                (0.11
                )
                
                $
                (0.15
                )Price
      range




Stock
options, warrants and potential shares outstanding upon note holders’ conversion
of our convertible promissory notes are not included in the computation of
diluted earnings per share because to do so would decrease the reported loss per
common share and are considered antidilutive.
 Total
potential shares outstanding resulting from the exercise of stock options and
warrants and assuming full conversion of all our outstanding convertible notes
payable totals 27,289,489 and 11,774,495 shares at June 30, 2008 and 2007,
respectively, which consists of:
 
 ·
              Stock
      options and warrants for the purchase of 15,183,374 and 8,524,495 shares
      of our common stock at prices ranging from $0.52 to $3.25 per share and
      $0.52 to $3.20 per share, as of June 30, 2008 and 2007, respectively,
      and
 ·
              The
      conversion of our all our convertible promissory notes outstanding at
      prices in effect as of June 30, 2008 and 2007 would have resulted in an
      additional 12,106,115 and 3,250,000 common shares outstanding at June 30,
      2008 and 2007.
 
  5.
Note Receivable from Customer
 
 In May 2008, we sold the ANTs Data
Server (“ADS”), its intellectual property rights and patents, and certain
computer equipment to a customer.  The total sales price was $3.5
million, consisting of $1 million in cash and a secured promissory note due the
earlier of a) the customer’s sale of securities aggregating $5 million in
proceeds or b) $500 thousand on November 21, 2008 and $2 million on May 21,
2009.  The promissory note is collateralized by all assets sold under
the agreement, is non-interest bearing and in the opinion of management is
stated at fair value.
 
 6.  Prepaid
Debt Issuance Cost
 
 As more
fully discussed in Note 13, we incurred $869,260 in placement agent fees, paid
in cash and equity, related to convertible promissory notes (the Notes) issued
from December 2006 through March 2007. These fees are being amortized into
general and administrative expense using the straight-line method, which is not
materially different from the effective interest method, over the life of the
Notes.
 
 During May
2008 we restructured substantially all of our outstanding convertible notes
payable to extend the maturity date and modify the conversion
price.  As a result of the restructuring we expensed $36,255 in
related prepaid debt issuance costs, which is included in debt modification
costs. Unamortized debt issuance costs totaled $234,185 and $482,416 as of June
30, 2008 and December 31, 2007, respectively.  Amortization of these
costs commenced on January 1, 2007 and totaled $211,976 and $108,658 for the
three and six months ended June 30, 2008, respectively.
 
 7.  Restricted
Cash
 
 Restricted
cash represents a certificate of deposit (“CD”) maintained at a financial
institution.  The CD secures the outstanding balance of Company credit
cards issued by that institution.   We reduced the number and
credit limit of our Company credit cards and reduced the corresponding CD from
$192,574 at December 31, 2007 to $125,000 as of June 30, 2008.
 12


8.  Prepaid
Expenses and Other Current Assets


As of June
30, 2008, prepaid expenses and other current assets were $244,584, primarily
consisting of $133,484 in prepaid insurance and other employee benefit costs,
$42,622 in prepaid maintenance and license fees for software used in the
development of our products and provision of services and $14,375 in prepaid
marketing costs for subscriptions to industry analyst services and
conferences.  As of December 31, 2007, prepaid expenses and other
current assets were $173,331, primarily consisting of $112,440 in prepaid
insurance and other employee benefit costs and $37,267 in prepaid marketing
costs for subscriptions to industry analyst services and
conferences.
 
 
 9.   Prepaid
Expense from Warrant
 
 Prepaid
expense from warrant consists of an original charge of $173,021 related to the
issuance of a warrant to a customer in 2005 to purchase 100,000 shares of the
our Common Stock, in exchange for a guarantee by that customer to provide
maintenance and support services for the ANTs Data Server (ADS) to our customers
should we be unable to provide such services.  The fair value of the
warrant was calculated using the Black-Scholes valuation model.  The
warrant had an exercise price of $3.50 per share and expired July
2008.
 
 Effective
May 2008 we sold the underlying ADS technology to the customer and the remaining
prepaid was expensed.  The prepaid expense was being amortized into
the statements of operations on a straight-line basis, over 36 months,
commencing January 2006.  Amortization expense, including the amount
written off in May 2008, totaled $43,255 and $57,674 for the three and six
months ended June 30, 2008, respectively. Amortization expense for the three and
six months ended June 30 2007 was $14,418 and $28,837 respectively.
 
 10.  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 on the
statements of operations over the life of the contract, which is generally a
12-month period beginning with customer acceptance of the product.
 
 Deferred
revenue activity was as follows:
  Balance,
      December 31, 2007
                
                $
                48,818Invoiced
                
                
                487,313Recognized
                
                
                (282,308
                )Balance,
      June 30, 2008
                
                $
                253,823




11.  Industry
Segment, Customer and Geographic Information
  We operate
in a single industry segment, computer software.  Our organization is
primarily structured in a functional manner.  During the periods
presented, our current Chief Executive Officer was identified as our Chief
Operating Decision Maker (CODM) as defined by SFAS No. 131, “Disclosures About Segments of an
Enterprise and Related Information” (SFAS 131).  Upon our
acquisition of Inventa in May 2008, we immediately consolidated our sales force,
research and development and operations teams in order to provide sales and
implementation support.  Our services revenue consists of both
maintenance and services revenue arising from managed services and consulting
services generated by our newly acquired subsidiary, Inventa, as well as those
from professional services and consulting provided to customers of our database
technology.  Our engineering and IT support teams provide support to
both our database technology and managed services lines of
business.  As we continue to integrate Inventa our CODM evaluates both
revenues and expenses on a consolidated functional basis.  As a
result, our CODM considers consolidated financial information on revenues,
gross margins and operating expenses on an aggregate basis for monitoring,
review and decision making.
 13


Customer
Information





For the
six months ending June 30, 2008, revenue from two customers individually
exceeded 10% of total revenues with one representing 64% of revenues and the
other 28% of revenues.





Geographic
Information





All of our customers are billed in U.S.
dollars and substantially all our revenues are generated by customers domiciled
in the U.S.




12.  Income
Taxes




Effective
January 1, 2007, we adopted Financial Accounting Standards Interpretation, FIN
48, “Accounting for
Uncertainty in Income Taxes – An Interpretation of FASB Statement
No. 109.” FIN 48 prescribes a recognition threshold and measurement
attribute for the financial statement recognition and measurement of uncertain
tax positions taken or expected to be taken in a company’s income tax return,
and also provides guidance on derecognition, classification, interest and
penalties, accounting in interim periods, disclosure, and transition. FIN 48
utilizes a two-step approach for evaluating uncertain tax positions accounted
for in accordance with SFAS No. 109, “Accounting for Income Taxes”
(SFAS No. 109).  Step One, Recognition, requires a
company to determine if the weight of available evidence indicates that a tax
position is more likely than not to be sustained upon audit, including
resolution of related appeals or litigation processes, if any.  Step
Two, Measurement, is
based on the largest amount of benefit, which is more likely than not to be
realized on ultimate settlement.




We have
elected to record interest charges recognized in accordance with FIN 48 in the
financial statements as income tax expense.  Penalties recognized in
accordance with this standard will also be classified in the financial
statements as income taxes.  Any subsequent change in classification
of FIN 48 interest and penalties will be treated as a change in accounting
principle subject to the requirements of FAS 154, “Accounting Changes and Error
Corrections.”





Upon
adoption of FIN 48, our policy to include interest and penalties related to
unrecognized tax benefits within our provision for (benefit from) income tax
expense did not change. As of June 30, 2008, we had no amount accrued for
payment of interest and penalties related to unrecognized tax benefits (and no
amounts as of the adoption date of FIN 48).  For the six months ended
June 30, 2008, we recognized no amounts of interest and penalties related to
unrecognized tax benefits in our provision for income taxes.





The
cumulative effect of adopting FIN 48 on January 1, 2007 is recognized as a
change in accounting principle, recorded as an adjustment to the opening balance
of retained earnings on the adoption date.  As a result of the
implementation of FIN 48, we recognized no change in the liability for
unrecognized tax benefits related to tax positions taken in prior periods, and
no corresponding change in retained earnings. At December 31, 2007 we recorded a
valuation allowance for the total deferred tax assets as a result of
uncertainties regarding the realization of the asset based upon the lack of
profitability and the uncertainty of future profitability. This valuation
allowance offsets any changes to the liability. Additionally, FIN 48 specifies
that tax positions for which the timing of the ultimate resolution is uncertain
should be recognized as long-term liabilities. We made no reclassifications
between current taxes payable and long-term taxes payable upon adoption of FIN
48.  Our total amount of unrecognized tax benefits as of the January
1, 2007 adoption date and for the six months ended June 30, 2008 was $685,000.
On January 1, 2007, although the implementation of FIN 48 did not impact the
amount of our liability or impact beginning retained earnings, we reduced our
deferred tax asset and valuation allowance by $685,000.





Our only
major tax jurisdiction is the United States.  The tax years 1993
through 2006 remain open and subject to examination by the appropriate
governmental agencies in the U.S.





13.   Debt





Debt
Restructuring





Effective
May 15, 2008 we negotiated with certain holders of our convertible promissory
notes (the “Notes”) to both extend the maturity date and reduce the price at
which each note is convertible into shares of our common stock (the “Conversion
Price”) from $2.00 per share to either $0.80 or $1.20 per share.  A
total of $9.3 million in principal was renegotiated and the due dates were
extended from their original maturity dates of December 2008 through December
2010, to a revised maturity date of January 31, 2011.  The Notes that
were renegotiated represent both those issued under the “J Unit Sales” as well
as those issued under “Convertible Debt with Warrants” discussed
below.  The other terms of the Notes remained unchanged.


14


Conversion
prices and amounts outstanding at June 30, 2008 and 2007 were as
follows:


As
      of June 30,2008
              
              
              2007
              
              
              2008
              
              
              2007Conversion
      Price
                per
      share
              
              Convertible
      Notes Payable
                Outstanding
              
              
              Potential
      Convertible Shares$               0.80
              
              $
              6,248,226
              
              
              $
              -
              
              
              
              7,810,282$               1.20
              
              
              5,005,000
              
              
              
              -
              
              
              
              4,170,833$               2.00
              
              
              250,000
              
              
              
              6,500,000
              
              
              
              125,000
              
              
              
              3,250,000Total
              
              $
              11,503,226
              
              
              $
              6,500,000
              
              
              
              12,106,115
              
              
              
              3,250,000





On the
date of modification and in accordance with EITF 96-19 “Debtors Accounting for Modification
or Exchange of Debt Instruments” we compared the discounted present value
of the cash flows of the modified convertible promissory notes (the “Modified
Notes”) to the discounted present value of the original Notes to determine
whether the change in cash flows exceeded 10% of the carrying value of the
original Notes.  As the change in cash flows was less than 10%, we
then determined whether the intrinsic value of the revised Conversion Price
exceeded 10% of the carrying value of the original Notes.  The
intrinsic value of the Modified Notes with a revised Conversion Price of $1.20
per share did not exceed 10% of the carrying value of the Notes, while those
with a revised Conversion Price of $0.80 per share did exceed 10% of the
carrying value of the Notes.  Those Notes with an $0.80 conversion
price were deemed to be extinguished for accounting purposes while those with a
$1.20 conversion price were not.




We also
valued the intrinsic value of the modified notes (the “New Notes”) as equal to
the difference between the market value of our common stock and the modified
Conversion Price times the number of shares into which the New Notes are
convertible and recorded that intrinsic value as an increase in paid-in-capital
of $2,017,907 and discount on the notes payable of $2,017,907.




All of our
convertible promissory notes outstanding can be converted into shares of our
common stock immediately upon issuance at the option of the Note holders;
accordingly we also immediately expensed the $2,017,907 discount.  The
modified Notes were deemed to be reissued and are recorded in this Interim
Financial Statement at their face value of $4.3 million, which includes a
premium of $39,481.  The premium will be amortized using the
straight-line method over the life of the New Notes, which is  not
materially different than the effective-interest method.




The total
debt modification costs consist of a net loss of $2,238,205, which includes
a loss of $184,043 on the note modification, a $36,255 write off of prepaid debt
issuance costs and expensing of $2,017,907 relating to the
discount.




“J” Unit
Sales





The J Unit
Sales consist of the issuance of convertible promissory notes and equity over
periods from December 2006 through March of 2008.   Substantially
all convertible notes issued were restructured in May 2008 as discussed
above.  This private offering was approved by our Board of Directors
in December 2006 to raise additional working capital and consisted of units (the
“J Units”) sold at a per unit price of $50,000 with each J Unit comprised of (i)
14,285 shares of our common stock (issued at a per share price of $1.75) and
(ii) a convertible promissory note (the “Note”) with an initial face value of
$25,000.   The Notes bear interest at the rate of 10% per annum
(simple interest) due and payable at the end of each fiscal quarter. Each Note
originally matured 24 months from its issuance date, and was convertible into
shares of our common stock, at the election of the holder, at a per share price
of $2.00.  The Notes are prepayable without penalty upon 30 days
notice.  The Notes are convertible at our election in the event the
closing price of our common stock equals or exceeds $4.00 per share, and if
converted at our election, we have agreed to register the shares of stock
issuable upon conversion.


15


In
December 2006, we sold 40 J Units to accredited investors, raising $2 million
and issued 571,400 shares of common stock and Notes with an aggregate face value
of $1 million.  In January 2007, we sold 180 J Units to accredited
investors, raising $9 million, and issued 2,571,300 shares of common stock and
Notes with an aggregate face value of $4.5 million.  In March 2007, we
sold 40 J Units to accredited investors, raising $2 million, and issued 571,400
shares of common stock and Notes with an aggregate face value of $1 million. The
sales of these securities were made in reliance upon Rule 506 and Section 4(2)
of the Securities Act of 1933.





We applied
the guidance in Accounting Principles Board (“APB”) No. 14, “Accounting for
Convertible Debt and Debt Issued with Stock Purchase Warrants” and Emerging
Issues Task Force (“EITF”) 00-27, “Application of EITF 98-5, Accounting for
Convertible Securities with Beneficial Conversion Feature or Contingent with
Adjustable Conversion Ratios, to Certain Convertible Instruments” to allocate
the proceeds between the common stock and the Notes based on their relative fair
values. The allocation resulted in a premium of $533,700 and $152,040
respectively, for the January 2007 and March 2007 Notes.





As a
commission for the sale of the January 2007 and March 2007 J Unit sales and
placement of the Notes, we paid $1,100,000 in cash commissions and issued
199,980 shares of common stock to a placement agent. The shares are
contractually valued at $1.93 per share or $385,961. The total commission value
of $1,485,961 was allocated between debt issuance costs and additional paid-in
capital as a cost of raising the funds, in the same proportion that was used to
allocate the gross proceeds of the offering between notes payable and
stockholders’ equity.  This resulted in (i) an increase to debt
issuance costs of $835,616, amortizable over the life of each Note and (ii) and
increase to additional paid-in capital of $650,345.





Convertible Notes Payable
with Warrants





During
October 2007 we sold a convertible promissory note in the amount of $2,000,000
to an accredited investor.  Pursuant to the sale, we issued a warrant
to the investor covering 1,333,333 shares of our common stock with a per share
exercise price of $3.25. The warrant expires 36 months from issuance. The note
bears interest at the rate of 10% per annum (simple interest) due and payable at
the end of each calendar quarter. Upon issuance the note matured 36 months from
issuance and was convertible into shares of our common stock, at the election of
the holder, at a per share price of $1.50.  This note was modified in
May of 2008 such that the maturity date was extended to January 31, 2011 and the
per share conversion price was reduced to $0.80.   The note is
prepayable without penalty if (i) the bid price of our common stock equals or
exceeds $4.00 per share for ten consecutive trading days and (ii) we provide the
investor with 20 trading days’ notice of our intent to prepay.  This
note was deemed extinguished in May 2008 as noted in Debt Restructuring above,
and was revalued at a fair value of $2,015,046, including a premium of
$15,046.  The sales of these securities were made in reliance upon
Rule 506 and Section 4(2) of the Securities Act of 1933.





During
December 2007 we sold a convertible promissory note in the amount of
$1,003,226.  Pursuant to the sale, we issued a warrant to the investor
covering 668,817 shares of our common stock with a per share exercise price of
$3.25. The warrant expires 36 months from issuance. The note bears interest at
the rate of 10% per annum (simple interest) due and payable at the end of each
calendar quarter. The note matures 36 months from issuance and is convertible
into shares of our common stock, at the election of the holder, at a per share
price of $1.50.  The note is prepayable without penalty if (i) the bid
price of our common stock equals or exceeds $4.00 per share for ten consecutive
trading days and (ii) we provide the investor with 20 trading days’ notice of
our intent to prepay. This note was deemed extinguished in May 2008 as noted in
Debt Restructuring above, and was revalued at a estimated fair value of
$1,010,773, including a premium of $7,547.  The sales of these
securities were made in reliance upon Rule 506 and Section 4(2) of the
Securities Act of 1933.





In
accordance with APB 14 and EITF 00-27, upon original issuance, we allocated the
proceeds of these sales between the warrants and the notes based on their
relative fair values.  The allocation resulted in a discount of
$250,910 for both notes.  Upon modification the discount on these
notes was revalued to result in a loss on modification of debt totaling
$229,647.





Line of
Credit





On May 30,
2008, we assumed a revolving credit facility (the “Facility”) in connection with
our acquisition of Inventa, that remains in force through May 15,
2009.  The Facility consists of a $250,000 revolving line of credit
which bears interest at a daily rate of LIBOR plus 2.00% (4.47% at June 30,
2008). At June 30, 2008, there was $170,000 outstanding under the line of
credit and $80,000 available pursuant to the terms of the
Facility.  There are no commitment fees due under the
facility.  The terms of the Facility require consecutive monthly
interest-only payments with the principal due on May 15, 2009.  The
Facility is secured by all of the assets of Inventa and requires, among other
covenants, the net solvency of Inventa.


16


Convertible Notes Related to
Acquisition of Inventa Technologies, Inc.





On May 30, 2008 and as part of the
purchase price of Inventa, we issued to the sellers $2.0 million in unsecured
promissory notes due January 31, 2011 bearing interest at 10%, with interest
payable at the end each ANTs fiscal quarter.  The convertible
promissory notes are immediately convertible to 2.5 million shares of our common
stock at the election of the holders at a per share conversion price of $0.80.
At the time of issuance, the conversion price was $0.30 less than the
then-market price of our common stock. In accordance with EITF 98-5, “Accounting
for Convertible Securities with Beneficial Conversion Feature or Contingent with
Adjustable Conversion Ratios, to Certain Convertible Instruments” we recorded
$750 thousand as an increase to paid-in-capital.  In
addition,  as the notes are immediately convertible into shares of our
common stock, the discount was expensed and we recorded $750 thousand to
interest expense.





14.Commitments and
Contingencies




Contingencies





As
required by SFAS No.5, Accounting for Contingencies (SFAS 5), we accrue for
contingencies when we believe that a loss is probable and that we can reasonably
estimate the amount of any such loss. We have made an assessment of the
probability of incurring any such losses and such amounts are reflected in our
condensed consolidated financial statements. As more fully disclosed in Part II
Item 1. Legal Proceedings, we are currently a party to a pending legal
proceeding.  Litigation is inherently unpredictable, and it is
difficult to predict the outcome of particular matters with reasonable certainty
and, therefore, the actual amount of any loss may prove to be larger or smaller
than the amounts reflected in our consolidated financial
statements.  No reserves have been accrued for the pending legal
proceeding in the accompanying Interim Financial Statements.





Lease
Commitment





As of June
30, 2008, we leased office facilities under non-cancelable operating
leases.  Future minimum lease payments required under these
non-cancelable leases are as follows:





Payments Due by
      Period
              
              Operating LeasesLess
      than 1 Year
              
              $
              433,248More
      than 1 Year
              
              
              524,688Total
      minimum lease payments
              
              $
              957,936





On April
27, 2005, we entered into a lease with Bayside Plaza, a partnership, for
approximately 15,000 square feet of general commercial offices located at 700
Airport Boulevard, Suite 300, Burlingame, California (the “Premises”). The
Premises are used for the purposes of general office use and for software
development. The lease has an initial term of three years and is subject to our
right to extend the term of the lease for a total of six additional
years.  In July 2007 we extended this lease for the period May 1, 2008
through April 30, 2009 at the rate of $34,200 per month.  Through
April 30, 2008 we recognized rent expense for this lease in accordance with
Financial Technical Bulletin 85-3 (“FTB 85-3”), “Accounting for Operating Leases with
Scheduled Rent Increases.”  The base rent, the effects of the
scheduled rent increases, and the effects of the rent abatement were recognized
on a straight-line basis over the lease term; rent expense for the periods May
1, 2008 through April 30, 2009 are recorded at the payment amount.





As
discussed in Note 2, on May 30, 2008 we acquired Inventa.  As part of
the acquisition ANTs assumed the Inventa operating lease of a general commercial
facility in Mt. Laurel, New Jersey at the monthly rent of $7,604.  The
lease expires March 15, 2015.





Under our
leases we are obligated to restore facilities to their former condition; these
requirements consist of normal maintenance which is considered to be
immaterial.  Effective June 1, 2008, we agreed to sub-lease a portion
of our Burlingame facility to a customer on a month-to-month lease through
April, 2009 for $13,000 for rent and utilities, payable each month in
advance.  Rental expense is shown net of sub-lease
income.   Total rental expense for the three and six months ended
June 30, 2008 was $78,443 and $128,443 respectively, and $50,004 and $110,008
for the three and six months ended June 30, 2007, respectively.


17


15.   Stockholders’
Equity Transactions





Stockholders’
equity transactions by cash and non-cash activity for the six months ended June
30, 2008 and 2007 is presented below.




Changes
      in Stockholders' EquityFor
      the six months ended June 30,2008
              
              
              2007Total
      stockholders' equity, beginning of period
              
              
              
              
              $
              (5,044,880
              )
              
              
              
              
              $
              3,823,010Cash
      transactions:Proceeds
      from private placements:Sales
      of common stock at $0.60 per share
              
              
              7,615,000
              
              
              
              
              
              
              
              -Cash
      commissions on sales of common stock
              
              
              (367,200
              )
              
              
              
              
              
              
              -Sales
      of 220 "J" units at $25,000 per unit (equity portion of
    units)
              
              
              -
              
              
              
              
              
              
              
              5,500,000Total
      cash commissions on sales of "J" units (equity)
              
              
              -
              
              
              
              
              
              
              
              (481,426
              )Total
              
              
              7,247,800
              
              
              
              
              
              
              
              5,018,574Proceeds
      from stock  exercises:Cash
      proceeds from exercise of stock options
              
              
              32,679
              
              
              
              
              
              
              
              60,600Total
              
              
              32,679
              
              
              
              
              
              
              
              60,600Total
      cash transactions
              
              
              
              
              
              
              7,280,479
              
              
              
              
              
              
              
              5,079,174Non-cash
      transactions:Acquisition
      of Inventa Technologies, Inc.Issuance
      of 20,000,000 shares valued at $1.10 per share
              
              $
              22,000,000
              
              
              
              
              
              
              $
              -Discount
      on $2 million in convertible promissory notes
              
              
              750,000Total
              
              
              22,750,000
              
              
              
              
              
              
              
              -Intrinsic
      value of conversion feature of reissued convertiblepromissory
      notes
              
              
              2,017,907
              
              
              
              
              
              
              
              -Related
      to private placements:Premium
      on notes payable
              
              
              -
              
              
              
              
              
              
              
              (685,740
              )Common
      stock issued to placement agent onsales
      of 220 "J' units, net
              
              
              -
              
              
              
              
              
              
              
              217,042Total
              
              
              -
              
              
              
              
              
              
              
              (468,698
              )Related
      to stock vesting and warrant-based compensation:Employee
      compensation expense
              
              
              2,283,538
              
              
              
              
              
              
              
              667,749Non-employee
      compensation expense
              
              
              123,783
              
              
              
              
              
              
              
              49,907Total
              
              
              2,407,321
              
              
              
              
              
              
              
              717,656Total
      non-cash transactions
              
              
              
              
              
              
              27,175,228
              
              
              
              
              
              
              
              248,958Net
      loss for fiscal period
              
              
              
              
              
              
              (6,857,561
              )
              
              
              
              
              
              
              (8,369,758
              )Total
      stockholders' equity, end of period
              
              
              
              
              
              $
              22,553,266
              
              
              
              
              
              
              $
              781,384


18


Following
is a summary of equity transactions for the six months ending June 2008 and
2007, respectively. Sales of equity securities (with the exception of stock
option exercises) or equity-linked securities were made in reliance upon Rule
506 and Section 4(2) of the Securities Act of 1933.
 
 Six
months ended June 30, 2008:
 
 Funds raised through private
offerings to accredited investors:
 
 We
received $7,615,000 from accredited investors for the sale of 12,691,667 shares
of our common stock, at a price of $0.60 per share and incurred commission costs
of $367,200.  We issued 558,257 shares of our 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 are contractually valued at $0.66 per share or $368,450.
 
 Other equity
transactions:
 
 As
discussed in Note 2, on May 30, 2008 we acquired Inventa Technologies, Inc. for
a total purchase price of $27.1
million, which included our issuance of 20 million shares of our common stock
valued at $1.1 0
p er
share.  We also issued $2 million in promissory notes to the seller,
convertible into 2.5 million shares of our common stock.  As discussed
in Note 13, the notes had a beneficial conversion feature totaling in aggregate
$750 thousand which was allocated to 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), we recognized
$768,024 in stock compensation expense, net of forfeiture credits, as a result
of the repricing.
 
 For the
six months ended June 30, 2008 we recognized a total of $2,407,321 in
compensation expense related to the vesting of employee stock options and the
repricing and $95,749 in professional fees related to the vesting of
non-employee stock options and warrants in accordance with the accounting
guidelines set forth in SFAS 123 (R) and EITF 96-18, respectively.
 
 For the
three 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 $.52 to $.81, resulting in gross proceeds of
$32,679.
 
 Transactions
for the six months ended June 30, 2007:
 
 Funds raised through private
offerings to accredited investors:
 
 We entered into agreements with
accredited investors to purchase 220 J Units, raising $11,000,000. and issued
3,142,700 shares of our common stock at a share price of $1.75 totaling
$5,500,000 and issued Notes with an initial face value of $5,500,000. The Notes
bear interest at the rate of 10% per annum (simple interest) due and payable at
the end of each fiscal quarter. The Notes mature 24 months from the issuance
date, and are convertible into shares of our common stock, at the election of
the holder, at a per share price of $2.00.  The Notes are prepayable
without penalty upon 30 days notice. The Notes are convertible at our election,
in the event the closing price of our common stock equals or exceeds $4.00 per
share, and if converted at our election, we have agreed to register the shares
of stock issuable upon conversion.   As discussed in Note 13,
these notes were modified in May 2008.
 
 We
paid $1,100,000 in cash commissions and issued 199,980 shares of our common
stock to a placement agent for services related to the sale of J Units in
January and March 2007. The shares are contractually valued at $1.93 per share
or $385,961. The total commission value of $1,485,961 was allocated between debt
issuance costs and additional paid-in capital as a cost of raising the equity
portion of the offering, in the same proportion that was used to allocate the
gross proceeds of the offering between notes payable, and stockholders’
equity.  This resulted in an increase in debt issuance costs of
$835,616 and the remaining $650,345 was allocated to additional paid-in
capital.
 19


Other equity
transactions:
 
 We recognized $667,749 in compensation
expense related to the vesting of employee stock options and $49,907 in
professional fees related to the vesting of non-employee stock options. $50,512
of the employee compensation expense is attributable to the modification of
grants made to terminated employees whereby their exercise period was extended
from three months to two years.
 
 We received gross proceeds of $60,600
in exchange for the issuance of 60,000 shares of common stock sold through the
exercise of stock options.
 
 16.   Stock-Based
Compensation Expense
 
 We have
two stock-based compensation plans (the ANTs software inc. 2000 Stock Option
Plan and the ANTs software inc. 2008 Stock Plan, together, “the Plans”) which
are intended to attract, retain and provide incentives for talented employees,
officers, directors and consultants, and to align stockholder and employee
interests.  We consider stock-based compensation critical to our
operation and productivity; essentially all of our employees and directors
participate, as well as certain consultants. Under the Plans, we may grant
incentive stock options and non-qualified stock options to employees, directors
or consultants, at not less than the fair market value on the date of grant for
incentive stock options, and 85% of fair market value for non-qualified
options.  Options are granted at the discretion of the Board of
Directors and the Compensation Committee of the Board of Directors.
 
 Options
granted under the Plans generally vest within three years after the date of
grant, and expire 10 years after grant.  Stock option vesting is
generally time-based, but stock options sometimes vest as a result of
achievement of milestones. Options granted to new hires generally vest 16.7% or
33% beginning six months and twelve months, respectively, after the employee’s
date of hire, then at 2.78% each month thereafter such that the option is fully
vested three years from date of hire. Options granted to existing employees
generally start vesting monthly following their grant.  Following
termination of employment or consulting status there is usually a grace period
during which the vested portion of the option is exercisable. This period is
typically three months, but may be shorter or longer depending on the terms of a
given stock option agreement.  Outside directors generally receive an
option to purchase 50,000 shares of common stock for each 12 months of service,
and an additional 10,000 shares for each 12 months of service as chairman of a
Board committee, all vesting over the period of service.  Directors
generally serve for terms of three years.  Options granted to
directors may include a one-year lock-up provision following termination of
their director status, during which period the option cannot be
exercised.
 
 As
disclosed above in Note 15, on March
26 and March 31, 2008, the Board of Directors approved 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 of vested and unvested shares in connection
with the repricing. In accordance with the provisions of FAS 123(R), we
recognized $768,024 in stock compensation expense, net of forfeiture credits, as
a result of the repricing.
 20


The
following table sets forth the total stock-based compensation expense for
employees, outside directors and consultants for the six months ending June 30,
2008 and 2007.




For
      the Three Months Ended
              
              
              For
      the Six Months EndedJune
      30,
              
              
              June
      30,2008
              
              
              2007
              
              
              2008
              
              
              2007Cost
      of Revenues
              
              $
              22,451
              
              
              $
              -
              
              
              $
              22,451
              
              
              $
              -Sales
      and marketing ("S&M")
              
              
              231,004
              
              
              
              27,060
              
              
              
              295,939
              
              
              
              108,013Research
      and development ("R&D")
              
              
              487,665
              
              
              
              178,216
              
              
              
              1,032,605
              
              
              
              305,671General
      and administrative ("G&A")
              
              
              517,182
              
              
              
              171,709
              
              
              
              1,056,326
              
              
              
              303,972Stock-based
      compensation before income taxes
              
              
              1,258,302
              
              
              
              376,985
              
              
              
              2,407,321
              
              
              
              717,656Income
      tax benefit
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Total
      stock-based compensation expense after income taxes
              
              $
              1,258,302
              
              
              $
              376,985
              
              
              $
              2,407,321
              
              
              $
              717,656Stock-based
      compensation expense charged to:Employee
      compensation expense (includesoutside
      directors)
              
              $
              1,162,553
              
              
              $
              375,564
              
              
              $
              2,283,538
              
              
              $
              667,749Professional
      fees - S&M consultants
              
              
              1,834
              
              
              
              -
              
              
              
              4,664
              
              
              
              12,598Professional
      fees - R&D consultants
              
              
              51,156
              
              
              
              1,421
              
              
              
              76,360
              
              
              
              2,899Professional
      fees - G&A consultants
              
              
              42,759
              
              
              
              -
              
              
              
              42,759
              
              
              
              34,410Stock-based
      compensation before income taxes
              
              
              1,258,302
              
              
              
              376,985
              
              
              
              2,407,321
              
              
              
              717,656Income
      tax benefit
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Total
      stock-based compensation expense after income taxes
              
              $
              1,258,302
              
              
              $
              376,985
              
              
              $
              2,407,321
              
              
              $
              717,656


Stock-based
compensation expense for the three and six months ended June 30, 2008 increased
basic and diluted net loss per share by $0.03 and $0.09, respectively and for
the three and six months ended June 30, 2007 increased basic and diluted net
loss per share by $0.01 and $0.01, respectively.  Stock -based
compensation had no impact on cash flows used in operations or cash flows from
financing activities.





The fair
value of employee and non-employee stock-based awards, and the stock-based
compensation expense for the three months ending June 30, 2008 and 2007 was
estimated using the Black-Scholes valuation model with the following
assumptions:





Six
      Months Ended June 30,2008
              
              
              2007Expected
      life in years
              
              3.00
      - 10.00
              
              
              3.00
      - 10.00Average
      Volatility
              
              66%
      - 67%
              
              
              67%
      - 156%Interest
      rate
              
              1.38%
      - 2.87%
              
              
              4.32
      %- 4.76%Dividend
      Yield
              
              0.00%
              
              
              0.00%




The
expected life of the options represents the estimated period of time until
exercise and is based on historical experience of similar awards, giving
consideration to the contractual terms, vesting schedules and expectations of
future behavior of employee and non-employees. Expected stock price volatility
is based on historical volatility of our common stock over the expected life of
the options. The risk-free interest rate is based on the yield available on U.S.
Treasury zero-coupon issues with an equivalent remaining expected life. We have
not paid dividends in the past and do not expect to pay any dividends in the
near future.


21


As of June
30, 2008, there was approximately $2.4 million of total unrecognized
compensation expense, adjusted for estimated forfeitures, related to unvested
stock-based compensation granted to employees and non-employees, which we expect
to recognize over a remaining weighted-average period of approximately 2.1
years. Total unrecognized compensation cost will be adjusted for future changes
in estimated forfeitures.
 
 17.   Stock
Options and Warrants
 
 As of June
30, 2008, we had outstanding options to purchase up to 10,625,433 of common
stock of which 6,992,803 were exercisable and 4,557,941 warrants outstanding to
purchase common stock, all of which were exercisable.
  Stock
      Option Shares
                
                
                
                
                
                Total
      OptionsAvailable
                
                
                
                
                
                Warrants
                
                
                and
      Warrantsfor Grant
                
                
                Outstanding
                
                
                Outstanding
                
                
                OutstandingBalance,
      December 31, 2007
                
                
                652,789
                
                
                
                8,689,050
                
                
                
                8,124,380
                
                
                
                16,813,430Authorized
                
                
                5,000,000
                
                
                
                -
                
                
                
                -
                
                
                
                -Granted
                
                
                (3,964,500
                )
                
                
                3,964,500
                
                
                
                50,166
                
                
                
                4,014,666Exercised
                
                
                47,500
                
                
                
                (47,500
                )
                
                
                -
                
                
                
                (47,500
                )Retired/forfeited
                
                
                1,980,617
                
                
                
                (1,980,617
                )
                
                
                (3,616,605
                )
                
                
                (5,597,222
                )Balance,
      June 30, 2008
                
                
                3,716,406
                
                
                
                10,625,433
                
                
                
                4,557,941
                
                
                
                15,183,374Exercisable
      at June 30, 2008
                
                
                
                
                
                
                6,992,803
                
                
                
                4,557,941
                
                
                
                11,550,744




Net cash
proceeds from the exercise of stock options were $32,675 and $32,675 for the
three and six months ended June 30, 2008 and $60,000 and $60,600 for the three
and six months ended June 30, 2007, respectively. There was no income tax
benefit realized from stock option exercises during these periods due to our net
loss from operations for both periods.  In accordance with SFAS
123(R), we present excess tax benefits from the exercise of stock options, if
any, as financing cash flows rather than operating cash flows.
 
 Average
exercise prices and aggregate intrinsic values of stock option activity for the
six months ended June 30, 2008, is as follows:
  WeightedShares
                
                
                
                
                
                Weighted
      Average
                
                
                AggregateAvailable
                
                
                Outstanding
                
                
                Exercise
                
                
                IntrinsicFor Grant
                
                
                Stock Options
                
                
                Price
                
                
                ValueOutstanding
      at January 1, 2008
                
                
                652,789
                
                
                
                8,689,050
                
                
                
                2.05
                
                
                $
                -Authorized
                
                
                5,000,000Granted
                
                
                (3,964,500
                )
                
                
                3,964,500
                
                
                
                1.14Exercised
      through cash consideration
                
                
                47,500
                
                
                
                (47,500
                )
                
                
                -Retired
      or forfeited
                
                
                1,980,617
                
                
                
                (1,980,617
                )Outstanding
      at June 30, 2008
                
                
                3,716,406
                
                
                
                10,625,433
                
                
                
                1.08
                
                
                $
                -Exercisable
      at June 30, 2008
                
                
                
                
                
                
                6,992,803
                
                
                
                1.15
                
                
                $
                -




The
aggregate intrinsic value of total stock options outstanding and exercisable and
of total stock options exercised during the six months ended June 30, 2008 in
the table above represent the total pretax intrinsic value (i.e., the difference
between our closing stock price on June 30, 2008 and the weighted average
exercise price, times the number of shares) that would have been received by the
option holders had all option holders exercised their options on June 30, 2008.
Aggregate intrinsic value changes as the fair market value of our stock
changes.  The closing market price of the stock on June 30, 2008 was
$0.88.
 22


The
weighted average grant-date fair value of stock options granted during the three
months ended June 30, 2008 was $1.18.  The range of exercise prices
for options outstanding and exercisable at June 30, 2008 are summarized as
follows:




Total
      Options Outstanding as of June 30 ,2008Weighted
              
              
              WeightedAverage
      Exercise
              
              
              Average
      RemainingOptions
              
              
              Price per Share
              
              
              Contractual Life (in Years)Range
      of exercise prices:$0.52
      - $0.99
              
              
              5,782,442
              
              
              $
              0.87
              
              
              
              6.88$1.00
      - $1.99
              
              
              4,443,204
              
              
              $
              1.25
              
              
              
              9.47$2.00
      - $2.99
              
              
              383,146
              
              
              $
              2.25
              
              
              
              7.29$3.00
      - $3.99
              
              
              16,641
              
              
              $
              3.13
              
              
              
              3.19Total
      stock options outstandingat
      June 30, 2008
              
              
              10,625,433
              
              
              $
              1.08
              
              
              
              7.97
  Total
      Options Exercisable at June 30, 2008Weighted
              
              
              WeightedAverage
      Exercise
              
              
              Average
      RemainingOptions
              
              
              Price per Share
              
              
              Contractual Life (in Years)Range
      of exercise prices:$0.52
      - $0.99
              
              
              4,721,200
              
              
              $
              0.87
              
              
              
              6.37$1.00
      - $1.99
              
              
              1,871,816
              
              
              $
              1.33
              
              
              
              8.58$2.00
      - $2.99
              
              
              383,146
              
              
              $
              2.25
              
              
              
              7.29$3.00
      - $3.99
              
              
              16,641
              
              
              $
              3.13
              
              
              
              3.19Total
      stock options exercisableat
      June 30, 2008
              
              
              6,992,803
              
              
              $
              1.08
              
              
              
              7.01




Warrants
outstanding as of June 30, 2008 are summarized in the table below:
  Exercise
                
                
                WeightedPrices
                
                
                Average
                
                Year
      ofWarrants
                
                
                per Share
                
                
                Exercise Price
                
                ExpirationWarrants
      purchased in privateplacements:
                
                
                1,000,000
                
                
                $
                0.80
                
                
                
                
                20112,002,150
                
                
                $
                0.80
                
                
                
                
                2011Subtotal
                
                
                3,002,150
                
                
                
                
                
                
                $
                0.80Warrants
      issued to consultants and
                
                
                150,000
                
                
                $
                1.85
      - $1.99
                
                
                
                
                
                2009placement
      agent:
                
                
                50,166
                
                
                $
                0.60
                
                
                
                
                
                2013Subtotal
                
                
                200,166
                
                
                
                
                
                
                $
                1.42Warrants
      issued to outside directorsand
      former employee:50,000
                
                
                $
                0.94
                
                
                
                
                
                2010850,000
                
                
                $
                0.94
      - $2.31
                
                
                
                
                
                2011198,750
                
                
                $
                0.94
                
                
                
                
                
                2015256,875
                
                
                $
                0.94
                
                
                
                
                
                2016Subtotal
                
                
                1,355,625
                
                
                
                
                
                
                
                1.70Total
      warrants outstanding atJune
      30, 2008
                
                
                4,557,941
                
                
                
                
                
                
                $
                1.09


23


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, 2007.
 
 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 services, 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.
 
 The
Company
 
 ANTs
software inc. (sometimes referred to herein as “ANTs” or “we”) designs, develops
and sells software and services for the database market. Our areas of focus
are:  software and services that enable customers to consolidate
databases more quickly and cost-effectively and services to monitor and manage
applications and databases.
 
 The ANTs
Compatibility ServerTM
(“ACS”), launched in April 2008, is intended to provide a fast, cost-effective
way to move applications from one database to another and to enable enterprises
to achieve cost efficiencies by consolidating applications onto fewer
databases.  ACS is built on proprietary compatibility technologies
that we developed. End-users of database products and database vendors can use
ACS to lower data management costs and gain competitive advantages.
 
 In May
2008, we expanded our business to include application migration services and
application and database monitoring and management services via the acquisition
of Inventa Technologies, Inc. of Mt. Laurel, New Jersey
(“Inventa”).   Inventa is a 24/7 managed services and consulting
services provider that helps customers maximize the effectiveness of their
application and database infrastructure to support their business
initiatives.  Inventa’s experienced professional services and sales
teams complement the ANTs engineering team and allow us to offer a complete
product-to-implementation solution for customers.
 
 In May
2008, we sold certain technology and intellectual property related to our first
product, the ANTs Data Server ("ADS"), to Four Js Development Tools, Inc. As
part of a revenue-sharing arrangement we will receive 50% of the revenue earned
by Four J's in our previously executed reselling agreement with IBM. The
revenue-sharing agreement terminates in four years and is expected to generate
approximately $1 - $2 million during that time.
 24


Corporate History





ANTs
software inc. is a Delaware corporation headquartered in Burlingame,
California.  Our shares trade on the OTC Bulletin Board under the
stock symbol ANTS. We are the successor to Sullivan Computer Corporation, a
Delaware corporation incorporated in January 1979, which, in 1986 changed its
name to CHoPP Computer Corporation. In 1997, we reincorporated from Delaware to
Nevada, and in February 1999 changed our name to ANTs software.com. In July
2000, we merged with Intellectual Properties and Technologies, Inc., a wholly
owned subsidiary with no significant assets. In December 2000, we reincorporated
from Nevada to Delaware and changed our name from ANTs software.com to ANTs
software inc.





The ANTs Compatibility
ServerTM(“ACS”)





Applications
written to work with one database product are typically incompatible with other
database products due to proprietary extensions developed and popularized by the
database vendors.  This has the effect of locking customers into one
database vendor because it would generally be cost-prohibitive and too
time-consuming to migrate an application from one database to
another.  ACS translates these proprietary extensions from one
database product to another and allows customers to migrate applications from
one database product to another more easily and at less cost.





Migrating
applications is intended to be a three-step process when using ACS:





1.
            Move
      the data – the large database vendors all have full-featured tools that
      allow customers to move data from other products to
  theirs.


2.
            Install
      ACS – once the data is migrated, ACS is installed and connected to the
      application and the new database.


3.
            Test
      and deploy – the application is first tested to ensure that it functions
      properly with the new database, and then the customer goes “live” with the
      application.





We have
developed the underlying technologies related to ACS and we have conducted
successful pilot tests. In April 2008, we announced the launch of the first
version of ACS as a generally available commercial product.  The first
version of ACS allows applications currently running on Sybase’s database
product to run on Oracle’s database product.  In the future, we expect
to build versions of ACS that will enable applications to be migrated from and
to numerous other database products. We are in discussions with four database
vendors about building additional versions of ACS.





Professional
Services





Established
in 1993, Inventa, our IT managed services and professional services division
(together, “Professional Services”), provides pre- and post-sales services
related to the ACS and application migration, application and database
architecting, monitoring and management.   Inventa provides the
following services:





ACS Services. This
service assists customers in establishing a database consolidation strategy,
action plan for migrating applications among databases, installation, deployment
and post-deployment monitoring and tuning.





Monitoring Infrastructure
Management. This service provides management of monitoring infrastructure
including: architecture planning, agent deployment and support, and agent
configuration with threshold management. The core infrastructure for this
service can either be hosted and managed by us or deployed directly within a
customer’s environment and individual events / alarms transitioned back to their
employees





Monitoring and Event
Management. This service provides a fully functional 24x7x365 Network
Operations Center (NOC) responsible for isolating critical events, opening
trouble tickets, and escalating the event's visibility within the customer’s
organization. This service can be hosted entirely within our NOC or, portions
can be integrated with or hosted directly within the customer’s
environment.





Visualization and
Trending. Our ESM IntegratorTM portal captures, centralizes and integrates
performance metrics collected by the monitoring infrastructure deployed as a
component of our other services or layered upon existing data sources residing
within the customer’s environment. Sources of data are not limited to components
monitored by our service; we can integrate virtually any business metrics, or
other third party data for enterprise wide reporting which is platform
independent.


25


Performance
Management. The most popular way organizations attempt to solve their
performance issues is with faster, more powerful hardware. While this generally
produces some positive results the benefit is very costly in both hardware and
tiered software. Additionally, performance is typically addressed only when
business or system reliability is impacted thereby creating additional pressure
to the already constrained customer staff to fix the issue. Our Performance
Management Service is pro-active and can help maximize the customer’s existing
resources in a cost-effective and manageable way.





Capacity Planning.
This service provides organizations with the ability to anticipate the effects
of growth and plan for that growth. Customers are able to map out a strategy to
accommodate spikes in transaction volumes and overall growth while maintaining
response time and uptime.





Code Quality
Management. Performance quality, reliability, and capacity is a result of
how well applications are designed and implemented. Our Code Quality Management
service uses our time-tested code analysis tools to assist customers in tracking
overall code quality and improvements as new application versions are
released.





We provide
Professional Services to customers in the banking, insurance, gaming, automotive
and high-technology industries.  We have extensive experience in
architecting enterprise application and database deployments, upgrades and
migrations and in installing, configuring, deploying and maintaining database
products from major vendors such as IBM, Oracle, Microsoft and Sybase. We have
developed proprietary software that enables us to remotely monitor, diagnose and
maintain customer applications and databases, saving customers the cost of
having to maintain in-house the IT resources needed to deliver these services.
We typically sign annual and multi-year contracts and the majority of our
customers renew.





We deliver
our services through a remote delivery model from our New Jersey office which
contains a network operations center and our Center of Excellence for database
migrations. The network operation center provides customers with remote
assessment, diagnostic and tuning capabilities through secure remote connection
24 hours a day, seven days a week. The Center of Excellence has been established
to demonstrate for customers, either remotely or on-site, our database migration
capabilities and as a state-of-the-art training facility for the new services
personnel we expect to recruit from numerous colleges and universities in the
Mid-Atlantic region.





We
integrate our professional services capabilities tightly into the pre and
post-sales process, enabling us to:


·
            Accurately
      assess the customer’s operating
environment


·
            Propose
      the most efficient database consolidation and application migration
      solution


·
            Efficiently
      deploy ACS and assist the customer in testing before “going
      live”


·
            Post-deployment,
      provide application monitoring, maintenance and
  services





Technology
and Intellectual Property





Beginning
in 2000, we focused on development of the ANTs Data Server and core
high-performance database technologies. In May 2008, we sold those
high-performance technologies and the intellectual property related to them,
retaining a license to use those technologies in ANTs Compatibility Server. In
2007, we began developing ACS. We have developed proprietary technologies
related to ACS which we regard as trade secrets and we are pursuing patent
protection on a number of these technologies. Our Professional Services team has
also developed proprietary technologies used in the monitoring and management of
applications and databases. We regard these technologies as trade
secrets.





Sales
and Marketing





The
Market





According
to IDC Research, the market for database products was $18.6 billion in
2007.  Oracle, Microsoft and IBM control approximately 84% of this
market. According to the numerous CTOs, database architects and application
developers at the target Global 2000 enterprises with whom we have spoken,
database infrastructure costs have become one of the most expensive line items
in the IT budget. These Global 2000 enterprises typically have annual database
“spends” in excess of tens and, in some cases, hundreds of millions of dollars
and their database budgets are growing annually. The migration cost from one
database to another, even to a low-cost open-source database, is extensive due
to lack of compatibility between the products’ proprietary extensions. There is
significant interest, confirmed by our discussions with industry analysts and
user groups, for a product that can provide the capability to migrate an
application from one database to another.


26


According
to IDC Research, the markets in which our Professional Services division
operates, IT services and application management, was projected at $122 billion
in 2007 with IBM Global Services, HP/EDS and Accenture being among the largest
vendors in those markets.  We have a unique combination of experience,
skills and proprietary software that allow us to address a segment of the IT
services market centered around database and application monitoring, maintenance
and services. In addition to this established market we anticipate that our
professional services group will be the first provider of migration and
consulting services resulting from pre and post-sales of our ACS products.
Customers will look to us as the experts in database consolidation to provide a
full-range of services related to ACS installation, deployment and use. To the
extent that this becomes a new “market” for professional services, we are in a
position to capitalize on it.





Strategy





Our
go-to-market strategy adapts with changes in the competitive structure of the
database market.  The refinement of our strategy is a continuous and
iterative process, reflecting our goal of providing a cost-effective solution
across a wide variety of applications.  Our strategy has recently
included:





·
            Developing
      partnerships with Oracle, Microsoft, IBM, Sybase and others to bring our
      products to market;


·
            Focusing
      on large enterprise customers who can realize significant savings by
      migrating applications among leading database
  products;


·
            Selling
      or licensing our products directly;


·
            Selling
      our products and technologies through partners,
  and;


·
            Developing
      custom versions of our products for partners and selling or licensing that
      technology to them.





ACS can
provide a solution for enterprises to address the problems of vendor
lock-in and cost escalation by enabling them to migrate applications among
database products. ACS can provide a potentially significant competitive
advantage for database vendors such as Oracle, IBM, Microsoft, Sybase and others
because they would have the ability to cost-effectively migrate
applications from their competitors’ products to their own.





If we are
successful in our go-to-market strategy, we intend to generate revenue through
range of activities which may include:  sales of developed technology,
licenses, royalties, custom development and professional services.  If one
or more of the large database vendors resells our products, we would expect to
share in that license and maintenance revenue.  Each sale of our products
or related technology will require installation, testing, tuning and other
professional services. It is our intention to generate revenue by providing
those services.





We
generated significant revenues related to the sale of our ADS technologies
during the quarter-ended June 30, 2008, if successful, we expect to generate
additional revenues related to ADS and ACS in 2008 and we expect to generate
revenues from existing contracts with Professional Services
customers.





Competition





We have
not identified a direct competitor for our ACS database migration
products.  Other database vendors encourage migration from competitive
products through use of their proprietary migration tools. These tools often
require substantial investment to rewrite applications.  Potential
customers with whom we have spoken are not receptive to migrating applications
due to the expense and risk of such rewrites. While database vendors do not
offer a directly competitive product, we fully expect database vendors to offer
incentives for customers to keep applications deployed on their database
products.




Competitors
in the Professional Services market are large and well-established, with vendors
such as: IBM Global Services, Accenture and HP/EDS offering a wide range of
services. What sets us apart is our deep experience and skill in database
managed services and our proprietary monitoring and management software. We have
maintained long-term relationships with our customers and have been successful
in renewing contracts and in signing multi-year contracts.


27


Current
Operations





Our
operations consist of:





(i)
            Developing Database
      Migration Technologies and the ANTs Compatibility Server (ACS) – we
      develop and market ACS, a faster, cost-effective way to consolidate
      databases, allowing customers to efficiently use IT resources and drive
      down operating costs.





(ii)
            Professional
      Services – we have extensive experience in architecting enterprise
      application and database deployments, upgrades and migrations and in
      installing, configuring, deploying and maintaining database products from
      major vendors such as IBM, Oracle, Microsoft and Sybase. We provide
      application migration services, application and database managed services
      and consulting services.





Our
headquarters are located in Burlingame, California and we have an office in Mt.
Laurel, New Jersey. We have financed operations through private offerings to
accredited investors to whom we have sold common stock and issued convertible
promissory notes and warrants. We expect to continue to raise capital for
operations through such private offerings until we generate positive cash flows
from operations.  We believe we have sufficient funds to cover
operations into the first fiscal quarter of 2009 at our expected expense rate
and expect that our focus over the next year will be on development and
marketing of ACS and on the growth of our Professional Services
offerings.





Results
of Operations





Our
results of operations for the three and six months ended June 30, 2008 and 2007
are summarized below (in thousands):




For
      the Three Months ending June 30,
              
              
              For
      the Six Months ending June 30,2008
              
              
              2007
              
              
              %
      Change
              
              
              2008
              
              
              2007
              
              
              %
      ChangeRevenues
              
              $
              5,423
              
              
              $
              21
              
              
              
              25,724%
              
              
              $
              5,455
              
              
              $
              91
              
              
              
              5,895%Cost
      of revenues
              
              
              872
              
              
              
              6
              
              
              
              14,433%
              
              
              
              872
              
              
              
              9
              
              
              
              9,589%Gross
      profit
              
              
              4,551
              
              
              
              15
              
              
              
              30,240%
              
              
              
              4,583
              
              
              
              82
              
              
              
              5,489%Operating
      expenses
              
              
              4,061
              
              
              
              4,766
              
              
              
              (15)%
              
              
              
              8,135
              
              
              
              8,549
              
              
              
              (5)%Loss
      from operations
              
              
              490
              
              
              
              (4,751
              )
              
              
              (110)%
              
              
              
              (3,552
              )
              
              
              (8,467
              )
              
              
              (58)%Other
      (expense) income, net
              
              
              (2,445
              )
              
              
              52
              
              
              
              (4,802)%
              
              
              
              (2,579
              )
              
              
              98
              
              
              
              (2,732)%Net
      loss
              
              
              (1,955
              )
              
              
              (4,699
              )
              
              
              (58)%
              
              
              
              (6,131
              )
              
              
              (8,369
              )
              
              
              (27)%Net
      loss per share -basic
      and diluted
              
              $
              (0.03
              )
              
              $
              (0.08
              )
              
              
              (63)%
              
              
              $
              (0.09
              )
              
              $
              (0.15
              )
              
              
              (40)%Shares
      used in computing basic anddiluted
      net loss per share
              
              
              71,987
              
              
              
              56,461
              
              
              
              27%
              
              
              
              64,906
              
              
              
              56,230
              
              
              
              15%




Revenues
 
 Revenues
consist of product revenues representing license fees and the sale of ADS
technology and license fees, and services revenues representing managed and
professional services fees and recognition of deferred maintenance and
support.
 
 During the
three and six months ended June 30, 2008, revenues increased $5.4 million and
$5.4 million versus the three and six months ended June 30, 2007,
respectively.  The increase is due to the $3.5 million sale of ADS
technology and $1.4 million in ADS license fees, both of which occurred in the
second quarter of 2008, and one month’s services revenues from our Inventa
subsidiary acquired May 30, 2008.
 28


Cost
of Revenues





Costs of
revenues in 2008 consists of personnel costs to provide managed and professional
services, separation costs for personnel related to the license and sale of ADS,
and third-party licenses related to the sale and license of ADS.  The
three months ended June 30, 2008 includes one month’s operating activity related
to the managed and consulting service delivery personnel of our Inventa
subsidiary.  Cost of revenues in fiscal 2007 consisted of third-party
licenses and services.





Operating
Expenses





Operating
expenses by department for the three months ending June 30, 2008 and 2007 were
as follows:




Three
      Months ended June 30,2008
                
                
                2007%
                
                
                %
      Change
                
                
                
                
                
                %Sales
      and marketing
                
                $
                715
                
                
                
                18%
                
                
                
                -5%
                
                
                $
                749
                
                
                
                16%Research
      and development
                
                
                1,787
                
                
                
                44%
                
                
                
                -25%
                
                
                
                2,396
                
                
                
                50%General
      and administrative
                
                
                1,559
                
                
                
                38%
                
                
                
                -4%
                
                
                
                1,621
                
                
                
                34%Total
      operating expenses
                
                $
                4,061
                
                
                
                100%
                
                
                
                -15%
                
                
                $
                4,766
                
                
                
                100%
  Operating
expenses by department for the six months ending June 30, 2008 and 2007 were as
follows:
  Six
      Months ended June 30,2008
                
                
                2007%
                
                
                %
      Change
                
                
                
                
                
                %Sales
      and marketing
                
                $
                1,086
                
                
                
                13%
                
                
                
                -41%
                
                
                $
                1,849
                
                
                
                22%Research
      and development
                
                
                4,389
                
                
                
                54%
                
                
                
                3%
                
                
                
                4,271
                
                
                
                50%General
      and administrative
                
                
                2,661
                
                
                
                33%
                
                
                
                10%
                
                
                
                2,429
                
                
                
                28%Total
      operating expenses
                
                $
                8,136
                
                
                
                100%
                
                
                
                -5%
                
                
                $
                8,549
                
                
                
                100%
 Our
primary expenses are salaries, benefits and consulting fees relating to:
developing and marketing the ANTs Compatibility Server (“ACS”), marketing and
selling managed and professional services and general and administrative
expenses.
 
 The number
and distribution of full-time employees as of June 30, 2008 and 2007 were as
follows:
  June
      30,
                  
                  
                  %
      of
                  
                  
                  June
      30,
                  
                  
                  %
      of2008
                  
                  
                  Total
                  
                  
                  2007
                  
                  
                  TotalCost
      of Revenues
                  
                  
                  28
                  
                  
                  
                  51%
                  
                  
                  
                  -
                  
                  
                  
                  -Sales
      and marketing
                  
                  
                  5
                  
                  
                  
                  9%
                  
                  
                  
                  5
                  
                  
                  
                  11%Research
      and development
                  
                  
                  17
                  
                  
                  
                  31%
                  
                  
                  
                  33
                  
                  
                  
                  73%General
      and administrative
                  
                  
                  5
                  
                  
                  
                  9%
                  
                  
                  
                  7
                  
                  
                  
                  16%Totals
                  
                  
                  55
                  
                  
                  
                  100%
                  
                  
                  
                  45
                  
                  
                  
                  100%


29


Full-time
employees included in cost of revenues as of June 30, 2008 represent those
devoted to service delivery at our Inventa subsidiary.  The increase
in total employees reflects the acquisition of Inventa and its 36 employees in
May 2008, offset by a reduction of 26 employees, primarily those in sales,
research and development related to ADS.




Sales
and Marketing





Sales and
marketing expense consists primarily of employee salaries, commissions and
benefits, stock-based compensation, professional fees, travel and entertainment
and corporate overhead allocations.  Sales and marketing expense for
the three and six months ended June 30, 2008 and 2007 is presented in the table
below.




Three
      Months Ended June 30,
              
              
              
              
              
              Six
      Months Ended June 30,2008
              
              
              2007
              
              
              %
      Change
              
              
              2008
              
              
              2007
              
              
              %
      ChangeEmployee
      compensation and benefits
              
              
              268
              
              
              
              333
              
              
              
              -20%
              
              
              
              425
              
              
              
              966
              
              
              
              -56%Stock-based
      compensation
              
              
              231
              
              
              
              27
              
              
              
              756%
              
              
              
              296
              
              
              
              95
              
              
              
              212%Professional
      fees
              
              
              90
              
              
              
              200
              
              
              
              -55%
              
              
              
              148
              
              
              
              416
              
              
              
              -64%Travel
      and entertainment
              
              
              42
              
              
              
              63
              
              
              
              -33%
              
              
              
              78
              
              
              
              177
              
              
              
              -56%Corporate
      allocations from general andadministrative
      expenses
              
              
              10
              
              
              
              28
              
              
              
              -64%
              
              
              
              20
              
              
              
              109
              
              
              
              -82%Events
      and promotions and other
              
              
              74
              
              
              
              99
              
              
              
              -25%
              
              
              
              119
              
              
              
              86
              
              
              
              38%Total
              
              $
              715
              
              
              $
              750
              
              
              
              -5%
              
              
              $
              1,086
              
              
              $
              1,849
              
              
              
              -41%Headcount
      at end of period
              
              
              5
              
              
              
              5
              
              
              
              0%
              
              
              
              5
              
              
              
              5
              
              
              
              0%




Total
sales and marketing expense decreased by $35 thousand, a 5% decrease, during the
three months ended June 30, 2008 as compared to the same period in 2007, due
primarily to the following:
 
 ·
              Employee
      compensation and benefits decreased by 20% due to reductions in our direct
      sales team as we implemented our partner strategy relying less on direct
      sales efforts and due to the transfer of pre-sales technical staff to
      research and development.
 ·
              Stock-based
      compensation increased 756% primarily due to the issuance of a
      fully-vested and expensed stock option grant to our CEO during the second
      quarter.  Compensation expense related to our CEO is recorded
      50% to sales and marketing and 50% to general and
      administrative.  We do not expect this to be a recurring
      expense.
 ·
              Professional
      fees decreased 55% due to our change in go-to-market
      strategy.  By pursuing partner sales, we eliminated end-user
      marketing and lead-generation
programs.
 ·
              Travel
      and entertainment decreased 33% as we decreased our sales and marketing
      team by three between June 2007 and May 2008.  We added three
      Inventa employees to sales and marketing in June
  2008.
 ·
              Corporate
      allocations decreased 64% due to lower headcount in sales and marketing
      and cost savings in employee
benefits.
 ·
              Results
      reflect one month’s expenses related to recently acquired Inventa
      Technologies, Inc.
 
 Total
sales and marketing expense decreased by $763 thousand, a 41% decrease, during
the six months ended June 30, 2008 as compared to the same period in 2007, due
primarily to the following:
 
 ·
              Employee
      compensation and benefits decreased by 56% due to reductions in our direct
      sales team as we implemented our partner strategy relying less on direct
      sales efforts and due to the transfer of pre-sales technical staff to
      research and development.
 ·
              Stock-based
      compensation increased 212% 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.  Compensation expense related to our CEO is recorded
      50% to sales and marketing and 50% to general and
      administrative.  We do not expect the expenses incurred due to
      the repricing and the option grant to be
  recurring.




30




·
              Professional
      fees decreased 64% due to our change in go-to-market
      strategy.  By pursuing partner sales, we eliminated end-user
      marketing and lead-generation
programs.
 ·
              Travel
      and entertainment decreased 56% as we decreased our sales and marketing
      team from June 2007 through May 2008.  We added three Inventa
      employees to sales and marketing in June
2008.
 ·
              Corporate
      allocations decreased 82% due to lower headcount in sales and marketing
      and cost savings in employee
benefits.
 ·
              Results
      reflect one month’s expenses related to recently acquired Inventa
      Technologies, Inc.
 
 Research
and Development
 
 Research
and development expense consists primarily of employee compensation and
benefits, contractor fees, stock-based compensation and equipment and
software.  Research and development for the three and six months ended
June 30, 2008 and 2007 is presented in the table below.
  Three
      Months Ended June 30,
                
                
                %
                
                
                Six
      Months Ended June 30,
                
                
                %2008
                
                
                2007
                
                
                Change
                
                
                2008
                
                
                2007
                
                
                ChangeEmployee
      compensation and benefits
                
                $
                898
                
                
                $
                1,568
                
                
                
                -43%
                
                
                $
                2,080
                
                
                $
                2,939
                
                
                
                -29%Contractor
      fees
                
                
                463
                
                
                
                542
                
                
                
                -15%
                
                
                
                1,132
                
                
                
                814
                
                
                
                39%Stock-based
      compensation
                
                
                488
                
                
                
                177
                
                
                
                176%
                
                
                
                1,033
                
                
                
                303
                
                
                
                241%Equipment
      and computer supplies
                
                
                4
                
                
                
                10
                
                
                
                -60%
                
                
                
                11
                
                
                
                17
                
                
                
                -35%Other
                
                
                (66
                )
                
                
                99
                
                
                
                -167%
                
                
                
                133
                
                
                
                198
                
                
                
                -33%Total
                
                $
                1,787
                
                
                $
                2,396
                
                
                
                -25%
                
                
                $
                4,389
                
                
                $
                4,271
                
                
                
                3%Headcount
      at end of period
                
                
                17
                
                
                
                33
                
                
                
                -48%
                
                
                
                17
                
                
                
                33
                
                
                
                -48%




Total
research and development expense decreased by $609 thousand during the three
months ended June 30, 2008 as compared to the same period in 2007, a 25%
decrease, due primarily to the following:
 
 ·
              Employee
      compensation and benefits decreased 43% due to decreases in headcount from
      33 as of June 30, 2007 to 17 as of June 30, 2008.  The decrease
      is primarily due to the sale of ADS and separation of the ADS team and is
      offset by the addition of three staff from
  Inventa.
 ·
              Contractor
      fees increased 15% as we increased use of contract research and
      development services.
 ·
              Stock-based
      compensation increased primarily due to i) separation expense related to
      modification of grants to former employees on the ADS team which are not
      expected to recur, and ii) expense related to stock option grants issued
      to Inventa staff.
 ·
              Results
      reflect one month’s expenses related to recently acquired Inventa
      Technologies, Inc.
 
 Total
research and development expense increased by $118 thousand during the six
months ended June 30, 2008 as compared to the same period in 2007, a 3%
increase, due primarily to the following:
 
 ·
              Employee
      compensation and benefits decreased 29% due to decreases in headcount from
      33 as of June 30, 2007 to 17 as of June 30, 2008.  The decrease
      is primarily due to the sale of ADS and separation of the ADS team and is
      offset by the addition of three staff from
  Inventa.
 ·
              Contractor
      fees increased 39% as we increased use of contract research and
      development services.
 ·
              Stock-based
      compensation increased primarily due to i) the impact of our repricing of
      certain stock options and warrants to the market value of our common stock
      as of March 26, 2008, offset by a reduction in employees and associated
      vesting expense on their options versus the prior year, ii) separation
      expense related to modification of grants to former employees on the ADS
      team, and iii) expense related to stock option grants issued to Inventa
      staff.  We do not expect the expenses in (i) and (ii) above to
      be recurring.
 ·
              Results
      reflect one month’s expenses related to recently acquired Inventa
      Technologies, Inc.


31




General
and Administrative
 
 General
and administrative expense consists primarily of employee salaries and benefits,
professional fees (legal, accounting, and investor relations), facilities
expenses, and insurance.  General and administrative expense for the
three and six months ended June 30, 2008 and 2007 is presented in the table
below.
  Three
      Months Ended June 30,
                
                
                Six
      Months Ended June 30,2008
                
                
                2007
                
                
                %
      Change
                
                
                2008
                
                
                2007
                
                
                %
      ChangeEmployee
      compensation and benefits
                
                $
                249
                
                
                $
                932
                
                
                
                -73%
                
                
                $
                392
                
                
                $
                1,248
                
                
                
                -69%Stock-based
      compensation
                
                
                517
                
                
                
                172
                
                
                
                201%
                
                
                
                1,056
                
                
                
                222
                
                
                
                376%Facilities,
      director fees, insurance and other
                
                
                290
                
                
                
                315
                
                
                
                -8%
                
                
                
                564
                
                
                
                645
                
                
                
                -13%Professional
      fees
                
                
                442
                
                
                
                283
                
                
                
                56%
                
                
                
                592
                
                
                
                519
                
                
                
                14%Debt
      issuance costs
                
                
                103
                
                
                
                109
                
                
                
                -6%
                
                
                
                212
                
                
                
                170
                
                
                
                25%Corporate
      allocations to Sales and marketingand
      Research and development
                
                
                (114
                )
                
                
                (190
                )
                
                
                -40%
                
                
                
                (227
                )
                
                
                (375
                )
                
                
                -39%Other
                
                
                72
                
                
                
                -
                
                
                
                N/A
                
                
                
                72
                
                
                
                -
                
                
                
                N/ATotal
                
                $
                1,559
                
                
                $
                1,621
                
                
                
                -4%
                
                
                $
                2,661
                
                
                $
                2,429
                
                
                
                10%Headcount
      at end of period
                
                
                5
                
                
                
                7
                
                
                
                -29%
                
                
                
                5
                
                
                
                7
                
                
                
                -29%
  Total
general and administrative expense decreased by $62 thousand during the three
months ended June 30, 2008 as compared to the same period in 2007, a 4%
decrease, due primarily to the following:
 
 ·
                Employee
      compensation and benefits expense decreased 73% due primarily to the
      non-recurring nature of a severance payment to our former chairman during
      the quarter ended June 30, 2007.
 ·
                Stock-based
      compensation increased 201% due primarily to the issuance of fully-vested
      grants to our CEO and our CFO during the quarter; the grants were
      immediately expensed.
 ·
                Professional
      fees increased 56% primarily due to increased use of consultants and
      contract accounting personnel.
 ·
                Allocations
      of overhead costs decreased 36% versus the prior
      year.  Allocations are based on headcount in the other
      departments.  These allocations decreased as the number of
      personnel in other departments
decreased.
 ·
                Our
      general and administrative costs for the three months ended June 30, 2008
      also reflect one month’s expenses related to recently acquired
      Inventa.
 
 Total
general and administrative expense increased by $232 during the six months ended
June 30, 2008 as compared to the same period in 2007, a 10% increase, due
primarily to the following:
 
 ·
                Employee
      compensation and benefits expense decreased 69% due primarily to the
      non-recurring nature of a severance payment to our former chairman during
      the quarter ended June 30, 2007.  A reduction in headcount from
      seven as of June 30, 2007 to five as of June 30, 2008 contributed to the
      decrease.
 ·
                Stock-based
      compensation increased 376% due to the impact of 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 two stock option grants
      during the second quarter, one each to our CEO and our CFO.  The
      grants were fully-vested and immediately expensed.  We do not
      expect the expenses due to the repricing and the option grants to
      recur.
 ·
                Professional
      fees increased 14% primarily due to increased use of consultants and
      contract personnel.
 ·
                Debt
      issuance costs relate to the amortization of placement agent fees that we
      incurred on the issuance of our J Unit convertible promissory notes (the
      “Notes”) in December 2006 and in the first quarter of
      2007.   As noted in Note 13 in the accompanying Interim
      Statements, in May 2008 substantially all of our convertible promissory
      notes were modified such that the principal maturity date was extended and
      the conversion price was decreased.  For those with new
      conversion prices that were less than the market value of our stock, we
      immediately expensed the debt issuance costs related to those extinguished
      notes.  The amortization of debt issuance costs on the remaining
      notes will continue through the maturity dates of each
    note.
  32
  ·
                Allocations
      of overhead costs decreased 37% versus the prior
      year.  Allocations are based on headcount in the other
      departments.  These allocations decreased as the number of
      personnel in other functional departments
  decreased.
 ·
                Our
      general and administrative costs for the three months ended June 30, 2008
      also reflect one month’s expenses related to recently acquired
      Inventa.




Other
(Expense) Income, Net
 
 The
components of other (expense) income, net for the three months ended June 30,
2008 and 2007, were as follows:
  Three
      Months Ended June 30,
                
                
                Six
      Months Ended June 30,2008
                
                
                2007
                
                
                %
      Change
                
                
                2008
                
                
                2007
                
                
                %
      ChangeDebt
      modification costs
                
                
                (2,238
                )
                
                
                -
                
                
                
                N/A
                
                
                
                (2,238
                )
                
                
                -
                
                
                
                N/AInterest
      expense, convertible notes payable
                
                
                (954
                )
                
                
                (62
                )
                
                
                1439%
                
                
                
                (1,115
                )
                
                
                (104
                )
                
                
                972%Gain
      on legal settlement and other
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                2
                
                
                
                -Interest
      income
                
                
                21
                
                
                
                114
                
                
                
                -
                
                
                
                48
                
                
                
                200
                
                
                
                -76%Other
      (expense) income, net
                
                $
                (3,171
                )
                
                $
                52
                
                
                
                -6198%
                
                
                $
                (3,305
                )
                
                $
                98
                
                
                
                -3472%




Other (expense) income, net primarily
consists of interest expense related to our convertible notes payable and, to a
lesser extent, income earned on our cash and cash
equivalents.   Total other (expense) income changed by $3.2
million and $3.4 million during the three and six months ended June 30, 2008 as
compared to the same periods in 2007 primarily due to a modification of the
terms of substantially all of our outstanding notes and to a lesser extent from
the issuance of approximately $5 million in new convertible
notes.  Detail regarding the change in other (expense) income
follows:
 
 ·
              Interest
      expense and loss on debt modification totaled $2.2 million and represents
      two components:
 o
              The
      non-cash cost of modifying $4.2 million of our outstanding convertible
      notes payable to a conversion price below the then-market price of our
      common stock; this amount was originally recorded to discount on
      convertible debt and additional paid-in-capital at an amount equal to the
      difference between the conversion price and the then-market price of the
      stock on the date of modification times the number of shares the note was
      convertible into (the “beneficial conversion feature”).  Each
      note is immediately convertible into shares of our common stock and
      accordingly, the portion of the discount relating to the beneficial
      conversion feature was immediately recorded to interest
      expense.
 o
              A
      non-cash loss representing the difference between the fair value of the
      modified notes discussed above and the carrying value of the notes at the
      time of modification totaling $184 thousand and a $36 thousand charge on
      the related prepaid debt issuance costs.  For further
      information on the Note modifications, see Note 13 “Debt” in the
      accompanying Interim Statements.
 ·
              Interest
      expense on convertible promissory notes payable issued in the acquisition
      of Inventa resulted in a $750 thousand interest expense
      charge.  The charge represents the difference between the
      then-market price on the date of issuance and the price per share at which
      the notes are convertible into shares of our common
  stock.
 ·
              Interest
      expense on convertible notes payable for all periods presented relates to
      the quarterly payment of 10% of the principal amount of our $6.5 million
      outstanding J Unit convertible promissory notes and the amortization of
      discount and accretion of discounts on those notes.  It also
      includes interest expense related to $3 million in convertible notes
      issued in the fourth quarter of 2007 and $2 million in convertible
      promissory notes issued in the second quarter of 2008 as part of the
      acquisition of Inventa.  Interest expense increased during the
      three and six months ended June 30, 2008 from the same periods in 2007 due
      to the additional notes issued.  All of our convertible
      promissory notes accrue interest at 10% per year, payable each quarter
      end.
 ·
              Interest
      income decreased by $94 thousand and $152 thousand in the three and six
      months ended June 30, 2008 versus the same periods in fiscal 2007 due to
      lower invested cash balances and lower rates of
      return.  Interest income is shown net of interest expense
      incurred on ANTs company credit
cards.


33


Liquidity,
Capital Resources and Financial Condition
 
 Cash flows
as of and for the six months ended June 31, 2008 and 2007, are as
follows:
 
 Six
      Months Ended June 30,2008
              
              
              2007Net
      cash used in operating activities
              
              $
              (3,651,036
              )
              
              $
              (7,248,345
              )Net
      cash used in investing activities
              
              
              (3,086,282
              )
              
              
              (191,992
              )Net
      cash provided by financing activities
              
              
              7,275,479
              
              
              
              9,960,600Net
      increase in cash and cash equivalents
              
              $
              538,161
              
              
              $
              2,520,263
  From
inception, we have reported negative cash flow from
operations.  During periods from fiscal 2000 through fiscal 2004, we
focused primarily on research and development of ADS with our first sales
occurring in the first quarter of 2005. Total revenues since then and through
June 30, 2008 were approximately $6.0 million.  These revenues were
less than our need for funds during these years.
 
 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.
 
 Details
regarding the cash flows by activity follow.
 
 Cash Used in Operating
Activities
 
 During the
six months ended June 30, 2008, cash used in operating activities totaled $3.7
million, a decrease of $3.6 million compared to the six months ended June 31,
2007.  The following items significantly impacted our cash used in
operating activities in the six months ended June 30, 2008 as compared to the
same period of 2007:
 
 ·
              We
      received approximately $2.6 million in cash from customers during the six
      months ended June 30, 2008.  Our net loss in the six months
      ended June 30, 2008 totaled $6.9 million versus $8.4 million in the same
      period of 2007, a decrease of $1.5 million.  The decrease was
      primarily due to an increase in gross profit of $4.5 million over the
      previous year’s results.
 ·
              Our
      net loss in the second quarter of 2008 included $5.6 million in non-cash
      charges, which were comprised primarily of $2.4 million in stock-based
      compensation, $2.2 million in debt modification costs, $750 thousand in
      interest expense relating to a discount on convertible promissory notes
      issued in the second quarter of 2008  and $205 thousand in fixed
      asset depreciation.  Non-cash charges in the six months ended
      June 30, 2007 were $922 thousand, consisting primarily of stock based
      compensation of $683 thousand and $216 thousand in depreciation
      expense.  The $2.4 million in stock-based compensation primarily
      relates to the impact of our first quarter 2008 repricing of certain
      option grants and the issuance of two fully-vested option grants to the
      CFO and CEO. The $1.9 million in debt modification costs relates to the
      May 2008 debt extensions and conversion price modifications and consists
      of a $2.0 million interest charge that will not
  recur.
  Cash Used in Investing
Activities
 
 During the
six months ended June 30, 2008, cash used in investing activities totaled $3.1
million, an increase of $2.9 million versus the same period in 2007, primarily
due to our payment of $3.0 million in cash to the sellers of
Inventa.


34


Cash Provided by Financing
Activities
 
 During the
six months ended June 30, 2008, cash provided by financing activities totaled
$7.3 million from:
  ·     $7.2
million in proceeds, net of commissions, for the sale of 12.7 million shares out
common stock at a price of $0.60 per share.
 ·     $32
thousand received as proceeds from the exercise of stock options.
 
 During the
six months ended June 30, 2007, cash provided by financing activities totaled
$10.0 million from:
 
 ·     $9.9
million in proceeds, net of commissions, for the sale of 220 debt and equity
units (“J Units”) at $50 thousand per unit.
 ·     $61
thousand from the exercise of stock options.
 
 Capital Resources and Going
Concern
 
 Our ACS
business is at an early stage, sales are unpredictable and revenues could
fluctuate substantially.  We have recently acquired Inventa, a company
with steady sales that to date has not been profitable.  We continue
to record losses, anticipate doing so in the future, and have not yet recognized
revenue from the sales of our ACS product.
 
 As of
August 1, 2008, we had approximately $3.7 million in cash on hand to fund
operations and equipment purchases.  We anticipate this balance will
fund operations into the first quarter of 2009 at our expected levels of revenue
and expenditures. Our business strategy consists of:
 
 ·     Selling
our ACS products - We have license and services proposals in review by customers
and partners which, if accepted, would be a source of operating
capital.
 ·     Providing
managed and professional services – we have signed contracts with predictable
revenue to deliver services to a group of customers that have long-term
relationships with us.
 ·     Raising
funds - through sales of our common stock and the issuance of convertible notes
to accredited investors through private offerings.  As we continue to
develop close relationships with large partners, we are also pursuing strategic
investments from those partners.
 
 We believe
that due to an uncertain investment climate, securing additional investment will
be difficult.  Our recently executed $3.5 million ADS technology sale
is the largest sale we have made to date and may not recur.  As a
result, our uncertainty regarding the ability to raise additional financing or
executing additional license and services agreements raises substantial doubt
about our ability to continue as a going concern.
 
 Off-Balance
Sheet Arrangements
 
 On April
27, 2005, we entered into a lease with Bayside Plaza, a partnership, for
approximately 15,000 square feet of general commercial offices located at 700
Airport Boulevard, Suite 300, Burlingame, California (the “Premises”). The
Premises are used for the purposes of general office use and for software
development. The lease has an initial term of three years and is subject to our
right to extend the term of the lease for a total of six additional
years.  In July 2007 we extended this lease for the period May 1, 2008
through April 30, 2009 at the rate of $34,200 per month.  Through
April 30, 2008 we recognized rent expense for this lease in accordance with
Financial Technical Bulletin 85-3 (“FTB 85-3”), “Accounting for Operating Leases with
Scheduled Rent Increases.”  The base rent, the effects of the
scheduled rent increases, and the effects of the rent abatement were recognized
on a straight-line basis over the lease term; rent expense for the periods May
1, 2008 through April 30, 2009 are recorded at the payment amount.
 
 On May 30,
2008, we acquired Inventa.  As part of the acquisition ANTs assumed
the Inventa operating lease of a general commercial facility in Mt. Laurel, New
Jersey at the monthly rent of $7,604.  The lease expires March 15,
2015.
 
 Under our
leases we are obligated to restore facilities to their former condition; these
requirements consist of normal maintenance which is considered to be
immaterial.  Effective June 1, 2008, we agreed to sub-lease a portion
of our Burlingame facility to a customer on a month-to-month lease through
April, 2009 for $13,000 for rent and utilities, payable each month in
advance.  Rental expense is shown net of sub-lease
income.   Total rental expense for the three and six months ended
June 30, 2008 was $78,443 and $128,443 respectively, and $50,004 and $110,008
for the three and six months ended June 30, 2007, respectively.
 35


The table
below presents our total long-term contractual obligations as of June 30, 2008,
for both on and off-balance sheet categories.





Payments
      Due by PeriodLess
      than
            
            
            1-3
            
            
            3-5
            
            
            More
      thanContractual
      Obligations
            
            Total
            
            
            1
      Year
            
            
            Years
            
            
            Years
            
            
            5
      YearsConvertible
      notes
            
            $
            11,503,226
            
            
            $
            250,000
            
            
            $
            11,253,226
            
            
            $
            -
            
            
            $
            -Operating
      lease obligations
            
            
            1,514,004
            
            
            
            433,248
            
            
            
            360,252
            
            
            
            360,252
            
            
            
            360,252Total
      contractual obligations
            
            $
            13,017,230
            
            
            $
            683,248
            
            
            $
            11,613,478
            
            
            $
            360,252
            
            
            $
            360,252





Critical
Accounting Estimates





The preparation of the financial
statements in accordance with accounting principles generally accepted in the
United States of America requires management to make estimates and assumptions
that affect reported amounts of assets, liabilities, revenues and expenses and
disclosure of contingent assets and liabilities. We evaluate such estimates and
assumptions on an ongoing basis and base our estimates on historical experience
and on various other assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates and probably will
differ from these estimates under different assumptions or conditions. On a
regular basis we evaluate our assumptions, judgments and estimates and make
changes accordingly. We also discuss our critical accounting estimates with the
Audit Committee of the Board of Directors. We believe the assumptions, judgments
and estimates involved in the accounting for revenue recognition, stock-based
compensation, research and development and income taxes have the greatest
potential impact on our financial statements. These areas are key components of
our results of operations and are based on complex rules that require us to make
judgments and estimates; as a result, we consider these to be our significant
accounting policies. Historically, our assumptions, judgments and estimates
relative to our significant accounting policies have not differed materially
from actual results.





There have been no significant changes
in our critical accounting estimates during the three months ended June 30, 2008
as compared to the critical estimates disclosed in Management’s Discussion and
Analysis of Financial Condition and Results of Operations included in our Annual
Report on Form 10-K for the year ended December 31, 2007.





ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK





Foreign
Currency Exchange Risk





Our
revenue is invoiced and received in United States dollars.  We
currently have no customers outside the U.S. and therefore have no exposure to
foreign currency exchange 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. 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 its 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





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


36





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





Our
management, including our Chief Executive Officer and Chief Financial Officer,
does not expect that our disclosure controls and procedures or our internal
controls will prevent all errors and all fraud. A control system no matter how
well conceived and operated can provide only reasonable, not absolute assurance
that the objectives of the control system are met. Further, the design of a
control system must reflect the fact that there are resource constraints and the
benefits of control systems must be considered relative to their cost. As a
result of the inherent limitations in all control systems, no evaluation of
controls can provide absolute assurance that all control issues of fraud, if
any, have been detected.





PART II. OTHER INFORMATION





ITEM 1.  LEGAL PROCEEDINGS





On or about July 10, 2008 Sybase, Inc.
filed a complaint against us and other defendants, claiming breach of contract
and related claims arising from a license agreement between us and
Sybase.   Sybase alleges that we breached the license agreement
by disclosing two items related to the license agreement in a shareholder
update, and by allegedly allowing a third party to make offers of employment to
former ANTs’ employees who joined Sybase as part of the license
agreement.  The lawsuit, filed in Alameda County Superior Court seeks
damages in excess of $25,000 and injunctive relief.  We are evaluating
the claims, both legally and factually, but based on the information available
to us to date, we believe that we have meritorious defenses, and that Sybase has
suffered little in the way of damages, and we intend to vigorously defend
ourselves.





ITEM 1A.   RISK FACTORS





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





We face significant risks, and the
risks described below may not be the only risks we face.  Additional
risks that we do not know of or that we currently consider immaterial may also
impair our business operations.  If any of the events or circumstances
described in the following risks actually occurs, our business, financial
condition or results of operations could be harmed and the trading price of our
common stock could decline.





Market acceptance
of our products and services is not guaranteed and our business model is
evolving.





We are at an early stage of development
with our database migration technology and related products and our revenue will
depend upon market acceptance and utilization of our products and services.
Customers may be reluctant to purchase a product from us because it is new and
they may be concerned about our financial viability or our ability to provide a
full range of support. Given these risks, customers may only be willing to
purchase our products through partners who are not faced with similar
challenges. We may have difficulty finding partners to resell our product. Also,
due to economic conditions, including a possible recession, some potential
customers may have tightened budgets for evaluating new products and
technologies and the evaluation cycles may be much longer than in the past.
There can be no assurance that our product and technology development or support
efforts will result in new products and services, or that they will be
successfully introduced.





If we deliver
products with defects, our credibility will be harmed and the sales and market
acceptance of our products will decrease.


37


Our products and services are complex
and have at times contained errors, defects and bugs.  If we deliver
products with errors, defects or bugs, our credibility and the market acceptance
and sales of our products would be harmed.  Further, if our products
contain errors, defects or bugs, we may be required to expend significant
capital and resources to alleviate such problems.  We may agree to
indemnify our customers in some circumstances against liability arising from
defects in our products. Defects could also lead to product liability as a
result of product liability lawsuits against us or against our customers. We
carry product and information liability and errors and omissions insurance, but
in the event that we are required to defend more than a few such actions, or in
the event that we are found liable in connection with such an action, our
business and operations may be severely and materially adversely
affected.





A
failure to obtain financing could prevent us from executing our business plan or
operate as a going concern.





We anticipate that current cash
resources will be sufficient for us to execute our business plan into the first
fiscal quarter of 2009.  If further financing is not obtained and we
are unprofitable by then, 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 as a going concern 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 personnel and
continue development of our products and services.  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.





Our
sales and revenues could fluctuate substantially.





The
revenue generated during the quarter ended June 30, 2008 far exceeded the
revenue we have generated since inception. Given the early stage of our
business, we may experience periods during which revenue fluctuates
substantially and this variability in revenue could continue well into the
future. There can be no assurance that our revenues will grow predictably or
evenly.





We have depended
on a limited number of customers for a significant portion of our
revenue.





For the
six months ended June 30, 2008 we recognized approximately $5.4 million in
revenues.  Of those revenues approximately 92% was derived from three
customers and we anticipate that our reliance on a small number of customers
will continue. A decrease in revenue from any of our largest customers for any
reason, including a decrease in pricing or activity, or a decision to either
utilize another vendor or to no longer use some or all of the products and
services we provide, could have a material adverse affect on our
revenue.





We
may experience difficulty integrating the Inventa business into
ANTs





On May 30, 2008 we closed the
acquisition of Inventa Technologies, Inc.  The process of integrating
Inventa may create unforeseen operating difficulties and expenditures and is
itself risky.  The areas where we may face difficulty, among many
others, include:





·
              diversion
      of management time, as well as a shift of focus from operating the
      businesses to issues related to integration and
      administration;


·
              declining
      employee morale and retention issues resulting from changes in, or
      acceleration of, compensation, or changes in management, reporting
      relationships, future prospects, or the direction of the
      business;


·
              the
      need to integrate Inventa’s accounting, management, information, human
      resource and other administrative systems to permit effective management
      and the lack of control if such integration is delayed or not
      implemented;


·
              the
      need to implement controls, procedures and policies appropriate for a
      public company;


·
              the
      need to transition operations, users, and customers onto our existing
      platforms; and


·
              liability
      for activities of Inventa before the acquisition, including violations of
      laws, rules and regulations, commercial disputes, tax liabilities and
      other known and unknown
liabilities.


38


Moreover,
we may not realize the anticipated benefits of this acquisition, or may not
realize them in the time frame expected.  This acquisition may result
in a need to issue additional equity securities, spend our cash, or incur debt,
liabilities, amortization expenses related to intangible assets or write-offs of
goodwill, any of which could reduce our potential for profitability and harm our
business.
 
 Our ANTs
Compatibility Server products are marketed in a highly competitive market
dominated by large companies.
 
 We operate in a highly competitive
industry.  Although we believe that our database migration technology
is unique and, if adopted, will confer benefits to customers, we face very large
competitors in similar lines of business with greater resources that may adopt
various strategies to block or slow our market penetration, thereby straining
our more limited resources.  We are aware of efforts by a large
database company to introduce doubt about our financial stability as we market
our product.  Large database companies may also seek to hinder our
operations through attempts to recruit key staff with exceptionally attractive
terms of employment, including signing bonuses, or by offer of highly
competitive terms to potential or newly acquired customers. While database
vendors do not offer a directly competitive product, we fully expect database
vendors to offer incentives for customers to keep applications deployed on their
database products.
 
 Our
database migration technology and ACS products are at an early stage and our
business model is still developing.
 
 We began developing ACS in 2007 and
have just begun marketing the product and its underlying technology. We
anticipate that we will sell ACS directly and/or through partners, or develop
related technologies on behalf of third parties, although we have not yet
executed such agreements with any partner. Consequently, we have only
preliminary estimates as to the possible revenues and expenses associated with
sales, support, development costs and delivery of ACS and related technology.
Our business model for ACS-related revenue and expenses is evolving as market
opportunities present themselves. It is possible that we will not generate
enough revenue to offset expenses and that our database migration technology
sales and ACS sales and/or licensing will not be profitable.
  We
have incurred indebtedness.
  We
have incurred debt in the past and may incur substantial additional debt in the
future.  A significant portion of our future cash flow from operating
activities may be dedicated to the payment of interest and the repayment of
principal on our indebtedness.  There is no guarantee that we will be
able to meet our debt service obligations.  If we are unable to
generate sufficient cash flow or obtain funds for required payments, or if we
fail to comply with our debt obligations, we will be in default.  In
addition, we may not be able to refinance our debt on terms acceptable to us, or
at all.  Our indebtedness could limit our ability to obtain additional
financing for working capital, capital expenditures, debt service requirements,
acquisitions or other purposes in the future, as needed; to plan for, or react
to, changes in technology and in our business and competition; and to react in
the event of an economic downturn.
 
 We will need to
continue our product development efforts.
 
 We believe that the market for our
products will be characterized by increasing technical
sophistication.  We also believe that our eventual success will depend
on our ability to continue to provide increased and specialized technical
expertise.  There is no assurance that we will not fall
technologically behind competitors with greater resources.  Although
we believe that we enjoy a lead in our product development and face no direct
competition, we will likely need significant additional revenues or capital in
order to maintain that lead over competitors with more resources.
 
 We rely upon
partner referrals for a portion of our professional services
revenue.
 
 Approximately 30% of our Professional
Services revenue for the month of June 2008 was generated by referrals from
partners. Our ability to generate consistent revenues may depend on our
continued positive relationships with these partners, and on developing new
partners.  The use of partners involves certain risks, including risks
that they will refer customers to others, that they will terminate partner
programs or that they will offer competitive services themselves.  Any
reduction, delay or loss of referrals or orders from partners may harm our
results.
 39


If we are unable
to protect our intellectual property, our competitive position would be
adversely affected.





We rely on trademark and copyright law,
trade secret protection and confidentiality agreements with our employees and
others to protect our intellectual property.  We have not yet filed
any patent applications on any technology or inventions included or incorporated
in the ACS products or software we use to monitor application and database
performance.  Despite our precautions, unauthorized third parties may
copy our products and services or reverse engineer or obtain and use information
that we regard as proprietary. If we fail to protect our intellectual property
and proprietary rights, our business, financial condition and results of
operations would suffer.  We believe that we do not infringe upon the
proprietary rights of any third party, and no third party has asserted an
infringement claim against us.  It is possible, however, that such a
claim might be asserted successfully against us in the future.  We may
be forced to suspend our operations to pay significant amounts to defend our
rights, and a substantial amount of the attention of our management may be
diverted from our ongoing business, all of which would materially adversely
affect our business.





A significant
portion of our expenses represent research and development costs incurred to
develop our proprietary technologies.





We believe that the first version of
our ACS product and subsequent products related to database migration are the
basis for marketable commercial products.  However, there can be no
assurance of this, and it is possible that our proprietary technologies and
products will have little commercial benefit or potential.





We depend on our
key personnel and may have difficulty attracting and retaining the skilled staff
we need to execute our growth plans.





Our success will be dependent largely
upon the efforts of our Chief Executive Officer, Joseph Kozak, Chief Executive
Officer of Inventa Technologies, Inc., Richard Cerwonka, key technologists and
other senior managers.  The loss of key staff could have a material
adverse effect on our business and prospects.  To execute our plans,
we will have to retain current employees. Competition for highly skilled
employees with technical, management, marketing, sales, product development and
other specialized training is intense.  We may not be successful in
retaining qualified personnel. Specifically, we may experience increased costs
in order to retain skilled employees. If we are unable to retain experienced
employees as needed, we would be unable to execute our business
plan.





We face rapid
technological change.





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





If we experience
rapid growth, we will need to manage such growth well.





We may experience substantial growth in
the size of our staff and the scope of our operations, resulting in increased
responsibilities for management.  To manage this possible growth
effectively, we will need to continue to improve our operational, financial and
management information systems, will possibly need to create departments that do
not now exist, and hire, train, motivate and manage a growing number of
staff.  Due to a competitive employment environment for qualified
technical, marketing and sales personnel, we expect to experience difficulty in
filling our needs for qualified personnel.  There can be no assurance
that we will be able to effectively achieve or manage any future growth, and our
failure to do so could delay product development cycles and market penetration
or otherwise have a material adverse effect on our financial condition and
results of operations.





We could face
information and product liability risks and may not have adequate
insurance.





Our products may be used to manage
application code from critical business applications. We may become the subject
of litigation alleging that our products were ineffective or disruptive in our
treatment of data, or in the compilation, processing or manipulation of critical
business information.  Thus, we may become the target of lawsuits from
injured or disgruntled businesses or other users. We carry product and
information liability and errors and omissions insurance, but in the event that
we are required to defend more than a few such actions, or in the event our
products are found liable in connection with such an action, our business and
operations may be severely and materially adversely affected.


40


Future
profitability is not guaranteed.
 
 We have incurred significant operating
losses to date.  Assuming we continue as a going concern, there is no
assurance that we will achieve break-even status or profitability in the
future.
 
 Changes to
financial accounting standards may affect our results of operations and cause us
to change business practices.
 
 We prepare
financial statements in conformity with U.S. generally accepted accounting
principles.  These accounting principles are subject to interpretation
by the American Institute of Certified Public Accountants, the Public Company
Accounting Oversight Board, the Securities and Exchange Commission and various
other bodies formed to interpret and create appropriate accounting
principles.  A change in those principles can have a significant
affect on our reported results and may affect the way we report a transaction
which is completed before a change in those principles is
announced.  Changes to those rules or the questioning of current
practices may adversely affect our reported financial results or the way we
conduct business.
 
 There is a
limited market for our common stock.
 
 Our common stock is not listed on any
exchange and trades in the over-the-counter (the “OTC”) market.  As
such, the market for our common stock is limited and is not regulated by the
rules and regulations of any exchange. Further, the price of our common stock
and its volume in the OTC market may be subject to wide fluctuations. Our stock
price could decline regardless of our actual operating performance, and
stockholders could lose a substantial part of their investment as a result of
industry or market-based fluctuations. Our stock trades relatively
thinly.  If a more active public market for our stock is not
sustained, it may be difficult for stockholders to sell shares of our common
stock.  Because we do not anticipate paying cash dividends on our
common stock for the foreseeable future, stockholders will not be able to
receive a return on their shares unless they are able to sell
them.  The market price of our common stock will likely fluctuate in
response to a number of factors, including but not limited to, the
following:
 
 ·
              sales,
      sales cycle and market acceptance or rejection of our
      products;
 ·
              our
      ability to execute agreements with partners that are successful in selling
      our products;
 ·
              economic
      conditions within the database
industry;
 ·
              our
      failure to develop and commercialize the
ACS;
 ·
              the
      timing of announcements by us or our competitors of significant products,
      contracts or acquisitions or publicity regarding actual or potential
      results or performance thereof;
 ·
              the
      exercise and sale of stock options by current and former employees;
      and
 ·
              domestic
      and international economic, business and political
    conditions.
 
 We have a long
corporate existence and were inactive during much of our corporate
history.
 
 We were formed as the Sullivan
Computer Corporation, incorporated in Delaware in January 1979.  We
were privately owned until late 1986, at which time our common stock began
trading on the over-the-counter market.  This was a result of the
registration of our common stock pursuant to a merger with CHoPP Computer
Corporation, a British Columbia corporation.  During the period from
mid-1987 through late 1999, we had few or no employees. Our operating activities
were limited and were largely administered personally by our former Chairman.
Due to the passage of time and the poor condition of financial and other
records, there can be no assurance that all matters relating to our former
corporate existence have been addressed at this date.
 
 Failure to
maintain effective internal controls in accordance with Section 404 of the
Sarbanes-Oxley Act of 2002 could have a material adverse effect on our stock
price.


41


Section 404 of the Sarbanes-Oxley
Act of 2002 and the related rules and regulations of the SEC require annual
management assessments of the effectiveness of our internal control over
financial reporting and a report by our independent registered public accounting
firm on these internal controls.  If we fail to adequately maintain
compliance with, or maintain the adequacy of, our internal control over
financial reporting, as such standards are modified, supplemented or amended
from time to time, we may not be able to ensure that we can conclude on an
ongoing basis that we have effective internal control over financial reporting
in accordance with Section 404 of the Sarbanes-Oxley Act of 2002 and the
related rules and regulations of the SEC.  If we cannot favorably
assess, or our independent registered public accounting firm is unable to
provide an unqualified attestation report on the effectiveness of our internal
controls over financial reporting, investor confidence in the reliability of our
financial reports may be adversely affected, which could have a material adverse
effect on our stock price.
 
 We have
indemnified our officers and directors.
 
 We have indemnified our Officers and
Directors against possible monetary liability to the maximum extent permitted
under Delaware law.
 
 Limitation on
ability for control through proxy contest.
 
 Our Bylaws provide for a Board of
Directors to be elected in three classes.  This classified Board may
make it more difficult for a potential acquirer to gain control of us by using a
proxy contest, since the acquirer would only be able to elect approximately
one-third of the directors at each shareholders’ meeting held for that
purpose.
 
 Our actual
results could differ materially from those anticipated in our forward-looking
statements.
 
 This report contains forward-looking
statements within the meaning of the federal securities laws that relate to
future events or future financial performance.  When used in this
report, you can identify forward-looking statements by terminology such as
“believes,” “anticipates,” “plans,” “predicts,” “expects,” “estimates,”
“intends,” “will,” “continue,” “may,” “potential,” “should” and similar
expressions.  These statements are only expressions of
expectation.  Our actual results could, and likely will, differ
materially from those anticipated in such forward-looking statements as a result
of many factors, including those set forth above and elsewhere in this report
and including factors unanticipated by us and not included
herein.  Although we believe that the expectations reflected in our
forward-looking statements are reasonable, we cannot guarantee future results,
levels of activity, performance or achievements.  Neither we nor any
other person assumes responsibility for the accuracy and completeness of these
statements. We assume no duty to update any of the forward-looking statements
after the date of this report or to conform these statements to actual
results.  Accordingly, we caution readers not to place undue reliance
on these statements.
 
 ITEM 2.  UNREGISTERED SALES OF EQUITY
SECURITIES
 
 In the six
months ended June 30, 2008, we received $7,615,000 from accredited investors for
the sale of 12,691,667 shares of the Company’s common stock at a price of $0.60
per share. We paid $367,200 issued 510,757 shares of our common stock and issued
one warrant to purchase up to 50,166 shares to placement agents.  Shares
issued to the placement agent are contractually valued at $0.66 per share or
$337,100.  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.
 
 The
proceeds from these sales of unregistered securities were used for our
acquisition of Inventa, product development and general working capital
purposes.  This quarterly report is neither an offer to sell, nor a
solicitation of offers to purchase, securities.
 
 ITEM 3.  DEFAULTS UPON SENIOR
SECURITIES
 
 None
 42


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




At
      our annual meeting on May 15, 2008,
shareholders:●
            Re-elected
      three Class 2 directors, Robert Kite, Ari Kaplan, and Craig Campbell, to
      serve for three years and until their successors are duly elected and
      qualified.  Directors Joseph Kozak, John Gaulding, Thomas Holt,
      Francis Ruotolo, and Robert Jett continue in their term of office after
      our annual meeting.  37,086,347 shares voted for the reelection
      of Robert Kite, 4,989,104 voted against, and 177,494
      abstained.  39,978,939 of shares voted for the reelection of Ari
      Kaplan, 571,019 voted against, and 1,702,987
      abstained.   41,161,571 of shares voted for the reelection
      of Craig Campbell, 905,405 voted against, and 185,968
      abstained.●
            Ratified
      the appointment of Burr, Pilger & Mayer, LLP, as our independent
      registered accounting firm for the calendar year ending December 31,
      2008.  40,541,633 of shares voted for this matter, 109,293 voted
      against, and 1,602,019 abstained.●
            Approved
      the ANTs software, inc. 2008 Stock Plan and the reservation of 5,000,000
      shares of our Common Stock for issuance thereunder.  24,491,411
      of shares voted for this matter, 1,722,751 voted against, 855,042
      abstained, and 15,183,741 broker non-votes were
    cast.




ITEM 5.  OTHER INFORMATION





None





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
              License
      Agreement between ANTs software inc. and Sybase Corporation, dated April
      30, 2008 (redacted)10.2
              Asset
      Purchase Agreement between ANTs software inc. and Four J’s Development
      Tools, Inc., dated May 21, 2008 (redacted)10.3
              Secured
      Promissory Note, dated May 21, 200810.4
              Merger
      Agreement between ANTs software inc. and Inventa Technologies Ltd., dated
      May 15, 200810.5
              Convertible
      Promissory Note 1, dated May 30, 2008 (redacted)10.6
              Convertible
      Promissory Note 2, dated May 30, 2008 (redacted)10.7
              ANTs
      software inc. 2008 Stock Plan31.1
              Certification
      of the Chief Executive Officer required by Rule 13a-14(a) of the
      Securities Exchange Act of 1934, as amended, as adopted pursuant to
      Section 302 of the Sarbanes-Oxley Act of 200231.2
              Certification
      of the Chief Financial Officer required by Rule 13a-14(a) of the
      Securities Exchange Act of 1934, as amended, as adopted pursuant to
      Section 302 of the Sarbanes-Oxley Act of 200232.1
              Certification
      of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350 as
      adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
      200232.2
              Certification
      of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as
      adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
      2002




b) Reports
on Form 8-K
 
 During the fiscal quarter covered by
this report, we filed the following reports on Form 8-K:
 
 1)
              On
      June 26, 2008, we announced we had released a letter to our
      shareholders
 2)
              On
      June 3, 2008, we announced that on May 30, 2008, we closed the agreement
      and plan of Merger by and among ANTs software, inc., ANTs Holdings, Inc,
      Inventa Technologies, Inc., and Robert T. Healey, solely in his capacity
      as Stockholders’ Representative.
 43
  3)
              On
      May 27, 2008, we announced that on May 21, 2008, the company entered into
      an Asset Purchase Agreement with Four J’s Development Tools, Inc, for the
      sale of intellectual property and certain tangible assets related to the
      ADS product.  As part of this transaction, effective May 22,
      2008, Clifford Hersh and Jeffrey R. Spirn, each an officer of ANTs, joined
      Four J’s and are no longer associated with
ANTs.
 4)
              On
      May 21, 2008, we announced that we had entered into agreements with
      accredited investors during the period March 4, 2008 through May 19, 2008
      in connection with the purchase of 12,491,667 shares of our common
      stock.  We also announced that we had amended certain terms of
      convertible promissory notes.   These amendments decreased
      the conversion price to $.80 and extended the expiration date to January
      31, 2011 on notes totaling $4,3 million and  decreased the
      conversion price to $1.20 and extended the expiration date to January 31,
      2011 on notes totaling $3.5
million.
 5)
              On
      May 16, 2008 we announced that we had entered into an Agreement and Plan
      of Merger by and among ANTs software, inc. ANTs Holding, Inc., Inventa
      Technologies, Inc. and Robert T. Healey, solely in his capacity as
      Stockholders' Representative. Also, on May 16, 2008, we summarized
      the disclosures made at our annual general stockholders meeting held on
      May 15, 2008.
 6)
              On
      May 5, 2008, we announced that we entered into a license agreement with
      Sybase, Inc.
 7)
              On
      April 2, 2008, we announced that we entered into agreements with
      accredited investors in connection with the purchase of 1,735,000 shares
      of our common stock.
 8)
              On
      April 1, 2008, we announced that our Board of Directors approved repricing
      of certain stock options for employees, directors and
      consultants.




44




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, 2008
                By:
                /s/ Joe
    KozakJoe
      Kozak, Chairman and Chief Executive OfficerDate:  August
      18, 2008
                By:
                /s/ Kenneth
      RuotoloKenneth
      Ruotolo, Secretary and Chief Financial Officer






45