##### Table of Contents



UNITED
STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D. C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2005
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from                 to
 Commission file number 000-50674
 ANIMAS CORPORATION
  DELAWARE
    
    23-2860912(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)
 200 LAWRENCE DRIVE, WEST CHESTER, PA
    
    19380(Address of principal executive offices)
    
    (Zip Code)
 (610) 644-8990
 þ o
 o þ
 o þ
 18 20,758,402




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##### Table of Contents



ANIMAS CORPORATION AND SUBSIDIARIES
FORM 10-Q
 INDEX
  
 PagePART I. FINANCIAL INFORMATIONItem 1. Financial Statements (unaudited)Consolidated Balance Sheets as of September 30, 2005 and December 31, 2004
    
    
    3Consolidated Statements of Operations for the three and nine months ended
September 30, 2005 and 2004
    
    
    4Consolidated Statement of Stockholders Equity for the nine months ended
September 30, 2005
    
    
    5Consolidated Statements of Cash Flows for the nine months ended September
30, 2005 and 2004
    
    
    6Notes to Consolidated Financial Statements
    
    
    7Item 2. Managements Discussion and Analysis of Financial Condition and Results
of Operations
    
    
    13Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    25Item 4. Controls and Procedures
    
    
    25PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    26Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    26Item 3. Defaults Upon Senior Securities
    
    
    27Item 4. Submission of Matters to a Vote of Security Holders
    
    
    27Item 5. Other Information
    
    
    27Item 6. Exhibits
    
    
    27SIGNATURESCertification by President and Chief Executive Officer Pursuant to Rule 13a-14(a)/15d-14(a)Certification by Chief Financial Officer Pursuant to Rule 13a-14(a)/15d-14(a)Certification Furnished Pursuant to 18 U.S.C. Section 1350 As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 2




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PART I. FINANCIAL INFORMATION
 
 ITEM 1. Financial Statements
 ANIMAS CORPORATION AND SUBSIDIARIES
 
 Consolidated Balance Sheets
 (unaudited)
 September 30, 2005
    
    
    December 31, 2004(in thousands, except share data)AssetsCurrent assets:Cash and cash equivalents
    
    $
    17,936
    
    
    $
    30,867Short-term investments
    
    
    1,839
    
    
    
    Accounts receivable, net of allowance for doubtful accounts
of $1,900 in 2005 and $1,702 in 2004
    
    
    22,336
    
    
    
    22,382Inventories
    
    
    15,128
    
    
    
    10,924Prepaid expenses and other current assets
    
    
    2,868
    
    
    
    1,378Total current assets
    
    
    60,107
    
    
    
    65,551Property and equipment, net
    
    
    7,560
    
    
    
    6,780Deposits and other assets
    
    
    3,526
    
    
    
    3,654Restricted cash
    
    
    550
    
    
    
    Total assets
    
    $
    71,743
    
    
    $
    75,985Liabilities and Stockholders EquityCurrent liabilities:Current portion of long-term debt
    
    $
    161
    
    
    $
    398Accounts payable
    
    
    7,591
    
    
    
    4,430Accrued expenses
    
    
    6,016
    
    
    
    4,077Total current liabilities
    
    
    13,768
    
    
    
    8,905Other liabilities
    
    
    1,695
    
    
    
    1,820Long-term debt
    
    
    157
    
    
    
    254Total liabilities
    
    
    15,620
    
    
    
    10,979Commitments and contingenciesStockholders equity:Series A, B, and C Preferred stock, $0.01 par value; authorized 10,000,000
shares; none issued and outstanding
    
    
    
    
    
    
    Common stock, $0.01 par value; authorized 100,000,000 shares; issued
and outstanding 20,720,271 shares in 2005 and 20,022,765 in 2004
    
    
    207
    
    
    
    200Additional paid-in capital
    
    
    168,880
    
    
    
    164,784Deferred compensation
    
    
    (107
    )
    
    
    (142
    )Accumulated deficit
    
    
    (112,857
    )
    
    
    (99,836
    )Total stockholders equity
    
    
    56,123
    
    
    
    65,006Total liabilities and stockholders equity
    
    $
    71,743
    
    
    $
    75,985
  3




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ANIMAS CORPORATION AND SUBSIDIARIES
 
 Consolidated Statements of Operations
 (unaudited)
 Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004(in thousands, except share and per share data)Net revenues
    
    $
    21,705
    
    
    $
    22,654
    
    
    $
    62,493
    
    
    $
    47,911Operating expenses:Cost of products sold
    
    
    8,109
    
    
    
    8,666
    
    
    
    27,778
    
    
    
    18,944Research and development expenses
    
    
    2,226
    
    
    
    1,746
    
    
    
    6,007
    
    
    
    4,564Selling, general and administrative expenses
    
    
    11,055
    
    
    
    9,519
    
    
    
    32,755
    
    
    
    26,940Purchased in-process research and development
    
    
    
    
    
    
    
    
    
    
    9,265
    
    
    
    Total operating expenses
    
    
    21,390
    
    
    
    19,931
    
    
    
    75,805
    
    
    
    50,448Income (loss) from operations
    
    
    315
    
    
    
    2,723
    
    
    
    (13,312
    )
    
    
    (2,537
    )Interest income
    
    
    139
    
    
    
    155
    
    
    
    430
    
    
    
    209Interest expense
    
    
    (36
    )
    
    
    (59
    )
    
    
    (139
    )
    
    
    (301
    )Net income (loss)
    
    $
    418
    
    
    $
    2,819
    
    
    $
    (13,021
    )
    
    $
    (2,629
    )Basic net income (loss) per share
    
    $
    0.02
    
    
    $
    0.15
    
    
    $
    (0.63
    )
    
    $
    (0.23
    )Diluted net income (loss) per share
    
    $
    0.02
    
    
    $
    0.14
    
    
    $
    (0.63
    )
    
    $
    (0.23
    )Weighted average shares  basic
    
    
    20,693,422
    
    
    
    19,215,289
    
    
    
    20,523,626
    
    
    
    11,453,535Weighted average shares  diluted
    
    
    21,642,133
    
    
    
    20,804,281
    
    
    
    20,523,626
    
    
    
    11,453,535
  4




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ANIMAS CORPORATION AND SUBSIDIARIES
 
 Consolidated Statement of Stockholders Equity
 Nine Months Ended September 30, 2005
 (unaudited)
 UnrealizedAdditional
    
    
    
    
    
    
    losses
    
    
    
    
    
    
    TotalPreferred stock
    
    
    Common stock
    
    
    paid-in
    
    
    Deferred
    
    
    on available for
    
    
    Accumulated
    
    
    stockholdersShares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    capital
    
    
    compensation
    
    
    sale securities
    
    
    deficit
    
    
    equity(in thousands, except share data)Balance, December 31, 2004
    
    
    
    
    
    $
    
    
    
    
    20,022,765
    
    
    $
    200
    
    
    $
    164,784
    
    
    $
    (142
    )
    
    $
    
    
    
    $
    (99,836
    )
    
    $
    65,006Exercise of stock options to purchase common
stock
    
    
    
    
    
    
    
    
    
    
    649,632
    
    
    
    7
    
    
    
    3,572
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,579Issuance of common stock upon exercise of
warrants
    
    
    
    
    
    
    
    
    
    
    25,127
    
    
    
    
    
    
    
    228
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    228Issuance of common stock under employee stock
purchase plan
    
    
    
    
    
    
    
    
    
    
    22,747
    
    
    
    
    
    
    
    296
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    296Amortization of deferred compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    35
    
    
    
    
    
    
    
    
    
    
    
    35Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (13,021
    )
    
    
    (13,021
    )Balance, September 30, 2005
    
    
    
    
    
    $
    
    
    
    
    20,720,271
    
    
    $
    207
    
    
    $
    168,880
    
    
    $
    (107
    )
    
    $
    
    
    
    $
    (112,857
    )
    
    $
    56,123
  5




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ANIMAS CORPORATION AND SUBSIDIARIES
 
 Consolidated Statements of Cash Flows
 (unaudited)
 Nine Months Ended September 30,2005
    
    
    2004(in thousands)Cash flows from operating activities:Net loss
    
    $
    (13,021
    )
    
    $
    (2,629
    )Adjustments to reconcile net loss to net cash
used in operating activities:Depreciation and amortization
    
    
    2,184
    
    
    
    1,583Non-cash compensation and interest expense
    
    
    35
    
    
    
    85Purchase of in-process research and development
    
    
    9,265
    
    
    
    Bad debt expense
    
    
    1,618
    
    
    
    729Other
    
    
    
    
    
    
    12Changes in net assets and liabilities:Accounts receivable, net
    
    
    (1,572
    )
    
    
    (7,961
    )Inventories
    
    
    (4,058
    )
    
    
    (4,748
    )Cost associated with deferred revenue
    
    
    
    
    
    
    1,025Prepaid expenses and other current assets
    
    
    (1,490
    )
    
    
    (734
    )Deposits and other assets
    
    
    143
    
    
    
    204Restricted cash
    
    
    (550
    )
    
    
    550Accounts payable
    
    
    3,161
    
    
    
    2,931Accrued expenses and other liabilities
    
    
    1,814
    
    
    
    (3,539
    )Net cash used in operating activities
    
    
    (2,471
    )
    
    
    (12,492
    )Cash flows from investing activities:Purchases of property and equipment
    
    
    (1,763
    )
    
    
    (3,100
    )Purchases of short-term investments
    
    
    (5,639
    )
    
    
    Sales of short-term investments
    
    
    3,800
    
    
    
    Payment for acquisition
    
    
    (10,627
    )
    
    
    Net cash used in investing activities
    
    
    (14,229
    )
    
    
    (3,100
    )Cash flows from financing activities:Proceeds from lines of credit
    
    
    
    
    
    
    12,102Repayments on lines of credit
    
    
    
    
    
    
    (14,759
    )Proceeds
from initial public offering, net of offering costs
    
    
    
    
    
    
    65,745Proceeds
from exercise of common stock options and warrants
    
    
    3,807
    
    
    
    731Employee
stock purchase plan purchases
    
    
    296
    
    
    
    Repayments on long-term debt
    
    
    (334
    )
    
    
    (410
    )Proceeds from sale of preferred stock
    
    
    
    
    
    
    407Net cash provided by financing activities
    
    
    3,769
    
    
    
    63,816Net increase (decrease) in cash and cash equivalents
    
    
    (12,931
    )
    
    
    48,224Cash and cash equivalents at beginning of period
    
    
    30,867
    
    
    
    384Cash and cash equivalents at end of period
    
    $
    17,936
    
    
    $
    48,608
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ANIMAS CORPORATION AND SUBSIDIARIES
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (in thousands, except share data)
 (unaudited)
 (1) Organization and Description of Business
  (2) Summary of Significant Accounting Policies
 Unaudited Interim Results.
 Principles of Consolidation.
 Cash and Cash Equivalents.
 Short-term Investments.
 Accounts ReceivableAllowance for Doubtful Accounts.
  Inventories.
 7




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Product Warranties.
  Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Balance at beginning of period
    
    $
    2,604
    
    
    $
    1,737
    
    
    $
    1,349
    
    
    $
    1,734Warranty expense
    
    
    1,360
    
    
    
    856
    
    
    
    4,345
    
    
    
    1,661Warranty claims settled
    
    
    (1,499
    )
    
    
    (986
    )
    
    
    (3,229
    )
    
    
    (1,788
    )Balance at end of period
    
    $
    2,465
    
    
    $
    1,607
    
    
    $
    2,465
    
    
    $
    1,607
 Revenue Recognition.
    Stock-Based Compensation.
 8




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Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Net income
(loss),
as
reported
    
    $
    418
    
    
    $
    2,819
    
    
    $
    (13,021
    )
    
    $
    (2,629
    )Add  Non-cash
employee
compensation, as
reported
    
    
    8
    
    
    
    8
    
    
    
    24
    
    
    
    24Deduct  Total
stock-based
employee
compensation
expense determined
under fair
value-based method
    
    
    (1,064
    )
    
    
    (154
    )
    
    
    (2,526
    )
    
    
    (433
    )Pro forma net
income (loss)
    
    $
    (638
    )
    
    $
    2,673
    
    
    $
    (15,523
    )
    
    $
    (3,038
    )Income (loss)
per share:Basic, as reported
    
    $
    0.02
    
    
    $
    0.15
    
    
    $
    (0.63
    )
    
    $
    (0.23
    )Basic, pro forma
    
    $
    (0.03
    )
    
    $
    0.14
    
    
    $
    (0.76
    )
    
    $
    (0.27
    )Diluted, as reported
    
    $
    0.02
    
    
    $
    0.14
    
    
    $
    (0.63
    )
    
    $
    (0.23
    )Diluted, pro forma
    
    $
    (0.03
    )
    
    $
    0.13
    
    
    $
    (0.76
    )
    
    $
    (0.27
    )
 Use of Estimates.
 Reclassifications.
 New Accounting Pronouncements.
  9




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(3) Comprehensive Income (Loss)
 Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Net income (loss)
    
    $
    418
    
    
    $
    2,819
    
    
    $
    (13,021
    )
    
    $
    (2,629
    )Other comprehensive loss:Unrealized gains/losses on
available for sale
securities
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    Comprehensive income (loss)
    
    $
    420
    
    
    $
    2,819
    
    
    $
    (13,021
    )
    
    $
    (2,629
    )
 (4) Short-term Investments
  (5) Acquired Technology
  Inventories
    
    $
    146Property and equipment
    
    
    1,201Patents
    
    
    15Purchased in-process research and development
    
    
    9,265$
    10,627
  10




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(6) Inventories
  September 30,
    
    
    December 31,2005
    
    
    2004Raw materials
    
    $
    2,197
    
    
    $
    2,225Work in process
    
    
    8,686
    
    
    
    5,367Finished goods
    
    
    5,734
    
    
    
    3,914Less reserve for excess and obsolete inventory
    
    
    (1,489
    )
    
    
    (582
    )$
    15,128
    
    
    $
    10,924
   (7) Business Segment
  (8) Income (Loss) per Share
  Three Months Ended September 30,
    
    
    Nine Months Ended September 30,Per Share
    
    
    
    
    
    
    
    
    
    
    Per ShareNet Income
    
    
    Shares
    
    
    Amount
    
    
    Net Loss
    
    
    Shares
    
    
    Amount2005Basic
    
    $
    418
    
    
    
    20,693,422
    
    
    $
    0.02
    
    
    $
    (13,021
    )
    
    
    20,523,626
    
    
    $
    (0.63
    )Dilutive effect of:Stock options
    
    
    
    
    
    
    862,546
    
    
    
    
    
    
    
    
    
    
    
    Stock purchase plan
    
    
    
    
    
    
    2,217
    
    
    
    
    
    
    
    
    
    
    
    Warrants
    
    
    
    
    
    
    83,948
    
    
    
    
    
    
    
    
    
    
    
    Diluted
    
    $
    418
    
    
    
    21,642,133
    
    
    $
    0.02
    
    
    $
    (13,021
    )
    
    
    20,523,626
    
    
    $
    (0.63
    )2004Basic
    
    $
    2,819
    
    
    
    19,215,289
    
    
    $
    0.15
    
    
    $
    (2,629
    )
    
    
    11,453,535
    
    
    $
    (0.23
    )Dilutive effect of:Stock options
    
    
    
    
    
    
    1,491,007
    
    
    
    
    
    
    
    
    
    
    
    Warrants
    
    
    
    
    
    
    97,985
    
    
    
    
    
    
    
    
    
    
    
    Diluted
    
    $
    2,819
    
    
    
    20,804,281
    
    
    $
    0.14
    
    
    $
    (2,629
    )
    
    
    11,453,535
    
    
    $
    (0.23
    )
 11




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12




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 CAUTIONARY STATEMENT PURSUANT TO SAFE HARBOR PROVISIONS OF THE PRIVATE SECURITIES LITIGATION ACT OF
1995:
 This report and the documents incorporated by reference herein contain 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. When used in this report and the documents
incorporated herein by reference, the words anticipate, believe, estimate, may, expect,
intend, and similar expressions are generally intended to identify forward-looking statements.
These forward-looking statements include, among others, the statements in Managements Discussion
and Analysis of Financial Condition and Results of Operations about our:
 
    
    estimate of the length of time that our existing cash and cash equivalents, short-term
investments, expected revenue, and interest income will be adequate to finance our
operating and capital requirements;
    
    expected losses;
    
    expectations for future capital requirements;
    
    expectations for increases in operating expenses;
    
    expectations for increases in research and development, marketing, and general and
administrative expenses in order to develop products, manufacture commercial quantities of
reagents and products, and commercialize our technology;
    
    expectations for the development of an improved insulin pump;
    
    expectations for generating revenue; and
    
    expectations regarding new or expanded collaborations and for the performance of our
existing collaboration partners regarding the development and commercialization of products
incorporating our technologies.
 Our actual results could differ materially from the results expressed in, or implied by, these
forward-looking statements. Potential risks and uncertainties that could affect our actual results
include the following:
 
    
    failure to comply with any FDA or foreign regulations;
    
    technical issues relating to the IR 1250 or the IR 1200 or any of the Companys ancillary supplies;
    
    competition;
    
    the failure to develop a market for pumps returned to the Company as a loaner, demo, or
a warranty replacement and subsequently refurbished and recertified;
    
    any significant disruption with vendors including parts purchased by the Company that
may be discontinued by the vendor;
    
    any failure to maintain profitability;
    
    an inability to attract and retain personnel;
    
    the failure to successfully develop and commercialize the technologies acquired from Cygnus, Inc. and Debiotech, SA;
    
    technological breakthroughs in diabetes monitoring, treatment, or prevention that could render our products obsolete;
    
    failure to capture recurring purchases of ancillary supplies by patients using our pumps;
    
    an inability to adequately protect our intellectual property;
    
    product liability lawsuits;
    
    disputes over intellectual property rights, including the risk of court-ordered
injunctions prohibiting our manufacture or sale
of a product following a finding of patent infringement;
    
    the failure to secure or retain third party coverage or reduced reimbursement for our products by third party payors; and,
    
    general economic conditions.
 These and other risks and uncertainties that could affect our actual results are discussed in this
report and in our other filings with the Securities and Exchange Commission; particularly the
section entitled Risk Factors. Although we believe that the expectations reflected in the
forward-looking statements are reasonable, we cannot guarantee future results, events, levels of
activity, performance, or achievements. We do not assume responsibility for the accuracy and
completeness of the forward-looking statements other than as required by applicable law.
 We do not undertake any duty to update after the date of this report any of the forward-looking
statements in this report to conform them to actual results.
 13




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##### Table of Contents



Overview
   Financial Operations Overview
 Net Revenues.
 Pump Upgrade Program.
  Cost of Products Sold.
   Research and Development Expenses.
 14




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##### Table of Contents



Selling, General and Administrative Expenses.
 Critical Accounting Policies and Estimates
  Revenue Recognition.
   Accounts Receivable/Allowance for Doubtful Accounts.
 Inventories.
  15




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Deferred Tax Asset Valuation Allowance.
 Warranty Liability.
 16




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Three Months Ended September 30, 2005 and 2004
 Results of Operations.
 Three Months Ended September 30,2005
    
    
    2004
    
    
    Change, 2005/2004$
    
    
    %
    
    
    $
    
    
    %
    
    
    $
    
    
    %(in thousands)Consolidated Statements of OperationsNet revenues
    
    $
    21,705
    
    
    
    100.0
    %
    
    $
    22,654
    
    
    
    100.0
    %
    
    $
    (949
    )
    
    
    (4.2
    )%Operating expenses:Cost of products sold
    
    
    8,109
    
    
    
    37.4
    
    
    
    8,666
    
    
    
    38.3
    
    
    
    (557
    )
    
    
    (6.4
    )Research and development expenses
    
    
    2,226
    
    
    
    10.2
    
    
    
    1,746
    
    
    
    7.7
    
    
    
    480
    
    
    
    27.5Selling, general and administrative expenses
    
    
    11,055
    
    
    
    50.9
    
    
    
    9,519
    
    
    
    42.0
    
    
    
    1,536
    
    
    
    16.1Total operating expenses
    
    
    21,390
    
    
    
    98.5
    
    
    
    19,931
    
    
    
    88.0
    
    
    
    1,459
    
    
    
    7.3Income from operations
    
    
    315
    
    
    
    1.5
    
    
    
    2,723
    
    
    
    12.0
    
    
    
    (2,408
    )
    
    
    (88.4
    )Interest income
    
    
    139
    
    
    
    0.6
    
    
    
    155
    
    
    
    0.7
    
    
    
    (16
    )
    
    
    (10.3
    )Interest expense
    
    
    (36
    )
    
    
    (0.2
    )
    
    
    (59
    )
    
    
    (0.3
    )
    
    
    23
    
    
    
    39.0Net income
    
    $
    418
    
    
    
    1.9
    %
    
    $
    2,819
    
    
    
    12.4
    %
    
    $
    (2,401
    )
    
    
    (85.2
    )%
 Three Months Ended September 30,2005
    
    
    2004
    
    
    Change, 2005/2004$
    
    
    %
    
    
    $
    
    
    %
    
    
    $
    
    
    %(in thousands)Net Revenues, Cost of Products Sold and Gross MarginNet revenues (dollars and as a percent of total)Insulin pumps
    
    $
    12,584
    
    
    
    58.0
    %
    
    $
    17,278
    
    
    
    76.3
    %
    
    $
    (4,694
    )
    
    
    (27.2
    )%Ancillary supplies
    
    
    9,121
    
    
    
    42.0
    
    
    
    5,376
    
    
    
    23.7
    
    
    
    3,745
    
    
    
    69.7Total
    
    $
    21,705
    
    
    
    100.0
    %
    
    $
    22,654
    
    
    
    100.0
    %
    
    $
    (949
    )
    
    
    (4.2
    )%Cost of products sold (dollars and as a percent of total)Insulin pumps
    
    $
    3,759
    
    
    
    46.4
    %
    
    $
    5,276
    
    
    
    60.9
    %
    
    $
    (1,517
    )
    
    
    (28.8
    )%Ancillary supplies
    
    
    4,350
    
    
    
    53.6
    
    
    
    3,390
    
    
    
    39.1
    
    
    
    960
    
    
    
    28.3Total
    
    $
    8,109
    
    
    
    100.0
    %
    
    $
    8,666
    
    
    
    100.0
    %
    
    $
    (557
    )
    
    
    (6.4
    )%Gross margin (dollars and as a percent of total)Insulin pumps
    
    $
    8,825
    
    
    
    64.9
    %
    
    $
    12,002
    
    
    
    85.8
    %
    
    $
    (3,177
    )
    
    
    (26.5
    )%Ancillary supplies
    
    
    4,771
    
    
    
    35.1
    
    
    
    1,986
    
    
    
    14.2
    
    
    
    2,785
    
    
    
    140.2Total
    
    $
    13,596
    
    
    
    100.0
    %
    
    $
    13,988
    
    
    
    100.0
    %
    
    $
    (392
    )
    
    
    (2.8
    )%
 Three Months Ended September 30,2005
    
    2004Gross margin % (as a percent of net revenues)Insulin pumps
    
    
    70.1
    %
    
    
    69.5
    %Ancillary supplies
    
    
    52.3
    %
    
    
    36.9
    %Total
    
    
    62.6
    %
    
    
    61.7
    %
 17




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##### Table of Contents



Net Revenues.
   Cost of Products Sold.
 Gross Margin.
  Research and Development.
  Selling, General and Administrative (SG&A) Expenses.
 18




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Interest Income.
 Interest Expense.
 Net Income.
 19




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Nine Months Ended September 30, 2005 and 2004
 Results of Operations.
 Nine Months Ended September 30,2005
    
    
    2004
    
    
    Change, 2005/2004$
    
    
    %
    
    
    $
    
    
    %
    
    
    $
    
    
    %(in thousands)Consolidated Statements of OperationsNet revenues
    
    $
    62,493
    
    
    
    100.0
    %
    
    $
    47,911
    
    
    
    100.0
    %
    
    $
    14,582
    
    
    
    30.4
    %Operating expenses:Cost of products sold
    
    
    27,778
    
    
    
    44.5
    
    
    
    18,944
    
    
    
    39.6
    
    
    
    8,834
    
    
    
    46.6Research and development expenses
    
    
    6,007
    
    
    
    9.6
    
    
    
    4,564
    
    
    
    9.5
    
    
    
    1,443
    
    
    
    31.6Selling, general and administrative expenses
    
    
    32,755
    
    
    
    52.4
    
    
    
    26,940
    
    
    
    56.2
    
    
    
    5,815
    
    
    
    21.6Purchased in-process research and development
    
    
    9,265
    
    
    
    14.8
    
    
    
    
    
    
    
    
    
    
    
    9,265
    
    
    
    Total operating expenses
    
    
    75,805
    
    
    
    121.3
    
    
    
    50,448
    
    
    
    105.3
    
    
    
    25,357
    
    
    
    50.3Loss from operations
    
    
    (13,312
    )
    
    
    (21.3
    )
    
    
    (2,537
    )
    
    
    (5.3
    )
    
    
    (10,775
    )
    
    
    (424.7
    )Interest income
    
    
    430
    
    
    
    0.7
    
    
    
    209
    
    
    
    0.4
    
    
    
    221
    
    
    
    105.7Interest expense
    
    
    (139
    )
    
    
    (0.2
    )
    
    
    (301
    )
    
    
    (0.6
    )
    
    
    162
    
    
    
    53.8Net loss
    
    $
    (13,021
    )
    
    
    (20.8
    )%
    
    $
    (2,629
    )
    
    
    (5.5
    )%
    
    $
    (10,392
    )
    
    
    (395.3
    )%
 Nine Months Ended September 30,2005
    
    
    2004
    
    
    Change, 2005/2004$
    
    
    %
    
    
    $
    
    
    %
    
    
    $
    
    
    %(in thousands)Net Revenues, Cost of Products Sold and Gross MarginNet revenues (dollars and as a percent of total)Insulin pumps
    
    $
    39,042
    
    
    
    62.5
    %
    
    $
    34,247
    
    
    
    71.5
    %
    
    $
    4,795
    
    
    
    14.0
    %Ancillary supplies
    
    
    23,451
    
    
    
    37.5
    
    
    
    13,664
    
    
    
    28.5
    
    
    
    9,787
    
    
    
    71.6Total
    
    $
    62,493
    
    
    
    100.0
    %
    
    $
    47,911
    
    
    
    100.0
    %
    
    $
    14,582
    
    
    
    30.4
    %Cost of products sold (dollars and as a percent of total)Insulin pumps
    
    $
    15,697
    
    
    
    56.5
    %
    
    $
    10,693
    
    
    
    56.4
    %
    
    $
    5,004
    
    
    
    46.8
    %Ancillary supplies
    
    
    12,081
    
    
    
    43.5
    
    
    
    8,251
    
    
    
    43.6
    
    
    
    3,830
    
    
    
    46.4Total
    
    $
    27,778
    
    
    
    100.0
    %
    
    $
    18,944
    
    
    
    100.0
    %
    
    $
    8,834
    
    
    
    46.6
    %Gross margin (dollars and as a percent of total)Insulin pumps
    
    $
    23,345
    
    
    
    67.2
    %
    
    $
    23,554
    
    
    
    81.3
    %
    
    $
    (209
    )
    
    
    (0.9
    )%Ancillary supplies
    
    
    11,370
    
    
    
    32.8
    
    
    
    5,413
    
    
    
    18.7
    
    
    
    5,957
    
    
    
    110.0Total
    
    $
    34,715
    
    
    
    100.0
    %
    
    $
    28,967
    
    
    
    100.0
    %
    
    $
    5,748
    
    
    
    19.8
    %
 Nine Months Ended September 30,2005
    
    2004Gross margin % (as a percent of net revenues)Insulin pumps
    
    
    59.8
    %
    
    
    68.8
    %Ancillary supplies
    
    
    48.5
    %
    
    
    39.6
    %Total
    
    
    55.6
    %
    
    
    60.5
    %
 20




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##### Table of Contents



Net Revenues.
  Cost of Products Sold.
 Gross Margin.
  Research and Development.
 Selling, General and Administrative (SG&A) Expenses.
  Purchased in-process research and development.
 21




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Interest Income.
 Interest Expense.
 Net Loss.
 Seasonality and Quarterly Results
  Quarterly Results2005
    
    20041st Qtr
    
    2nd Qtr
    
    3rd Qtr
    
    1st Qtr
    
    2nd Qtr
    
    3rd Qtr
    
    4th QtrNet revenues
    
    $
    19,348
    
    
    $
    21,440
    
    
    $
    21,705
    
    
    $
    4,837
    
    
    $
    20,420
    
    
    $
    22,654
    
    
    $
    20,015Gross margin
    
    
    11,265
    
    
    
    9,854
    
    
    
    13,596
    
    
    
    1,896
    
    
    
    13,083
    
    
    
    13,988
    
    
    
    11,973Net income (loss)
    
    
    (10,353
    )
    
    
    (3,086
    )
    
    
    418
    
    
    
    (8,084
    )
    
    
    2,636
    
    
    
    2,819
    
    
    
    (14,033
    )Basic net income (loss) per share
    
    
    (0.51
    )
    
    
    (0.15
    )
    
    
    0.02
    
    
    
    (2.01
    )
    
    
    0.24
    
    
    
    0.15
    
    
    
    (0.71
    )Diluted net income (loss) per share
    
    
    (0.51
    )
    
    
    (0.15
    )
    
    
    0.02
    
    
    
    (2.01
    )
    
    
    0.14
    
    
    
    0.14
    
    
    
    (0.71
    )
   22




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##### Table of Contents



Liquidity and Capital Resources
   Cash Used in Operating Activities.
 Cash Used in Investing Activities.
 Cash Provided by Financing Activities.
 Operating Leases.
 23




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24




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##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures About Market Risk
   
 Item 4. Controls and Procedures
 (a)
    
    Evaluation of disclosure controls and procedures.Our Chief Executive Officer and Chief
Financial Officer evaluated the effectiveness of the design and operation of our disclosure
controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of
1934) as of the end of the period covered by this report. Based on that evaluation, the
Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls
and procedures as of the end of the period covered by this report were designed and
functioning effectively to provide reasonable assurance that the information required to be
disclosed by us in reports filed under the Securities Exchange Act of 1934 is recorded,
processed, summarized, and reported within the time periods specified in the Securities and
Exchange Commissions rules and forms.(b)
    
    Changes in internal controls.There were no changes in our internal control over
financial reporting identified in connection with the evaluation of such internal control
over financial reporting that occurred during the fiscal quarter ended September 30, 2005
which materially affected, or are reasonable likely to materially affect, our internal
control over financial reporting.
 25




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##### Table of Contents



PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
 (a)
    
    Set forth below is information regarding shares of common stock that were issued during the
fiscal quarter ended September 30, 2005. Also included is the consideration, if any, received
by us for those shares, and information relating to the section of the Securities Act of 1933,
or rule of the Securities and Exchange Commission, under which exemption from registration was
claimed.During the fiscal quarter ended September 30, 2005 our stockholders exercised warrants to
acquire 6,127 shares of common stock at a weighted average exercise price of $9.07 per share.
We received an aggregate of $55,591 from the exercise of these warrants.No underwriters were involved in the foregoing sales of securities. We issued these
securities in reliance upon the exemption from the registration requirements of Section 3(b)
or 4(2) of the Securities Act because the subject securities were either (i) issued pursuant
to a compensatory benefit plan or contract pursuant to Rule 701 under the Securities Act or
(ii) sold to a limited group of persons, each of whom was believed to have been a
sophisticated investor or to have had a preexisting business or personal relationship with us
or our management and to have been purchasing for investment without a view to further
distribution. All of the foregoing securities are deemed restricted securities for purposes
of the Securities Act.(b)
    
    On May 19, 2004, the Companys Registration Statement on Form S-1 covering the offering of
4,250,000 shares of the Companys common stock, Commission file number 333-113008 was declared effective (the
Registration Statement). The offering closed on May 25, 2004 and did not terminate before
any securities were sold. As of the date of the filing of this report, the offering has
terminated. The offering was managed by Piper Jaffray & Co., J.P. Morgan Securities Inc. and
Thomas Weisel Partners LLC as representatives of the several underwriters named in the
Registration Statement (the Underwriters).The Underwriters exercised an over-allotment option to purchase an additional 637,500 shares
of the Companys common stock. The total price to the public for the shares offered and sold
by the Company, including the over-allotment, was $73,312,500.The amount of expenses incurred for the Companys account in connection with the offering is
as follows:
 Underwriting discounts and commissions
    
    $
    5,131,875Finders fees
    
    
    Expenses paid to or for the Underwriters
    
    
    Other expenses
    
    
    2,435,264Total expenses
    
    $
    7,567,139
 All of the foregoing expenses were direct or indirect payments to persons other than (i)
directors, officers or their associates; (ii) persons owning ten percent (10%) or more of the
Companys common stock; or (iii) affiliates of the Company.
 26




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##### Table of Contents



The net proceeds of the offering, including the exercise of the over-allotment option, to the
Company (after deducting the foregoing expenses) were $65,745,361. From the effective date
of the Registration Statement, the net proceeds have been used for the following purposes:
 Purchases of real estate
    
    
    Acquisitions of technology
    
    
    22,868,631Repayment of indebtedness
    
    
    4,767,234Working capital
    
    
    18,334,830Cash, cash equivalents and short-term investments
    
    
    19,774,666$
    65,745,361
 All of the foregoing payments were direct or indirect payments to persons other than (i)
directors, officers or their associates; (ii) persons owning ten percent (10%) or more of the
Companys common stock; or (iii) affiliates of the Company.There has been no material change in the planned use of proceeds from our initial public
offering as described in our final prospectus filed with the SEC pursuant to Rule 424(b).
  
 Item 3. Defaults Upon Senior Securities
   
 Item 4. Submission of Matters to a Vote of Security Holders
  
 Item 5. Other Information
  
 Item 6. Exhibits
 (31.1)
    
    Certification by President and Chief Executive Officer Pursuant to Rule
13a-14(a)/15d-14(a).(31.2)
    
    Certification by Chief Financial Officer Pursuant to Rule 13a-14(a)/15d-14(a).(32.1)
    
    Certification Furnished Pursuant to 18 U.S.C. Section 1350 As Adopted Pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.
 27




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##### Table of Contents



SIGNATURES
  /s/ Richard BaronRichard BaronVice President, Finance and Chief Financial OfficerDATE:
November 21, 2005
    
    Animas Corporation(Registrant)
 28