##### 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 June 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
(State or other jurisdiction of
incorporation or organization)
    
    23-2860912
(I.R.S. Employer
Identification No.)200 LAWRENCE DRIVE, WEST CHESTER, PA
(Address of principal executive offices)
    
    19380
(Zip Code)
 (610) 644-8990
 þ o
 o þ
 10 20,696,301




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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 June 30, 2005 and December 31, 2004
    
    
    3Consolidated Statements of Operations for the three and six months ended June 30, 2005 and 2004
    
    
    4Consolidated Statement of Stockholders Equity for the six months ended June 30, 2005
    
    
    5Consolidated Statements of Cash Flows for the six months ended June 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
    
    
    24Item 4.
    
    Controls and Procedures
    
    
    24PART II. OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    25Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    25Item 3.
    
    Defaults Upon Senior Securities
    
    
    26Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    27Item 5.
    
    Other Information
    
    
    27Item 6.
    
    Exhibits
    
    
    27SIGNATURESCERTIFICATION BY PRESIDENT AND CHIEF EXECUTIVE OFFICERCERTIFICATION BY CHIEF FINANCIAL OFFICERCERTIFICATION FURNISHED PURSUANT TO 18 U.S.C., SECTION 906
 2




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PART I. FINANCIAL INFORMATION
 
 ITEM 1. Financial Statements
 ANIMAS CORPORATION AND SUBSIDIARIES
 
 Consolidated Balance Sheets
 (unaudited)
 June 30, 2005
    
    December 31, 2004(in thousands, except share data)AssetsCurrent assets:Cash and cash equivalents
    
    $
    15,704
    
    
    $
    30,867Short-term investments
    
    
    4,710
    
    
    
    Accounts receivable, net of allowance for doubtful accounts
of $2,061 in 2005 and $1,702 in 2004
    
    
    22,995
    
    
    
    22,382Inventories
    
    
    12,214
    
    
    
    10,924Prepaid expenses and other current assets
    
    
    3,193
    
    
    
    1,378Total current assets
    
    
    58,816
    
    
    
    65,551Property and equipment, net
    
    
    8,018
    
    
    
    6,780Deposits and other assets
    
    
    3,532
    
    
    
    3,654Restricted cash
    
    
    550
    
    
    
    Total assets
    
    $
    70,916
    
    
    $
    75,985Liabilities and Stockholders EquityCurrent liabilities:Current portion of long-term debt
    
    $
    211
    
    
    $
    398Accounts payable
    
    
    6,251
    
    
    
    4,430Accrued expenses
    
    
    7,322
    
    
    
    4,077Total current liabilities
    
    
    13,784
    
    
    
    8,905Other liabilities
    
    
    1,771
    
    
    
    1,820Long-term debt
    
    
    183
    
    
    
    254Total liabilities
    
    
    15,738
    
    
    
    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 20,654,985 shares in 2005 and 20,022,765 in 2004
    
    
    206
    
    
    
    200Additional paid-in capital
    
    
    168,365
    
    
    
    164,784Deferred compensation
    
    
    (116
    )
    
    
    (142
    )Unrealized losses on available for sale securities
    
    
    (2
    )
    
    
    Accumulated deficit
    
    
    (113,275
    )
    
    
    (99,836
    )Total stockholders equity
    
    
    55,178
    
    
    
    65,006Total liabilities and stockholders equity
    
    $
    70,916
    
    
    $
    75,985
  3




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ANIMAS CORPORATION AND SUBSIDIARIES
 
 Consolidated Statements of Operations
 (unaudited)
 Three Months Ended June 30,
    
    Six Months Ended June 30,2005
    
    2004
    
    2005
    
    2004(in thousands, except share and per share data)Net revenues
    
    $
    21,440
    
    
    $
    20,420
    
    
    $
    40,788
    
    
    $
    25,257Operating expenses:Cost of products sold
    
    
    11,586
    
    
    
    7,337
    
    
    
    19,669
    
    
    
    10,278Research and development expenses
    
    
    2,060
    
    
    
    1,381
    
    
    
    3,781
    
    
    
    2,818Selling, general and administrative expenses
    
    
    10,958
    
    
    
    8,982
    
    
    
    21,700
    
    
    
    17,421Purchased in-process research and development
    
    
    
    
    
    
    
    
    
    
    9,265
    
    
    
    Total operating expenses
    
    
    24,604
    
    
    
    17,700
    
    
    
    54,415
    
    
    
    30,517Income (loss) from operations
    
    
    (3,164
    )
    
    
    2,720
    
    
    
    (13,627
    )
    
    
    (5,260
    )Interest income
    
    
    135
    
    
    
    53
    
    
    
    291
    
    
    
    54Interest expense
    
    
    (57
    )
    
    
    (137
    )
    
    
    (103
    )
    
    
    (242
    )Net income (loss)
    
    $
    (3,086
    )
    
    $
    2,636
    
    
    $
    (13,439
    )
    
    $
    (5,448
    )Basic net income (loss) attributable to common stockholders per share
    
    $
    (0.15
    )
    
    $
    0.24
    
    
    $
    (0.66
    )
    
    $
    (0.72
    )Diluted net income (loss) attributable to common stockholders per share
    
    $
    (0.15
    )
    
    $
    0.14
    
    
    $
    (0.66
    )
    
    $
    (0.72
    )Weighted average shares  basic
    
    
    20,588,143
    
    
    
    11,037,815
    
    
    
    20,437,321
    
    
    
    7,530,011Weighted average shares  diluted
    
    
    20,588,143
    
    
    
    18,291,612
    
    
    
    20,437,321
    
    
    
    7,530,011
 The accompanying notes are
an integral part of the consolidated financial statements. 4




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ANIMAS CORPORATION AND SUBSIDIARIES
 
 Consolidated Statement of Stockholders Equity
 Six Months Ended June 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
    
    
    
    
    
    
    
    
    
    
    600,983
    
    
    
    6
    
    
    
    3,250
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,256Issuance of common stock upon exercise of
warrants
    
    
    
    
    
    
    
    
    
    
    19,000
    
    
    
    
    
    
    
    173
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    173Issuance of common stock under employee stock
purchase plan
    
    
    
    
    
    
    
    
    
    
    12,237
    
    
    
    
    
    
    
    158
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    158Unrealized losses on investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2
    )
    
    
    
    
    
    
    (2
    )Amortization of deferred compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    26
    
    
    
    
    
    
    
    
    
    
    
    26Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (13,439
    )
    
    
    (13,439
    )Balance, June 30, 2005
    
    
    
    
    
    $
    
    
    
    
    20,654,985
    
    
    $
    206
    
    
    $
    168,365
    
    
    $
    (116
    )
    
    $
    (2
    )
    
    $
    (113,275
    )
    
    $
    55,178
  5




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ANIMAS CORPORATION AND SUBSIDIARIES
 
 Consolidated Statements of Cash Flows
 (unaudited)
 Six Months Ended June 30,2005
    
    2004(in thousands)Cash flows from operating activities:Net loss
    
    $
    (13,439
    )
    
    $
    (5,448
    )Adjustments to reconcile net loss to net cash
used in operating activities:Depreciation and amortization
    
    
    1,366
    
    
    
    1,055Non-cash compensation and interest expense
    
    
    26
    
    
    
    54Purchase of in-process research and development
    
    
    9,265
    
    
    
    Bad debt expense
    
    
    756
    
    
    
    442Other
    
    
    
    
    
    
    12Changes in net assets and liabilities:Accounts receivable, net
    
    
    (1,369
    )
    
    
    (4,583
    )Inventories
    
    

    (1,144
    )
    
    
    (1,893
    )Cost associated with deferred revenue
    
    
    
    
    
    
    (239
    )Prepaid expenses and other current assets
    
    
    (1,815
    )
    
    
    (403
    )Deposits and other assets
    
    
    137
    
    
    
    194Restricted cash
    
    
    (550
    )
    
    
    550Accounts payable
    
    
    1,821
    
    
    
    2,637Accrued expenses and other liabilities
    
    
    3,196
    
    
    
    1,297Net cash used in operating activities
    
    
    (1,750
    )
    
    
    (6,325
    )Cash flows from investing activities:Purchases of property and equipment
    
    
    (1,403
    )
    
    
    (2,163
    )Purchases of short-term investments
    
    
    (4,712
    )
    
    
    Payment for acquisition
    
    
    (10,627
    )
    
    
    Net cash used in investing activities
    
    
    (16,742
    )
    
    
    (2,163
    )Cash flows from financing activities:Proceeds from lines of credit
    
    
    
    
    
    
    12,102Repayments on lines of credit
    
    
    
    
    
    
    (14,759
    )Proceeds from issuance of common stock, net of offering costs
    
    
    3,587
    
    
    
    66,374Repayments on long-term debt
    
    
    (258
    )
    
    
    (271
    )Proceeds from sale of preferred stock
    
    
    
    
    
    
    407Net cash provided by financing activities
    
    
    3,329
    
    
    
    63,853Net increase (decrease) in cash and cash equivalents
    
    
    (15,163
    )
    
    
    55,365Cash and cash equivalents at beginning of period
    
    
    30,867
    
    
    
    384Cash and cash equivalents at end of period
    
    $
    15,704
    
    
    $
    55,749
  6




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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.
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Product Warranties.
  Three Months Ended June 30,
    
    Six Months Ended June 30,2005
    
    2004
    
    2005
    
    2004Balance at beginning of period
    
    $
    1,942
    
    
    $
    1,743
    
    
    $
    1,349
    
    
    $
    1,734Warranty expense
    
    
    1,872
    
    
    
    209
    
    
    
    2,985
    
    
    
    805Warranty claims settled
    
    
    (1,210
    )
    
    
    (215
    )
    
    
    (1,730
    )
    
    
    (802
    )Balance at end of period
    
    $
    2,604
    
    
    $
    1,737
    
    
    $
    2,604
    
    
    $
    1,737
 Revenue Recognition.
    Stock-Based Compensation.
 8




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Three Months Ended June 30,
    
    Six Months Ended June 30,2005
    
    2004
    
    2005
    
    2004Net income (loss) attributable to common
stockholders, as reported
    
    $
    (3,086
    )
    
    $
    2,636
    
    
    $
    (13,439
    )
    
    $
    (5,448
    )Add  Non-cash employee compensation, as reported
    
    
    8
    
    
    
    8
    
    
    
    16
    
    
    
    16Deduct  Total stock-based employee compensation
expense determined under fair value-based method
    
    
    (836
    )
    
    
    (154
    )
    
    
    (1,462
    )
    
    
    (279
    )Pro forma net income (loss) attributable to
common stockholders
    
    $
    (3,914
    )
    
    $
    2,490
    
    
    $
    (14,885
    )
    
    $
    (5,711
    )Income (loss) attributable to common
stockholders per share:Basic, as reported
    
    $
    (0.15
    )
    
    $
    0.24
    
    
    $
    (0.66
    )
    
    $
    (0.72
    )Basic, pro forma
    
    $
    (0.19
    )
    
    $
    0.23
    
    
    $
    (0.73
    )
    
    $
    (0.76
    )Diluted, as reported
    
    $
    (0.15
    )
    
    $
    0.14
    
    
    $
    (0.66
    )
    
    $
    (0.72
    )Diluted, pro forma
    
    $
    (0.19
    )
    
    $
    0.14
    
    
    $
    (0.73
    )
    
    $
    (0.76
    )
 Use of Estimates.
 Reclassifications.
 New Accounting Pronouncements.
  9




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(3) Comprehensive Income (Loss)
 Three Months Ended June 30,
    
    Six Months Ended June 30,2005
    
    2004
    
    2005
    
    2004Net income (loss)
    
    $
    (3,086
    )
    
    $
    2,636
    
    
    $
    (13,439
    )
    
    $
    (5,448
    )Other comprehensive loss:Unrealized losses on available for sale securities
    
    
    (2
    )
    
    
    
    
    
    
    (2
    )
    
    
    Comprehensive income (loss)
    
    $
    (3,088
    )
    
    $
    2,636
    
    
    $
    (13,441
    )
    
    $
    (5,448
    )
 (4) Short-term Investments
   Grossunrealized
    
    FairCost
    
    losses
    
    valueCommercial paper
    
    $
    3,819
    
    
    $
    (2
    )
    
    $
    3,817Obligations of the U.S. Government
    
    
    893
    
    
    
    
    
    
    
    893Total
    
    $
    4,712
    
    
    $
    (2
    )
    
    $
    4,710
 (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
  June 30,
    
    December 31,2005
    
    2004Raw materials
    
    $
    2,284
    
    
    $
    2,225Work in process
    
    
    5,119
    
    
    
    5,367Finished goods
    
    
    5,980
    
    
    
    3,914Less reserve for excess and obsolete inventory
    
    
    (1,169
    )
    
    
    (582
    )$
    12,214
    
    
    $
    10,924
  (7) Business Segment
  (8) Income (Loss) per Share
  Three Months Ended June 30,
    
    Six Months Ended June 30,Net Income
    
    
    
    
    
    Per Share
    
    Net Income
    
    
    
    
    
    Per Share(Loss)
    
    Shares
    
    Amount
    
    (Loss)
    
    Shares
    
    Amount2005Basic
    
    $
    (3,086
    )
    
    
    20,588,143
    
    
    $
    (0.15
    )
    
    $
    (13,439
    )
    
    
    20,437,321
    
    
    $
    (0.66
    )Dilutive effect of:Stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Warrants
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Diluted
    
    $
    (3,086
    )
    
    
    20,588,143
    
    
    $
    (0.15
    )
    
    $
    (13,439
    )
    
    
    20,437,321
    
    
    $
    (0.66
    )2004Basic
    
    $
    2,636
    
    
    
    11,037,815
    
    
    $
    0.24
    
    
    $
    (5,448
    )
    
    
    7,530,011
    
    
    $
    (0.72
    )Dilutive effect of:Stock options
    
    
    
    
    
    
    1,643,542
    
    
    
    
    
    
    
    
    
    
    
    Warrants
    
    
    
    
    
    
    482,699
    
    
    
    
    
    
    
    
    
    
    
    Preferred Stock
    
    
    
    
    
    
    5,127,556
    
    
    
    
    
    
    
    
    
    
    
    Diluted
    
    $
    2,636
    
    
    
    18,291,612
    
    
    $
    0.14
    
    
    $
    (5,448
    )
    
    
    7,530,011
    
    
    $
    (0.72
    )
 11




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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 achieve and then 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;
    
    the failure of our ezSet infusion set to be fully-developed or commercially accepted;
    
    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;
    
    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.
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Overview
   Financial Operations Overview
 Net Revenues.
 Pump Upgrade Program.
  Cost of Products Sold.
   Research and Development Expenses.
 14




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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 June 30, 2005 and 2004
 Results of Operations.
 Three Months Ended June 30,2005
    
    2004
    
    Change, 2005/2004$
    
    %
    
    $
    
    %
    
    $
    
    %Consolidated Statements of Operations
    
    (in thousands)Net revenues
    
    $
    21,440
    
    
    
    100.0
    %
    
    $
    20,420
    
    
    
    100.0
    %
    
    $
    1,020
    
    
    
    5.0
    %Operating expenses:Cost of products sold
    
    
    11,586
    
    
    
    54.0
    
    
    
    7,337
    
    
    
    35.9
    
    
    
    4,249
    
    
    
    57.9Research and development expenses
    
    
    2,060
    
    
    
    9.6
    
    
    
    1,381
    
    
    
    6.8
    
    
    
    679
    
    
    
    49.2Selling, general and administrative expenses
    
    
    10,958
    
    
    
    51.1
    
    
    
    8,982
    
    
    
    44.0
    
    
    
    1,976
    
    
    
    22.0Total operating expenses
    
    
    24,604
    
    
    
    114.7
    
    
    
    17,700
    
    
    
    86.7
    
    
    
    6,904
    
    
    
    39.0Income (loss) from operations
    
    
    (3,164
    )
    
    
    (14.7
    )
    
    
    2,720
    
    
    
    13.3
    
    
    
    (5,884
    )
    
    
    (216.3
    )Interest income
    
    
    135
    
    
    
    0.6
    
    
    
    53
    
    
    
    0.3
    
    
    
    82
    
    
    
    154.7Interest expense
    
    
    (57
    )
    
    
    (0.3
    )
    
    
    (137
    )
    
    
    (0.7
    )
    
    
    80
    
    
    
    58.4Net income (loss)
    
    $
    (3,086
    )
    
    
    (14.4
    )%
    
    $
    2,636
    
    
    
    12.9
    %
    
    $
    (5,722
    )
    
    
    (217.1
    )%
 Three Months Ended June 30,2005
    
    2004
    
    Change, 2005/2004$
    
    %
    
    $
    
    %
    
    $
    
    %Net Revenues, Cost of Products Sold and Gross Margin
    
    (in thousands)Net revenues (dollars and as a percent of total)Insulin pumps
    
    $
    13,748
    
    
    
    64.1
    %
    
    $
    15,798
    
    
    
    77.4
    %
    
    $
    (2,050
    )
    
    
    (13.0
    )%Ancillary supplies
    
    
    7,692
    
    
    
    35.9
    
    
    
    4,622
    
    
    
    22.6
    
    
    
    3,070
    
    
    
    66.4Total
    
    $
    21,440
    
    
    
    100.0
    %
    
    $
    20,420
    
    
    
    100.0
    %
    
    $
    1,020
    
    
    
    5.0
    %Cost of products sold (dollars and as a percent of total)Insulin pumps
    
    $
    7,559
    
    
    
    65.2
    %
    
    $
    4,583
    
    
    
    62.5
    %
    
    $
    2,976
    
    
    
    64.9
    %Ancillary supplies
    
    
    4,027
    
    
    
    34.8
    
    
    
    2,754
    
    
    
    37.5
    
    
    
    1,273
    
    
    
    46.2Total
    
    $
    11,586
    
    
    
    100.0
    %
    
    $
    7,337
    
    
    
    100.0
    %
    
    $
    4,249
    
    
    
    57.9
    %Gross margin (dollars and as a percent of total)Insulin pumps
    
    $
    6,189
    
    
    
    62.8
    %
    
    $
    11,215
    
    
    
    85.7
    %
    
    $
    (5,026
    )
    
    
    (44.8
    )%Ancillary supplies
    
    
    3,665
    
    
    
    37.2
    
    
    
    1,868
    
    
    
    14.3
    
    
    
    1,797
    
    
    
    96.2Total
    
    $
    9,854
    
    
    
    100.0
    %
    
    $
    13,083
    
    
    
    100.0
    %
    
    $
    (3,229
    )
    
    
    (24.7
    )%
 Three Months Ended June 30,2005
    
    2004Gross margin % (as a percent of net revenues)Insulin pumps
    
    
    45.0
    %
    
    
    71.0
    %Ancillary supplies
    
    
    47.6
    %
    
    
    40.4
    %Total
    
    
    46.0
    %
    
    
    64.1
    %
 17




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##### Table of Contents



Net Revenues.
   Cost of Products Sold.
 Gross Margin.
  Research and Development.
  18




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Selling, General and Administrative (SG&A) Expenses.
   Interest Income.
 Interest Expense.
 Net Income (Loss).
 19




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Six Months Ended June 30, 2005 and 2004
 Results of Operations.
 Six Months Ended June 30,2005
    
    2004
    
    Change, 2005/2004$
    
    %
    
    $
    
    %
    
    $
    
    %Consolidated Statements of Operations
    
    (in thousands)Net revenues
    
    $
    40,788
    
    
    
    100.0
    %
    
    $
    25,257
    
    
    
    100.0
    %
    
    $
    15,531
    
    
    
    61.5
    %Operating expenses:Cost of products sold
    
    
    19,669
    
    
    
    48.2
    
    
    
    10,278
    
    
    
    40.7
    
    
    
    9,391
    
    
    
    91.4Research and development expenses
    
    
    3,781
    
    
    
    9.3
    
    
    
    2,818
    
    
    
    11.1
    
    
    
    963
    
    
    
    34.2Selling, general and administrative expenses
    
    
    21,700
    
    
    
    53.2
    
    
    
    17,421
    
    
    
    69.0
    
    
    
    4,279
    
    
    
    24.6Purchased in-process research and development
    
    
    9,265
    
    
    
    22.7
    
    
    
    
    
    
    
    
    
    
    
    9,265
    
    
    
    Total operating expenses
    
    
    54,415
    
    
    
    133.4
    
    
    
    30,517
    
    
    
    120.8
    
    
    
    23,898
    
    
    
    78.3Loss from operations
    
    
    (13,627
    )
    
    
    (33.4
    )
    
    
    (5,260
    )
    
    
    (20.8
    )
    
    
    (8,367
    )
    
    
    (159.1
    )Interest income
    
    
    291
    
    
    
    0.7
    
    
    
    54
    
    
    
    0.2
    
    
    
    237
    
    
    
    438.9Interest expense
    
    
    (103
    )
    
    
    (0.2
    )
    
    
    (242
    )
    
    
    (1.0
    )
    
    
    139
    
    
    
    57.4Net loss
    
    $
    (13,439
    )
    
    
    (32.9
    )%
    
    $
    (5,448
    )
    
    
    (21.6
    )%
    
    $
    (7,991
    )
    
    
    (146.7
    )%
 Six Months Ended June 30,2005
    
    2004
    
    Change, 2005/2004$
    
    %
    
    $
    
    %
    
    $
    
    %Net Revenues, Cost of Products Sold and Gross Margin
    
    (in thousands)Net revenues (dollars and as a percent of total)Insulin pumps
    
    $
    26,458
    
    
    
    64.9
    %
    
    $
    16,969
    
    
    
    67.2
    %
    
    $
    9,489
    
    
    
    55.9
    %Ancillary supplies
    
    
    14,330
    
    
    
    35.1
    
    
    
    8,288
    
    
    
    32.8
    
    
    
    6,042
    
    
    
    72.9Total
    
    $
    40,788
    
    
    
    100.0
    %
    
    $
    25,257
    
    
    
    100.0
    %
    
    $
    15,531
    
    
    
    61.5
    %Cost of products sold (dollars and as a percent of total)Insulin pumps
    
    $
    11,938
    
    
    
    60.7
    %
    
    $
    5,418
    
    
    
    52.7
    %
    
    $
    6,520
    
    
    
    120.3
    %Ancillary supplies
    
    
    7,731
    
    
    
    39.3
    
    
    
    4,860
    
    
    
    47.3
    
    
    
    2,871
    
    
    
    59.1Total
    
    $
    19,669
    
    
    
    100.0
    %
    
    $
    10,278
    
    
    
    100.0
    %
    
    $
    9,391
    
    
    
    91.4
    %Gross margin (dollars and as a percent of total)Insulin pumps
    
    $
    14,520
    
    
    
    68.8
    %
    
    $
    11,551
    
    
    
    77.1
    %
    
    $
    2,969
    
    
    
    25.7
    %Ancillary supplies
    
    
    6,599
    
    
    
    31.2
    
    
    
    3,428
    
    
    
    22.9
    
    
    
    3,171
    
    
    
    92.5Total
    
    $
    21,119
    
    
    
    100.0
    %
    
    $
    14,979
    
    
    
    100.0
    %
    
    $
    6,140
    
    
    
    41.0
    %
 Six Months Ended June 30,2005
    
    2004Gross margin % (as a percent of net revenues)Insulin pumps
    
    
    54.9
    %
    
    
    68.1
    %Ancillary supplies
    
    
    46.1
    %
    
    
    41.4
    %Total
    
    
    51.8
    %
    
    
    59.3
    %
 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.
 Interest Income.
 Interest Expense.
 21




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Net Loss.
 Seasonality and Quarterly Results
  Quarterly Results2005
    
    20041st Qtr
    
    2nd Qtr
    
    1st Qtr
    
    2nd Qtr
    
    3rd Qtr
    
    4th QtrNet revenues
    
    $
    19,348
    
    
    $
    21,440
    
    
    $
    4,837
    
    
    $
    20,420
    
    
    $
    22,654
    
    
    $
    20,015Gross margin
    
    
    11,265
    
    
    
    9,854
    
    
    
    1,896
    
    
    
    13,083
    
    
    
    13,988
    
    
    
    11,973Net income (loss)
    
    
    (10,353
    )
    
    
    (3,086
    )
    
    
    (8,084
    )
    
    
    2,636
    
    
    
    2,819
    
    
    
    (14,033
    )Basic net income (loss) per share
    
    
    (0.51
    )
    
    
    (0.15
    )
    
    
    (2.01
    )
    
    
    0.24
    
    
    
    0.15
    
    
    
    (0.71
    )Diluted net income (loss) per share
    
    
    (0.51
    )
    
    
    (0.15
    )
    
    
    (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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##### 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 June 30, 2005 which
materially affected, or are reasonable likely to materially affect, our internal control
over financial reporting.
 24




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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 we issued during
the fiscal quarters ended December 31, 2004, March 31, 2005 and June 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.
 1.
    
    During November and December of 2004, our stockholders exercised warrants
to acquire 2,400 shares of common stock at a weighted average exercise price of
$6.28 per share. We received an aggregate of $15,076 from the exercise
of these warrants.2.
    
    During December of 2004, warrants to purchase 6,666 shares of our common
stock were exercised by cashless exercise resulting in the issuance of an
aggregate of 2,503 shares of our common stock. We did not receive any
proceeds from the exercise of these warrants.3.
    
    During the fiscal quarter ended March 31, 2005, stockholders exercised
warrants to acquire 17,500 shares of common stock at a weighted average exercise
price of $9.17 per share. We received an aggregate of $160,390 from
the exercise of these warrants.4.
    
    During the fiscal quarter ended June 30, 2005, stockholders exercised
warrants to acquire 1,500 shares of common stock at a weighted average exercise
price of $8.13 per share. We received an aggregate of $12,190 from the
exercise of these warrants.
  25




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##### Table of Contents



(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
   Purchases of real estate
    
    
    Acquisitions of technology
    
    
    22,868,631Repayment of indebtedness
    
    
    4,767,234Working capital
    
    
    22,405,947Cash equivalents
    
    
    15,703,549$
    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).(c)
    
    None.
 
 Item 3. Defaults Upon Senior Securities
 (a)
    
    None.(b)
    
    None.
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##### Table of Contents



Item 4. Submission of Matters to a Vote of Security Holders
 (a)
    
    The Companys annual meeting of stockholders was held on May 17, 2005 at our corporate
headquarters in West Chester, Pennsylvania.(b)
    
    The following is a tabulation of the results of voting by security holders for the
election of three directors for terms of three years each:
 Nominees
    
    Votes For
    
    Votes Withheld
    
    AbstainGraeme Crothall
    
    
    11,362,631
    
    
    
    
    
    
    
    4,059,462David Joseph
    
    
    15,291,273
    
    
    
    
    
    
    
    130,820A. Peter Parsons
    
    
    15,243,677
    
    
    
    
    
    
    
    178,416
 Our directors who continued after the meeting include two directors whose term expires in
2006, John J. McDonough and Edward L. Cahill, and three directors whose term expires in 2007,
Katherine D. Crothall, William A. Graham, IV, and Thomas Morse.(c)
    
    The following is a tabulation of the results of voting by security holders for other
matters:Proposal to ratify the selection of KPMG LLP as the independent registered public accounting
firm to audit the consolidated financial statements of the Company and its subsidiaries and
the internal controls over financial reporting and managements assessment of the
effectiveness of the internal controls over financial reporting for the fiscal year ending
December 31, 2005:
 For
    
    
    15,420,805Against
    
    
    600Abstain
    
    
    688
 
 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.
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SIGNATURES
  /s/ Richard BaronRichard BaronVice President, Finance and Chief Financial OfficerDATE: August 15, 2005
    
    Animas Corporation(Registrant)
 28