##### Index to Financial Statements

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K



|x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | -------------------------------------------------------------------------------------

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2005



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | -----------------------------------------------------------------------------------------

For transition period from  to

Commission
file number 1-32302

ANTARES PHARMA, INC.

(Exact name of registrant as specified in its charter)



|                                                             |  |                                        
|------------------------------------------------------------ |  | ---------------------------------------
|Delaware                                                     |  | 41-1350192                             
|State or other jurisdiction of incorporation or organization |  | (I.R.S. Employer Identification Number)
|                                                             | 
|707 Eagleview Boulevard, Suite 414, Exton, PA                |  | 19341                                  
|(Address of principal executive offices)                     |  | (Zip Code)                             

Registrants telephone number, including area code: (610) 458-6200

SECURITIES REGISTERED PURSUANT TO SECTION 12 (b) OF THE ACT: Common Stock, $.01 Par Value

SECURITIES REGISTERED PURSUANT TO SECTION 12 (g) OF THE ACT: None

Indicate by check mark if the
registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  YES ̈NO x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d)
of the Act.  YES ̈NO x

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 if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best of the registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form
10-K.  x

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.

Large accelerated filer ̈Accelerated filer ̈Non-accelerated filer  x

Indicate by check mark if the registrant is a shell company (as defined in Rule 12b-2 of the Act).  YES ̈NO x

Aggregate
market value of the voting and non-voting common stock held by nonaffiliates of the registrant as of June 30, 2005, was approximately $34,759,357 (based upon the last reported sale price of $1.08 per share on June 30, 2005, on The American
Stock Exchange).

There were 52,707,640 shares of common stock outstanding as of March 3, 2006.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the
definitive proxy statement for the registrants 2006 annual meeting of stockholders to be filed within 120 days after the end of the period covered by this annual report on Form 10-K are incorporated by reference into Part III of this annual
report on Form 10-K.



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##### Index to Financial Statements

PART I



|Item 1. | BUSINESS
|------- | --------

SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS

This report contains forward-looking statements within the meaning of Section 27A of the Securities Act, Section 21E of the Securities
Exchange Act of 1934, as amended, or the Exchange Act, and the Private Securities Litigation Reform Act of 1995 that are subject to risks and uncertainties. You should not place undue reliance on those statements because they are subject to numerous
uncertainties and factors relating to our operations and business environment, all of which are difficult to predict and many of which are beyond our control. These statements often include words such as may, believe,
expect, anticipate, intend, plan, estimate or similar expressions. These statements are based on assumptions that we have made in light of our industry experience as well as our perceptions
of historical trends, current conditions, expected future developments and other factors we believe are appropriate under the circumstances. As you read and consider this report, you should understand that these statements are not guarantees of
performance results. They involve risks, uncertainties and assumptions. Although we believe that these forward-looking statements are based on reasonable assumptions, you should be aware that many factors could affect our actual financial results or
results of operations and could cause actual results to differ materially from those in the forward-looking statements. You should keep in mind that forward-looking statements made by us in this report speaks only as of the date of this report.
Actual results could differ materially from those currently anticipated as a result of a number of risk factors, including, but not limited to, the risks and uncertainties discussed under the caption Risk Factors. New risks and
uncertainties come up from time to time, and it is impossible for us to predict these events or how they may affect us. We have no duty to, and do not intend to update or revise the forward-looking statements in this report after the date of this
report. In light of these risks and uncertainties, you should keep in mind that any forward-looking statement in this report or elsewhere might not occur.

Overview

Antares Pharma, Inc. (Antares or the Company) is a specialized pharma product development
and pipeline company with patented drug delivery platforms including Advanced Transdermal Delivery (ATD) gels, fast-melt oral (Easy Tec) tablets, disposable mini-needle injection systems (Vibex), and reusable needle-free injection
systems (VISION® AND Valeo). Antares
lead ATD gel product is Anturol oxybutynin for the treatment of overactive bladder (OAB). These platforms and products are summarized and briefly described below:

Delivery Platforms



|                                             |                                                       |                                                                             |  |                      
|-------------------------------------------- | ----------------------------------------------------- | --------------------------------------------------------------------------- |  | ---------------------
|Transdermal Drug Delivery Platforms          |                                                       | Advanced Transdermal (ATD) Gel                                             |  | Systematic or Topical
|Fast-Melt OralDisintegrating TabletsPlatform |                                                       | Easy Tec                                                                  
|Injection DevicePlatforms                    |                                                       | Needle-Free Reusable Injectors (MJ Platform) Medi-Jector VISION® and
Valeo
|                                             | Mini-Needle Disposable Injectors (AJ Platform) Vibex
|                                             | Vaccine Intradermal Injectors                        



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##### Index to Financial Statements

Product Candidates

Transdermal Delivery Gels

LOGO

Fast-Melt Oral Dissolve Disintegrating Tablets (EasyTec)

LOGO

Injection Devices

LOGO

Transdermal Drug Delivery Platform

Antares transdermal drug delivery platform is dedicated to developing gels that offer a cosmetically superior option to patches, while delivering
medication efficiently with less potential for skin irritation and minimizing the gastrointestinal impact, as well as, the initial liver metabolism effect of some orally ingested drugs. The Companys gels are hydro-alcoholic and contain a
combination of permeation enhancers to promote rapid drug absorption through the skin following application typically to the arms, shoulders, or abdomen. The Companys transdermal gel systems provide the options for delivering both systemically
(penetrating into and through the subcutaneous tissues and then into the circulatory system) as well as locally (e.g. topically for skin and soft tissue injury, infection and local inflammation). Typically, the gel is administered daily, and is
effective on a sustained release basis over



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##### Index to Financial Statements

approximately a 24-hour period of time. The Companys gel systems are known as our Advanced Transdermal Delivery (ATD) gels.

Fast-Melt Oral Disintegrating Tablets

Our Easy Tec fast-melt oral disintegrating tablets are designed to help patients who experience difficulty swallowing pills, tablets or capsules,
while providing the same effectiveness as conventional oral dosage forms. Our tablet features a disintegrant addition that facilitates the disintegration of the oral drug to promote quick and easy administration in saliva without water.
This could play an important role in Antares ability to target the pediatric market segment as well as the rapidly expanding geriatric market. Easy Tec tablets can be manufactured without specialized equipment and because the tablets are
not effervescent (highly moisture sensitive), we believe it represents several significant processing and packaging advantages over conventional competitors. Our Easy Tec tablets may also be of interest to pharmaceutical firms seeking line
extensions in the marketplace and could represent a step in Antares evolution as a specialty pharmaceutical company with its own products.

Injection Device Platforms

Antares injection device platform features three distinct products:
reusable needle-free injectors, disposable mini-needle injectors, and its vaccine intradermal injectors. Each product is briefly described below:



| |  |  | Reusable needle-free injectors deliver precise medication doses through high-speed, pressurized liquid penetration of the skin without a needle. These reusable, variable-dose
devices are engineered to last for a minimum of two years and are designed for easy use, facilitating self-injection with a disposable syringe to assure safety and efficacy. The associated disposable, plastic, needle-free syringe is designed to last
for approximately one week.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The Company has sold the Medi-Jector VISION® for use in more than 30 countries to deliver either insulin or human growth hormone
(hGH). The Medi-Jector VISION® employs
a disposable plastic needle-free syringe, which offers high precision liquid medication delivery through an opening that is approximately half the diameter of a standard, 30-gauge needle. The product is available over-the-counter (OTC)
or by prescription in the United States for use by patients with diabetes, and available through our partners in Europe, Japan and Asia for hGH. To date, we believe that more than 100 million such injections have been performed worldwide.



| |  |  | Disposable mini-needle injectors (Vibex)employ the same basic technology developed for the Medi-Jector VISION®, combining, spring-powered source with a tiny hidden needle in a disposable,
single-use injection system compatible with conventional glass drug containers. The Vibex system is designed to economically provide highly reliable subcutaneous injections with reduced discomfort and improved convenience in
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Index to Financial Statements

| | conjunction with the enhanced safety of a shielded needle. After use, the device can be disposed of without the typical sharps disposal concerns.
Antares and its potential partners have successfully tested the device in multiple patient preference and bioavailability tests, and the Company continues to explore product extensions within this category, including multiple dose, variable dose and
user-fillable applications.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Vaccine intradermal injectors are a variation of the Vibex disposable mini-needle injection technology and are being developed to deliver vaccines into the dermal and
subdermal layers of the skin (a preferred site of administration in the vaccine industry). The Company believes that this proprietary device will offer easier and more rapid dosing compared with conventional needle-based devices.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

History

On
January 31, 2001, the Company (formerly known as Medi-Ject Corporation or Medi-Ject) completed a business combination to acquire the three operating subsidiaries of Permatec Holding AG (Permatec), headquartered in Basel,
Switzerland. Medi-Ject was at that time, focused on delivering drugs across the skin using needle-free technology, and Permatec specialized in delivering drugs across the skin using transdermal patch and gel technologies as well as developing
fast-melt tablet technology. With both companies focused on drug delivery but with a focus on different sectors, it was believed that a business combination would be attractive to both pharmaceutical partners and to the Companys shareholders.
Upon completion of the transaction the Companys name was changed from Medi-Ject Corporation to Antares Pharma, Inc.

The U.S. device
operation, located in Minneapolis, Minnesota, develops, manufactures with partners and markets novel medical devices, called jet injectors or needle-free injectors, which allow people to self-inject drugs without using a needle. The Company makes a
small reusable spring-action injector device and the attached disposable plastic needle-free syringes to hold the drug, known as the Medi-Jector VISION®. Using an adapter, the liquid drug is drawn from a conventional vial into the needle-free syringe, through a small hole at the end of the
syringe. When the syringe is held against an appropriate part of the body and the spring is released, a piston drives the fluid stream into the tissues beneath the skin, from where the drug is dispersed into systemic circulation. A person may re-arm
the device and repeat the process or attach a new sterile syringe between injections.

The Company was a pioneer in the invention of home
use needle-free injection systems in the late 1970s. Prior to that, needle-free injection systems were powered by large air compressors or were relatively complex and expensive, so their use was limited to mass vaccination programs by the military,
school health programs or for patients classified as needle phobic. Early injectors were painful in comparison to todays injectors, and their large size made home use difficult. The first home insulin injector was five times as heavy as the
current injector, which weighs five ounces. Todays insulin injector sells at a retail price of $335 compared to $799 eight years ago. The first growth hormone injector was introduced in Europe in 1994. This was the Companys first success
in achieving distribution of its device through a license to a pharmaceutical partner, and it has resulted in continuing market growth and, the Company believes, a high degree of customer satisfaction. Distribution of growth hormone injectors has
expanded through the Companys pharmaceutical company relationships to now include Japan and other Asian countries.

The Company has
also developed variations of the jet injector by adding a very small hidden needle to a pre-filled, single-use disposable injector, called the Vibex mini-needle injection system. The mini-needle platform is an alternative to the
Vision®system for use with unit dose injectable drugs and is suitable for branded and
branded generic injectables.

Antares is committed to other methods of drug delivery such as transdermal gel formulations. The Company
believes that transdermal gels have advantages in cost, cosmetic elegance, ease of application and lack of irritancy as compared to better-known transdermal patches and have applications in such therapeutic markets as hormone replacement, over
active bladder, osteoporosis, cardiovascular, pain management and central nervous system therapies.

The Companys first transdermal
and fast-melt tablet products were developed in Argentina under Permatecs name in the mid-1990s. Subsequently, the Argentine operations were moved to Basel, Switzerland, in late 1999.



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##### Index to Financial Statements

The transdermal product effort initially resulted in the commercialization of a seven-day estradiol patch in certain countries of South America in 2000. Over
time, Permatecs research efforts moved away from the crowded transdermal patch field and focused on transdermal gel formulations, which allow the delivery of estrogens, progestins, testosterone and other drugs in a gel base without the need
for occlusive or potentially irritating adhesive bandages. We believe the commercial potential for transdermal gels is attractive, and several licensing agreements with pharmaceutical companies of various sizes have led to successful clinical
evaluation of Antares formulations. The Company is now also developing its own transdermal gel-based products for the market and has announced Phase II clinical results for Anturol, its oxybutynin gel for overactive bladder.

The Company operates in the specialized drug delivery sector of the pharmaceutical industry. Companies in this sector generally leverage technology
and know-how in the area of drug formulation and/or delivery devices to pharmaceutical manufacturers through licensing and development agreements while continuing to develop their own products for the marketplace. The Company also views many
pharmaceutical and biotechnology companies as collaborators and primary customers. The Company has negotiated and executed licensing relationships in the growth hormone segment (needle-free devices in Europe and Asia) and the transdermal hormone
gels segment (several development programs in place worldwide, including the United States and Europe). In addition, the Company continues to market needle-free devices for the home administration of insulin in the U.S. market through distributors
and has licensed its technology in the diabetes and obesity fields to Eli Lilly and Company.

The Company is a Delaware corporation.
Principal executive offices are located at 707 Eagleview Boulevard, Exton, Pennsylvania 19341; telephone (610) 458-6200. The Company has wholly-owned subsidiaries in Switzerland (Antares Pharma AG and Antares Pharma IPL AG) and the Netherlands
Antilles (Permatec NV).

Industry Trends

Based upon experience in the industry, the Company believes the following significant trends in healthcare have important implications for the growth of its business.

When a drug loses patent protection, the branded version of the drug typically faces competition from generic alternatives. It may be possible to
preserve market share by altering the delivery method, e.g., a single daily controlled release dosage form rather than two to four pills a day. The Company expects branded pharmaceutical companies will continue to seek differentiating drug delivery
characteristics to defend against generic competition and to optimize convenience to patients. The altered delivery method may be an injection device or a novel oral or transdermal formulation that may offer therapeutic advantages, convenience or
improved dosage schedules. Major pharmaceutical companies now focus on life cycle management of their products to maximize return on investment and often consider phased product improvement opportunities to maintain competitiveness.

The increasing trend of major pharmaceutical companies marketing directly to consumers, as well as the recent focus on patient rights may encourage the
use of innovative, user-friendly drug delivery systems. Part of this trend involves offering patients a wider choice of dosage forms. The Company believes the patient-friendly attributes of its transdermal gels, fast-melt tablets and injection
technologies meet these market needs.

The Company envisions its transdermal gel formulations as a next-generation technology, replacing
many transdermal patch products with more patient-friendly products. Topical gels offer patients more choices and added convenience with no compromise of efficacy. Our gel technology is based upon so-called GRAS (Generally Recognized as
Safe) substances, meaning the toxicology profiles of the ingredients are known and widely used. We believe this approach has a major regulatory benefit and may reduce the cost and time of product development and approval.

Many drugs, including selected hormones and protein biopharmaceuticals, are degraded in the gastrointestinal tract and may only be administered through
the skin, the lung or by injection. Pulmonary delivery is complex and has recently been commercialized for limited therapeutic proteins intended for systemic delivery. Injection therefore remains the mainstay of protein delivery. The growing number
of protein biopharmaceuticals requiring injection may have limited commercial potential if patient compliance with conventional injection treatment is not optimal. The failure to take all prescribed injections can lead to increased health
complications for the patient, decreased drug



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##### Index to Financial Statements

sales for pharmaceutical companies and increased healthcare costs for society. In addition, it is becoming increasingly recognized that conventional needles
and syringes require special and often costly disposal methods.

In addition to the increase in the number of drugs requiring
self-injection, recommended changes in the frequency of insulin injections for the treatment of diabetes also may contribute to an increase in the number of self-injections. For many years, the standard treatment protocol was for insulin to be
administered once or twice daily for the treatment of diabetes. However, according to major studies (the Diabetes Control and Complications Trial), tightly controlling the disease by, among other things, administration of insulin as many as four to
six times a day, can decrease its debilitating effects. The Company believes that with the increasing incidence of diabetes coupled with an increasing awareness of this disease, the benefits of tightly controlling diabetes will become more widely
known, and the number of insulin injections self-administered by people with diabetes will increase. The need to increase the number of insulin injections given per day may also motivate patients with diabetes to seek alternatives to traditional
needles and syringes.

Due to the substantial costs involved, marketing efforts are not currently focused on drug applications administered
by healthcare professionals. Jet injection systems, however, may be attractive to hospitals, doctors offices and clinics, and such applications may be explored in the future. The issues raised by accidental needle sticks and disposal of used
syringes have led to the development of syringes with sheathed needles as well as the practice of administering injections through intravenous tubing to reduce the number of contaminated needles. In 1998, the State of California banned the use of
exposed needles in hospitals and doctors offices, if alternatives exist, and several additional states have adopted similar legislation. In November 2000 the Federal Government issued guidelines encouraging institutions to replace needles
wherever practical. The Company believes that needle-free injection systems or its shielded mini-needle products may be attractive to healthcare professionals as a further means to reduce accidental needle sticks and the burdens of disposing of
contaminated needles.

The importance of vaccines in industrialized and emerging nations is expanding as the prevalence of infectious
diseases increases. New vaccines and improved routes of administration are the subject of intense research in the pharmaceutical industry and the Company has been researching the feasibility of using its devices for vaccines and new vaccine
ingredients including evaluating opportunities in recent bio-terrorism initiatives.

The Companys fast-melt technology also addresses
industry trends by focusing on the needs of specific market segments such as geriatric and pediatric patients who often have difficulty swallowing conventional oral medications. We believe that better health outcomes can be expected when patients
are compliant with recommended medication regimens. The Companys fast-melt technology offers consumers a potentially important alternative oral delivery system.

Market Opportunity

According to a March 2006 Cowen & Co. publication, the worldwide market
for urinary incontinence is estimated to be $1.6 billion in 2005 and growing to $2.6 billion by 2010. Older incontinence drugs, such as immediate release oxybutynin, are plagued by anticholinergic effects including moderate to severe dry mouth (seen
in 70% of the patients), constipation and confusion. It is also estimated that half of the 20 million U.S. adults suffering from overactive bladder either are too embarrassed to discuss the symptoms or are not aware that pharmacological
treatment is available. It is further estimated that only 47% of U.S. incontinence patients sought treatment in 2005 and that 16% of incontinence patients were compliant with their treatment in 2005 estimated to increase to 18% by 2010.

According to a March 2006 Cowen & Co. publication, the worldwide hormone replacement market is expected to grow from $1.3 billion in 2005 to
$1.9 billion by 2010. Further growth in this sector may be achieved by the use of testosterone products in both male and female applications. According to the same comprehensive study by Cowen & Co., the female sexual dysfunction market is
estimated to be 78 million sufferers worldwide rising to 95 million by 2010. Additionally, the sexual dysfunction market is projected to be $3.9 billion in 2005 growing to $5.6 billion by 2010. The importance of gel products containing
testosterone for men has been exemplified with the success of Androgel® (Unimed-Solvay) for treatment of male hypogonadism, where sales in the U.S. were recently estimated at approximately $500 million per year. A new market opportunity also exists with the use of low dose



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##### Index to Financial Statements

testosterone for treatment of FSD, a disorder according to the Journal of American Medicine (JAMA) in February 1999 that affects an estimated 40-55% of all
women and for which no drug is currently approved in the U.S. Antares Pharma, along with its U.S. partner BioSante, has a low dose testosterone product named Libi-Gel, which has completed Phase II testing for FSD. We have the exclusive market
rights in Europe and elsewhere outside the United States for Libi-Gel. As evidenced in Europe and, more specifically, in France, the leading country in the use of transdermal hormone replacement therapy, the Company believes that patient
demand for transdermal hormone therapy products will continue to increase. According to an industry report, 64.8% of treated menopausal women in France used either patch (44.7%) or gel (20.1%) therapy. Gel products are also being
formulated to address equally large opportunities in other sectors of the pharmaceutical industry, including cardiovascular, pain, infectious diseases, addiction and central nervous system therapies.

According to industry sources, fast-dissolving oral dosage forms are estimated to be in excess of $1 billion with a growth rate of more than 20% per
year. This field of melt-in-the-mouth, or fast-dissolve, tablets clearly has a significant role to play in effective product administration to the elderly and to those who have difficulty swallowing. While many products have been developed to meet
this need, many have disadvantages, including lack of applicability to all drug candidates, dose limitations, high cost of manufacturing, and product robustness issues that can challenge packaging and distribution systems. Using its Easy Tec
technology, Antares has undertaken to develop products that could be applicable over a wide dose range, could be manufactured under conventional conditions and would meet the standards of performance necessary to provide the desired patient benefits
of rapid dissolution, good mouth feel and ease of handling.

According to industry sources, an estimated 9 to 12 billion needles and
syringes are sold annually worldwide. The Company believes that a significant portion of these are used for the administration of drugs that could be delivered using its injectors but only a small percentage of people who self-administer drugs
currently use jet injection systems. The Company believes that this lack of market penetration is due to older examples of needle-free technology not meeting customer needs owing to cost and performance limitations as well as the small size of the
companies directly marketing the technology to consumers not being able to gain a significant share of voice in the marketplace. The Company believes that its technology overcomes limitations of the past and that its business model of
working with pharmaceutical company partners has the potential for improved market penetration. However, to date neither the Company nor its competitors have achieved substantial market penetration. Greystone Associates in 2003 estimated that the
needle-free injection market in the U.S. would grow from $10.2 million in 2002 to $425 million by 2007, of which self-administration of insulin is expected to account for 54% of the total market. In 2003, Antares licensed its needle-free injection
technology to Eli Lilly and Company for development and potential use in the fields of diabetes and obesity.

Antares device focus is
specifically on the market for delivery of self-administered injectable drugs. The largest and most mature segments of this market consist of insulin for patients with diabetes and human growth hormone for children with growth retardation. According
to a March 2006 publication by Cowen & Co., the worldwide insulin market is estimated to grow from $7.7 billion in 2005 to $14.6 billion in 2010, of which $2 billion in 2010 is inhaled insulin. The Company believes that the number of
insulin injections will increase with time as the result of new diabetes management techniques, which recommend more frequent injections as evidenced by the U.S. insulin market projected to grow from $2.7 billion in 2005 to $5.8 billion in 2010. A
second attractive market has developed with growth hormone; children and young adults suffering from growth retardation take daily hormone injections for an average of five years. The number of children with growth retardation is small relative to
diabetes, but most children are needle averse. The Companys pharmaceutical partner in Europe, Ferring Pharmaceuticals BV (Ferring), has made significant inroads using its injectors in the hGH market, and the Company expects similar
progress in other geographic regions where partnerships have already been established. Other injectable drugs that are presently self-administered and may be suitable for injection with the Companys systems include therapies for the prevention
of blood clots and the treatment of multiple sclerosis, migraine headaches, inflammatory diseases, impotence, infertility, AIDS and hepatitis. Antares also believes that many injectable drugs currently under development will be administered by
self-injection once they reach the market. This is supported by the continuing development of important chronic care products that can only be given by injection, the ongoing effort to reduce hospital and institutional costs by early patient
release, and the gathering momentum of new classes of drugs that require injection. A partial list of such drugs introduced in recent years that all require home injection include Enbrel® (Amgen, Wyeth) for treatment of rheumatoid arthritis, Aranesp® (Amgen) for treatment of anemia,



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##### Index to Financial Statements

Kineret® (Amgen) for rheumatoid arthritis, Forteo (Lilly) for treatment of osteoporosis, Intron® A (Schering Plough) and Roferon® (Roche) for hepatitis C, Lantus® (Aventis Pharma) for diabetes, Rebif® (Serono) for multiple sclerosis, Copaxone® (Teva) for multiple sclerosis and Gonal-F® for fertility treatment. The dramatic increase in numbers of products for self-administration by injection and the breadth of therapeutic areas covered
by this partial listing represents an opportunity for Antares device portfolio.

Products and Technology

Antares is leveraging its experience in drug delivery systems to enhance the product performance of established drugs as well as new drugs in development.
The Companys current technology platforms include transdermal Advanced Transdermal Delivery (ATD) gels; fast-melt oral disintegrating tablets (Easy Tec); disposable mini-needle injection systems (Vibex); and reusable
needle-free injection systems (Medi-Jector VISION®
and Valeo).

Transdermal Drug Delivery

Transdermal drug delivery has emerged as a safe and patient-friendly method of drug delivery. The commercialization of transdermal patches for controlled
drug delivery began over two decades ago and has resulted in the appearance of diverse products on the market. Among them are nitroglycerin for angina, scopolamine for motion sickness, fentanyl for pain control, nicotine for smoking cessation,
estrogen for HT, clonidine for hypertension, lidocaine for topical anesthesia, testosterone for hypogonadism, and a combination of ethinyl estradiol and norelgestromin for contraception. Skin penetration enhancers are often used to enhance drug
permeation through the dermal layers.

The primary goal of transdermal drug delivery is to effectively penetrate the surface of the skin
via topical administration, such as a patch or gel. When successful, transdermal drug delivery provides an easy and painless method of administration. The protective capabilities of the skin, however, often act as a barrier to effective delivery.
Since the primary role of the skin is to provide protection against infection and physical damage, the organ often prevents many pharmaceuticals from entering the body as well. Large molecules may not be as effectively absorbed by the skin and enter
the body in prohibitively small amounts, significantly reducing their therapeutic potential. As a result, a limited number of active substances are able to cross the skins surface.

Despite these limitations, transdermal drug delivery is still viewed as a highly attractive route of administration for certain therapeutics. As a high
concentration of capillaries is located immediately below the skin, transdermal administration provides an easy means of access to systemic circulation. Transdermal systems can be designed to minimize absorption of the active drug in the blood
circulation as is needed in topical applications. This allows a build-up of drug in the layers underlying the skin, leading to an increased residence time in the targeted tissue. Transdermal systems can also be designed to release an active
ingredient over extended periods of time, providing benefits similar to depot injections and implants, without the need for an invasive procedure. If required, patients are also able to interrupt dosing by removing a patch or discontinuing the
application of a gel. Finally, this delivery technology minimizes first-pass metabolism by the liver as well as many of the gastrointestinal concerns of many orally ingested drugs.

Transdermal Gels

While transdermal patches remain an important aspect of the transdermal drug delivery market, transdermal gels have emerged as a viable means of administering a wide array of active pharmaceutical treatments. The concept of transdermal gels
parallels that of the transdermal patch, in the creation of a drug reservoir to provide sustained delivery of therapeutic quantities of a drug. While a patch provides this from an external reservoir, gel formulations create a subdermal reservoir of
the medication.

To address the penetration capabilities of transdermal products, Antares has developed its ATD gel technology that
utilizes a combination of permeation enhancers to further bolster a pharmaceutical agents ability to penetrate the skin. This new generation of products leads to a sustained plasma profile of the active agent, without the irritation and
cosmetic concerns often associated with patches.



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##### Index to Financial Statements

Gels also provide drug developers with an opportunity to explore a wide variety of potential
applications. Due to the physicochemical properties of the excipients employed in gels, combined with the enhanced solubilization properties, a broad range of active agents can be formulated. These solubilization properties allow for higher
concentrations of the active ingredient to be incorporated for delivery. The enhanced viscosity in gels further enhances the patients ability to apply the product with little-to-no adverse cosmetic effect. There is also relatively little
limitation in the surface area to which a gel can be applied, as opposed to patches, allowing greater quantities of drug to be transported if required.

Antares Advanced Transdermal Delivery (ATD) System

Antares ATD system successfully penetrates the skin to deliver a variety of treatments. The gels consist of a hydro-alcoholic base including a
combination of permeation enhancers. The gels are also designed to be absorbed quickly through the skin after application typically to the arms, shoulders, or abdomen. In comparison with commonly used patch delivery systems, the gels cause minimal
skin irritation or occlusion following application and possess a distinct cosmetic advantage over other approaches. The following is a summary of the benefits of our ATD gel platform:



|                                                 
|-------------------------------------------------
|Benefits of ATD Gel Platform                    
|Discrete                                         
|Easy application                                 
|Cosmetically appealing compared with patches     
|Reduced irritancy compared with patches          
|Application of once per day for most products    
|Potential for delivery of larger medication doses
|Potential for delivery of multiple active drugs  
|Ability to be either systemic or topical         

Antares ATD gels can deliver both a single active ingredient as well as a combination
of active ingredients with different release profiles, and have demonstrated potential in a variety of therapeutic areas. Current ATD drug gels in development encompass an oxybutynin gel for treatment of over active bladder (Anturol), an
estrogen gel for women to treat vasomotor symptoms associated with menopause (Bio-E-Gel), a low dose testosterone gel to treat low libido in women (Libi-Gel), a testosterone gel for men to treat hypogonadism, a contraceptive gel, and an
alprazolone gel for anti-anxiety. Antares has also licensed an ibuprofen gel in 11 countries for several years. ATD gels may be extended to a variety of fields, including the treatment of central nervous system (CNS) disorders,
cardiovascular disease and chronic pain, in which potent compounds may require alternatives to oral and injectable delivery for the following reasons:



| |  |  | poor oral uptake;
| | - |  | -----------------



| |  |  | high first-pass liver effect;
| | - |  | -----------------------------



| |  |  | requirement for less frequent administration;
| | - |  | ---------------------------------------------



| |  |  | desire to provide an alternative dosage form;
| | - |  | ---------------------------------------------



| |  |  | reducing peak plasma levels to avoid side effects; and
| | - |  | ------------------------------------------------------



| |  |  | reduction in gastrointestinal side effects.
| | - |  | -------------------------------------------

The Company
has also formulated several combination gels demonstrating the ability to deliver multiple actives with different release profiles.



10



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##### Index to Financial Statements

Oral Delivery

The majority of all drugs are administered orally. Despite this, there remain limitations for those patients who have difficulty swallowing conventional
oral dosage forms or where an underlying disease state (for example, migraine, Parkinsonism or cancer) impacts a persons ability to swallow. Additionally, where patients are resistant to oral drug delivery, the phenomenon of
cheeking (hiding a pill between the cheek and gum) and subsequent drug disposal is quite well known. New generations of oral product forms are being developed to address these issues.

Fast-Dissolving Tablets

Fast-dissolving tablet technology is an oral delivery method that offers an alternative to patients who experience difficulty ingesting conventional oral dosage forms. As a result, formulators are focusing on the development of tablet
dosage formulations for oral administration that dissolve rapidly in saliva without need for the patient to drink water. This formulation is easy to take and possesses similar therapeutic benefits to traditional oral technologies, thus appealing to
a wide demographic population.

One of the primary realities influencing the development of fast-dissolving technologies is the increased
life expectancy of a growing geriatric population. As many elderly individuals experience difficulty taking conventional oral dosage forms, such as solutions, suspensions, tablets and capsules, the need for more user-friendly formulations is
expanding. While swallowing difficulties often affect the elderly population, many young individuals also experience difficulty as a result of underdeveloped muscular and nervous systems. Other groups, including the mentally ill, the developmentally
disabled and uncooperative patients also require special attention. Other circumstances, such as motion sickness, allergic attacks and an unavailable source of water also necessitate fast-dissolving oral formulations.

The development of a fast-dissolving tablet also provides pharmaceutical companies with an opportunity for product line extensions. A wide range of drugs
(e.g. neuroleptics, cardiovascular drugs, analgesics, antihistamines, and drugs for erectile dysfunction) may be considered candidates for this technology.

Antares Easy Tec Fast-Melt Oral Disintegrating Tablet

Antares patented Easy Tec technology is based
on the simultaneous use of two disintegrants in an oral formulation. Two primary advantages of Easy Tec over competing technologies are that Easy Tec tablets can be manufactured with conventional tableting equipment and no unique
packaging requirements are necessary. The Company also believes that Easy Tec possesses several other key advantages over competing fast-melt technologies;



|                                                                       
|-----------------------------------------------------------------------
|Easy Tec Competitive Advantages                                       
|     Higher drug dose loading is possible                             
|     Friability within pharmaceutical specifications                  
|     Moisture sensitivity lower compared with many competitor products
|     Blister packaging sufficient to prevent moisture uptake          
|     Cost-effective, easy, time-saving process                        
|     Easily transferable to final product site                        
|     No specific facility required, compared to effervescent products 















In addition to
being easy to take, such products are perceived as being fast acting because of rapid dispersion in the mouth. Antares believes that there may be attractive opportunities to develop its own fast-melt products using generic active ingredients as part
of its specialty pharmaceutical strategy and to achieve product approval based on an Abbreviated New Drug Application (ANDA) or 505(b)(2) filing in the United States and equivalent regulatory submissions in other parts of the world.
Antares has formulated its first Easy Tec based product, a non-steroidal anti inflammatory (NSAID) generic currently called AP-1022 for the treatment of pain.



11



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##### Index to Financial Statements

Injection Delivery

According to industry sources, an estimated 9-12 billion needles and syringes are sold each year. While the need for these components will always exist,
burgeoning development efforts are focused on easing the dependence on needles in favor of more user-friendly injection systems. Currently available data suggest that injection with needle-free systems matches the performance of needle-based systems
with regard to drug bioavailability, and offers benefits in the speed of injection and the lack of requirement for needle disposal.

Needle-Free Injection

The most significant challenge beyond discovery of new molecules is how to
effectively deliver them by means other than conventional injection technology. The majority of these molecules have not, to date, been amenable to oral administration due to a combination of several factors, including breakdown in the
gastrointestinal tract, fundamentally poor absorption, or high first pass liver metabolism. Pulmonary delivery of these molecules, as an alternative to injection, has also been pursued and only recently one such application has been approved by the
FDA. It remains to be seen how clinical success will be accepted by patients, doctors and third party payers. Many companies have expended considerable effort in searching for less invasive ways to deliver such molecules that may allow them to
achieve higher market acceptance, particularly for those requiring patient self-administration.

Needle-free injection is a form of
parenteral drug delivery that continues to gain acceptance among the medical community. Encompassing a wide variety of sizes and designs, this technology operates by using pressure to force the drug, in solution or suspension, through a minute
perforation, creating an ultra-thin stream of liquid that penetrates the skin and deposits the drug into the subcutaneous tissue. Needle-free injection systems are being developed as small, pre-filled single-use devices, refillable devices for
repeat usage and specialized systems for high throughput applications in mass immunization campaigns.

Needle-free injection
represents a combination of an accepted technology - injection, with the elimination of the part of the injection  the needle, that concerns patients that have to self administer and health care professionals concerned about risks to
themselves. Improving patient comfort through needle-free injection may increase compliance and mitigate the problem of daily injections. Needle-free delivery eliminates the risk of needlestick injuries as well, which occurs frequently in
institutions in the U.S., and can result in disease transmission to healthcare workers. In response to concerns about needlestick injuries, the Occupational Safety and Health Administration (OSHA) issued a Bloodborne Pathogens Compliance
Directive in November 1999 mandating the use of safer needles and requiring that healthcare facilities perform annual reviews of safety and compliance programs. The National Institute for Occupational Safety and Health has also urged healthcare
providers to avoid unnecessary use of needles where safe and effective alternatives are available.

One of the primary factors
influencing development in the category of needle-free injection is the inherent problematic dependence on needles. It is also recognized that greater willingness to accept injection therapy could have a beneficial impact on disease outcomes. For
example, patients with diabetes appear to be reluctant to engage in intensive disease management, at least in part because of concerns over increased frequency of injections. Similarly, patients with diabetes who are ineffectively managed with oral
hypoglycemic agents are reluctant to transition to insulin injections in a timely manner because of injection concerns.

The advent of
these technologies has, to date, had a minor influence within the injectable sector, and they have failed to produce the deep market penetration that many within the industry believe they are capable of gaining. Several factors are believed to
contribute to this lack of market penetration, beginning with older needle-free injection systems. Many of the early needle-free injection systems had an assortment of drawbacks associated with both performance and cost efficiency. With potential
consumers aware of these historical shortcomings, current technologies promising greater efficiency and lower prices have failed to gain wide acceptance in the industry. In spite of the relative minor market penetration within this sector to date,
in June 2003, Greystone Associates predicted that the needle-free injection market would grow from $10.2 million in 2002 to $425 million by 2007 with 54% of these sales being insulin-based.



12



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##### Index to Financial Statements

Antares Medi-Jector Series of Needle-Free Injectors

The Medi-Jector VISION® represents the seventh in a series of Medi-Jector devices, with each generation offering improvements over the previous versions. Antares pioneered the
development of needle-free injection systems for individual use in 1979 and remains among the industry leaders as the technology continues to advance and is marketed worldwide. The Companys current revenue stream is derived primarily from
sales of needle-free injectors and related disposable syringes for human growth hormone delivery in Europe and elsewhere.

Medi-Jector VISION® (MJ7)

---

The Medi-Jector VISION® has been sold for use in more than 30 countries to deliver either insulin or human growth hormone. The product features
a reusable, spring-based power source and disposable needle-free syringes, which eliminate the need for routine maintenance of the nozzle and allow for easy viewing of the medication dose prior to injection. The devices primary advantage over
earlier devices is its ease of use and cost efficiency. The product is also reusable, with each device designed to last for approximately 3,000 injections (or approximately two years) while the needle-free syringe is disposable after approximately
one week of continuous use.

Antares believes this method of administration is a particularly attractive alternative to the needle and
syringe for the groups of patients described below.



|                                                                
|----------------------------------------------------------------
|Patient Candidates for Needle-Free Injection                    
|     Young adults and children                                 
|     Patients looking for an alternative to needles            
|     Patients mixing insulins                                  
|     Patients unable to comply with a prescribed needle program
|     Patients transitioning from oral medication to insulin    
|     New patients beginning an injection treatment program     

The Medi-Jector VISION® is primarily used in the U.S. to provide a needle-free means of administering insulin to patients with diabetes.
Patients with insulin-dependent diabetes are often required to make a life-long commitment to daily self-administration of insulin. In an effort to improve both the comfort and performance of this injected hormone, needle-free injection could become
an important alternative method of choice for administration.

The Medi-Jector VISION® administers insulin by using a spring to push insulin in solution or suspension through
a micro-fine opening in the needle-free syringe. The opening is approximately half the diameter of a standard 30-gauge needle. A fine liquid stream of insulin then penetrates the skin, and the insulin dose is dispersed into the layer of fatty,
subcutaneous tissue. The insulin is subsequently distributed throughout the body, successfully producing the desired effect.

The
Medi-Jector VISION® is primarily used in Europe and
elsewhere to provide a needle-free means of administering human growth hormone to patients with growth retardation. The Company typically sells its injection devices to partners in these markets who manufacture and/or market human growth hormone
directly. The partners then market the Companys device with their growth hormone. The Company receives benefits from these agreements in the form of transfer pricing and royalties on sales of products.

Development Efforts: MJ8 (Valeo) Needle-Free Injection Systems

In addition to the Medi-Jector VISION®, Antares is also developing a reusable Medi-Jector device, the Medi-Jector MJ8 (Valeo) with unique needle-free injection capabilities. The Medi-Jector Valeo accepts a conventional drug cartridge to create a
completely self-contained, multi-dose, needle-free injection system. With these improvements, the Medi-Jector Valeo aspires to provide more user-friendly capabilities than its predecessors and, if marketed, the Company believes it would be the
smallest reusable needle-free injector on the market.



13



---

##### Index to Financial Statements

Vibex Pre-filled, Disposable Mini-Needle Injector

Beyond reusable needle-free injector technologies, the Company has designed disposable, mini-needle devices to address acute medical needs, such as
allergic reactions, migraine headaches, acute pain and other daily therapies, as well as for the delivery of vaccines. The Companys proprietary Vibex disposable, mini-needle product combines a low-energy, spring-based power source with a
small, hidden needle, which delivers the needed drug solution subcutaneously or, in the case of vaccines, subdermally.

In order to
minimize the anxiety and perceived pain associated with injection-based technologies, the Vibex disposable mini-needle injector features a triggering collar that shields the needle from view. The retracting collar springs back and locks in
place as a protective needle guard after the injection, making the device safe for general disposal. In clinical studies, this device has outperformed other delivery methods in terms of completeness of injection, while limiting pain and bleeding. A
summary of the unique benefits of the Vibex disposable mini-needle product is provided below.



|                                                                            
|----------------------------------------------------------------------------
|Benefits of Vibex Disposable Mini-Needle Injectors                         
|     Rapid injection                                                       
|     Eliminates sharps disposal                                            
|     Ease of use in emergencies                                            
|     Reduces psychological barriers since the patient never sees the needle
|     Highly dependable subcutaneous injection                              
|     Designed around conventional cartridges or pre-filled syringes        

The primary goal of the Vibex disposable mini-needle injector is to provide a fast, safe,
and time-efficient method of self-injection that addresses the patients need for immediate relief. This device is designed around conventional cartridges or pre-filled syringes, which are primary drug containers, offering ease of transition
for potential pharmaceutical partners.

Disposable Mini-Needle Vaccine Delivery Device

Antares disposable vaccine delivery device is at an earlier stage and is derived from its mini-needle injector technology (see above section). The
disposable device is designed to deliver vaccines intradermally and to subdermal layers of the skin. Effective intradermal injection methods, using variants of conventional needles, depend extensively on the skill of the person administering the
injection. Antares vaccine delivery technology simplifies the process for intradermal delivery, minimizing the dependence on skilled individuals administering the injection, and providing for a more comfortable means of vaccine delivery.

Research and Development

We currently
have one pharmaceutical product candidate in our own clinical studies listed below. Additionally, pharmaceutical partners are developing compounds using our technology (see Collaborative Arrangements and License Agreements).

ANTUROL. We are currently evaluating Anturol for the treatment of over active bladder (OAB). Anturol is the anticholinergic oxybutynin
delivered by our proprietary ATD gel that is used to achieve therapeutic blood levels of the active compound that can be sustained over 24 hours after a single, daily application. It is believed that Anturol may offer equal or increased
oxybutynin to the metabolite ratio, thus resulting in decreased reporting of



14



---

##### Index to Financial Statements

adverse events when compared to patients taking comparable oral products. In addition, Anturol may also be more cosmetically appealing than patches and
have less irritation and allergic reactions as well as comparable or decreased reporting of adverse events.

Background
and Statistics

OAB affects more than 20 million adults and is one of the fastest growing segments in the urology market. It is
characterized by involuntary muscle contractions resulting in urine leakage. Symptoms include urinary frequency, urgency and urge incontinence. While OAB may occur at any age, it is most common among the elderly, affecting up to 61% of those over
65, particularly post-menopausal women. A recent SCRIP Report showed the incontinence market growing at 40% per year.

Treatment
currently consists of oral administration of compounds such as oxybutynin, tolteradine, darifenacin, solifenacin, and trospium each of which have significant side effects, including dry mouth (seen in 70% of patients), nausea, dry eyes, and
constipation. It is estimated that half of the adults suffering from OAB either are too embarrassed to discuss their symptoms or are not aware that pharmacological treatment is available. It is estimated by Cowen & Co. in their March 2006
publication that just 16% of incontinence patients were compliant with their treatment in 2005 improving modestly to 18% in 2010.

Summary of Clinical Data

In February 2006, the Company announced the results of its Phase II dose ranging study for its
ATD oxybutynin based gel product called Anturol. The study was an open label, single period, randomized study using 48 healthy subjects and three different doses of Anturol over a 20 day period. Variables tested included
accumulation of the dose, dose proportionality, decay of plasma levels, skin tolerability and other adverse events.

The overall
conclusions of the study were positive. Dose proportionality occurred within the tested dosing range. A steady state was achieved after 3 applications (i.e., 3 days). Efficacy appeared comparable to oral products marketed. The incidences of dry
mouth were minimal and similar to other transdermals while significantly improved over comparable oral medications. Additionally, skin tolerance (i.e. local skin irritation) was excellent.

A Phase III study has been preliminarily approved by the FDA and will include 400 patients (130-135 per treatment arm) with urge and mixed urinary
incontinence. The study will be a multi-center study over a 12 week period with two dosage strengths applied once a day and compared to a placebo.

Proprietary Rights

When appropriate, the Company actively seeks protection for its products and proprietary information by
means of U.S. and international patents and trademarks. With the injection device technology, the Company currently holds 28 patents and has an additional 82 applications pending in the U.S. and other countries. With the Companys topical
delivery technologies, it holds 2 patents, and an additional 17 applications in various countries are pending, with the Companys oral technologies, it holds 2 patents and 12 applications in various countries. The patents have expiration dates
ranging from 2015 to 2022. In addition to issued patents and patent applications, we are also protected by trade secrets in all of our technology platforms.

Some of the Companys technology is developed on its behalf by independent outside contractors. To protect the rights of its proprietary know-how and technology, Company policy requires all employees and
consultants with access to proprietary information to execute confidentiality agreements prohibiting the disclosure of confidential information to anyone outside the Company. These agreements also require disclosure and assignment to the Company of
discoveries and inventions made by such individuals while devoted to Company-sponsored activities. Companies with which Antares has entered into development agreements have the right to certain technology developed in connection with such
agreements. Ownership of intellectual property developed under the Lilly Development and License Agreement will be governed by U.S. laws of inventorship except that intellectual property relating to compounds, has been assigned to Lilly.



15



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##### Index to Financial Statements

Manufacturing

We do not have the resources, facilities or capabilities to manufacture any of our product candidates. We have no current plans to establish a manufacturing facility. We expect that we will be dependent to a significant extent on contract
manufacturers for commercial scale manufacturing of our product candidates in accordance with regulatory standards.

Contract manufacturers
may utilize their own technology, technology developed by us, or technology acquired or licensed from third parties. When contract manufacturers develop proprietary process technology and have ownership of the Drug Master File (DMF), our reliance on
such contract manufacturers is increased, and we may have to obtain a license from such contract manufacturers to have our products manufactured by another party. Technology transfer from the original contract manufacturer may be required. Any such
technology transfer may also require transfer of requisite data for regulatory purposes, including information contained in a proprietary DMF held by a contract manufacturer. FDA approval of the new manufacturer and manufacturing site would also be
required.

We have not contracted with a commercial supplier of pharmaceutical chemicals, to supply us with active pharmaceutical
ingredients of oxybutynin for Anturol in a manner that meets FDA requirements. We have contracted with Patheon, Inc. (Patheon), a manufacturing development company, to supply clinical quantities of Anturol gel in a manner that may meet
FDA requirements. The FDA has not approved the manufacturing processes of Patheon.

The Company is responsible for U.S. device
manufacturing in compliance with current Quality System Regulations (QSR) established by the Food and Drug Administration and by the centralized European regulatory authority (Medical Device Directive). Injector and disposable parts are
manufactured by third-party suppliers and are assembled by a third-party supplier. Packaging is performed by a third-party supplier under the direction of the Company. Product release is performed by the Company.

The ATD Gel formulations for clinical studies have, in the past, been manufactured by contract under the Companys supervision. Early in 2005,
Antares Pharma AG, our wholly owned subsidiary in Switzerland, received a GMP approval for the production and wholesaling of medicaments.

Marketing

The Company expects to currently market most of its products through other more substantial pharmaceutical and medical device companies
while continuing direct-to-consumer marketing of its insulin injection devices and related disposable components in the U.S. In the future as the Company develops more products in niche therapeutic areas, it may decide to incorporate limited sales
and marketing capabilities.

During 2005, 2004 and 2003, international revenue accounted for 77%, 82% and 77% of total revenue,
respectively. Europe (primarily Germany) accounted for 71%, 83% and 95% of international revenue in 2005, 2004 and 2003, respectively, with the remainder coming primarily from Asia. Ferring accounted for 48%, 47% and 62% of the Companys
worldwide revenues in 2005, 2004 and 2003, respectively. BioSante Pharmaceuticals, Inc. accounted for 7%, 11% and 14% and JCR Pharmaceuticals, Co., Ltd. accounted for 12%, 6% and 1% of the Companys worldwide revenues in 2005, 2004 and 2003,
respectively. Revenue from Ferring and JCR resulted from sales of injection devices and related disposable components for its hGH formulation. Revenue from BioSante resulted from license fees, development fees, milestone payments and clinical
testing supplies for hormone replacement therapy transdermal gel formulations.



16



---

##### Index to Financial Statements

Collaborative Arrangements and License Agreements

The following table describes significant existing pharmaceutical and device relationships, and license agreements.



|                                      |  |                                   |  |                                                              |  |                   
|------------------------------------- |  | --------------------------------- |  | ------------------------------------------------------------ |  | ------------------
|Partner                               |  | Compound/Product                  |  | Market Segment                                               |  | Technology        
|BioSante                              |  | Estradiol (Bio-E-Gel)             |  | Hormone replacement therapy (North America, other countries) |  | ATD Gel          
|                                      |  |                                   | 
|BioSante                              |  | Testosterone (Libi-Gel)          |  | Female sexual dysfunction (North America, other countries)   |  | ATD Gel          
|                                      |  |                                   | 
|Solvay                                |  | Estradiol/NETA                    |  | Hormone replacement therapy (Worldwide)                      |  | ATD Gel          
|                                      |  |                                   | 
|Undisclosed                           |  | Undisclosed Development Agreement |  | Dermatology                                                  |  | ATD Gel          
|                                      |  |                                   | 
|Undisclosed                           |  | Undisclosed Development Agreement |  | Central Nervous System                                       |  | ATD Gel          
|                                      |  |                                   | 
|Ferring                               |  | MJ-7                              |  | Growth Hormone (U.S. and Europe)                             |  | Needle Free Device
|                                      |  |                                   | 
|Teva Pharmaceuticals, Ltd., affiliate |  | Undisclosed                       |  | Undisclosed (United States)                                  |  | Undisclosed       
|                                      |  |                                   | 
|Eli Lilly and Company                 |  | MJ-7                              |  | Diabetes and Obesity (Worldwide)                             |  | Needle Free Device
|                                      |  |                                   | 
|JCR Pharmaceuticals Co., Ltd.         |  | MJ-7                              |  | Growth Hormone (Japan)                                       |  | Needle Free Device
|                                      |  |                                   | 
|SciGen Pte Ltd.                       |  | MJ-7                              |  | Growth Hormone (Asia/Pacific)                                |  | Needle Free Device

This table summarizes agreements under which the Companys partners are selling products,
conducting clinical evaluation, and performing development of the Companys products. For competitive reasons, the Companys partners may not divulge their name or the exact stage of clinical development.

In June 2000, the Company granted an exclusive license to BioSante to develop and commercialize three of the Companys gel technology products and
one patch technology product for use in hormone replacement therapy in North America and other countries. Subsequently, the license for the patch technology product was returned to the Company in exchange for a fourth gel based product. BioSante
paid the Company $1 million upon execution of the agreement and is also required to pay the Company royalty payments once commercial sales of the products have begun. The royalty payments are based on a percentage of sales of the products and must
be paid for a period of 10 years following the first commercial sale of the products, or when the last patent for the products expires, whichever is later. The agreement also provides for milestone payments to the Company upon the occurrence of
certain events related to regulatory filings and approvals.

Under the Companys June 1999 agreement with Solvay, the Company granted
an exclusive license to Solvay for the Companys transdermal gel technology for delivery of an estradiol/progestin combination for hormone replacement therapy. The exclusive license applies to all countries and territories in the world, except
for North America, Japan and Korea. The agreement contains a development plan under which the Company and Solvay collaborate to bring the product to market. Solvay must pay the Company a license fee of $5 million in four separate payments, all of
which are due upon completion of various phases of the development plan. To date, the Company has received $1.75 million of this fee. When commercial sale of the product begins, Solvay is required to, on a quarterly basis, pay the Company a royalty
based on a percentage of sales. The royalty payments will be required for a period of 15 years or when the last patent for the product expires, whichever is later.

In August 2001, Solvay entered into an exclusive agreement with BioSante in which Solvay has sublicensed from BioSante the U.S. and Canadian rights to the Companys estrogen/progestin combination transdermal
hormone replacement gel product, one of the drug-delivery products the Company previously licensed to BioSante. Under the terms of this license agreement between the Company and BioSante, the Company received a portion of the up



17



---

##### Index to Financial Statements

front payment made by Solvay to BioSante. The Company is also entitled to a portion of any milestone payments or royalties BioSante receives from Solvay
under the sublicense agreement.

On January 22, 2003, the Company entered into a revised License Agreement with Ferring, under which
the Company licensed certain of its intellectual property and extended the territories available to Ferring for use of certain of the Companys reusable needle-free injection devices to include all countries and territories in the world except
Asia/Pacific. Specifically, the Company granted to Ferring an exclusive, royalty-bearing license, within a prescribed manufacturing territory, to utilize certain of the Companys reusable needle-free injector devices for the field of human
growth hormone until the expiration of the last to expire of the patents in any country in the territory. The Company granted to Ferring similar non-exclusive rights outside of the prescribed manufacturing territory. In addition, the Company granted
to Ferring a non-exclusive right to make and have made the equipment required to manufacture the licensed products, and an exclusive, royalty-free license in a prescribed territory to use and sell the licensed products under certain circumstances.
The Company also granted to Ferring a right of first offer to obtain an exclusive worldwide license to manufacture and sell the Companys early version of a disposable mini-needle device in a specified field.

In November 2005, the Company signed an agreement with an affiliate of Teva Pharmaceuticals Industries Ltd. under which the affiliate is obligated to
purchase all of its injection delivery device requirements from Antares for an undisclosed product to be marketed in the United States. The affiliate also received an option for rights in other territories. The license agreement included, among
other things, an upfront cash payment, milestone fees and a negotiated percentage of the gross profit on units sold.

In September 2003,
the Company entered into a Development and License Agreement (the License Agreement) with Eli Lilly and Company. Under the License Agreement, the Company granted Lilly an exclusive license to certain of the Companys needle-free
technology in the fields of diabetes and obesity.

In 2004, JCR Pharmaceuticals Co., Ltd. initiated a campaign to broaden its marketing
efforts for human growth hormone under a purchase agreement with our needle free injector, MJ-7. In 1999, SciGen pte Ltd. began distribution in Asia of our needle free injector MJ-7 for human growth hormone, and in 2004 Shreya Life Sciences
initiated a test market evaluation that resulted in limited distribution in India with insulin.

Distribution/supply agreements are
arrangements under which the Companys products are supplied to end-users through the distributor or supplier. The Company provides the distributor/supplier with injection devices and related disposable components, and the distributor/supplier
often receives a margin on sales. The Company currently has three distribution/supply agreements under which the distributors/suppliers sell the Companys injection devices and related disposable components for use with insulin.

Competition

Competition in the pharmaceutical
formulation sector is considerably large, mature and dominated by companies like ALZA Corporation, Elan Corporation plc, SkyePharma plc and Alkermes, Inc. Competition in the gel market includes companies like NexMed, Inc., Cellegy Pharmceuticals,
Inc., Bentley Pharmaceuticals, Inc. and Novavax, Inc. Competition in the fast-melt market includes Eurand, CIMA Labs, Inc., Cardinal Health and Yamanouchi Pharmaceutical Co., Ltd. Competition in the disposable, single-use injector market includes,
but is not limited to, OwenMumford Ltd., The Medical House and Pharma-Pen, Inc. (formerly Innoject, Inc.), while competition in the reusable needle-free injector market includes Bioject Medical Technologies Inc. and The Medical House.

Competition in the injectable drug delivery market is intensifying. The Company faces competition from traditional needles and syringes, newer pen-like
and sheathed needle syringes and other needle-free injection systems as well as alternative drug delivery methods including oral, transdermal and pulmonary delivery systems. Nevertheless, the majority of injections are still currently administered
using needles. Because injections are typically only used when other drug delivery methods are not feasible, the needle-free injection systems may be made obsolete by the development or introduction of drugs or drug delivery methods which do not
require injection



18



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##### Index to Financial Statements

for the treatment of conditions the Company has currently targeted. In addition, because the Company intends to, at least in part, enter into collaborative
arrangements with pharmaceutical companies, the Companys competitive position will depend upon the competitive position of the pharmaceutical company with which it collaborates for each drug application.

Government Regulation

We and our collaborative
partners are subject to, and any potential products discovered, developed and manufactured by us or our collaborative partners must comply with, comprehensive regulation by the FDA in the United States and by comparable authorities in other
countries. These national agencies and other federal, state, and local entities regulate, among other things, the pre-clinical and clinical testing, safety, effectiveness, approval, manufacturing operations, quality, labeling, distribution,
marketing, export, storage, record keeping, event reporting, advertising and promotion of pharmaceutical products and medical devices. Facilities and certain company records are also subject to inspections by the FDA and comparable authorities or
their representatives. The FDA has broad discretion in enforcing the FD&C Act and the regulations thereunder, and noncompliance can result in a variety of regulatory steps ranging from warning letters, product detentions, device alerts or field
corrections to mandatory recalls, seizures, injunctive actions and civil or criminal actions or penalties.

Transdermal and topical
products indicated for the treatment of systemic or local treatments respectively are regulated by the FDA in the U.S. and other similar regulatory agencies in other countries as drug products. Transdermal and topical products are considered to be
controlled release dosage forms and may not be marketed in the U.S. until they have been demonstrated to be safe and effective. The regulatory approval routes for transdermal and topical products include the filing of an NDA for new drugs, new
indications of approved drugs or new dosage forms of approved drugs. Alternatively, these dosage forms can obtain marketing approval as a generic product by the filing of an ANDA, providing the new generic product is bioequivalent to and has the
same labeling as a comparable approved product or as a filing under Section 505(b)(2) where there is an acceptable reference product. Many topical products for local treatment do not require the filing of either an NDA or ANDA, providing that
these products comply with existing OTC monographs. The combination of the drug, its dosage form and label claims, and FDA requirement will ultimately determine which regulatory approval route will be required.

The process required by the FDA before a new drug (pharmaceutical product) or a new route of administration of a pharmaceutical product may be approved
for marketing in the United States generally involves:



| |  |  | pre-clinical laboratory and animal tests;
| | - |  | -----------------------------------------



| |  |  | submission to the FDA of an IND application, which must be in effect before clinical trials may begin;
| | - |  | ------------------------------------------------------------------------------------------------------



| |  |  | adequate and well controlled human clinical trials to establish the safety and efficacy of the drug for its intended indication(s);
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------



| |  |  | FDA compliance inspection and/or clearance of all manufacturers;
| | - |  | ----------------------------------------------------------------



| |  |  | submission to the FDA of an NDA; and
| | - |  | ------------------------------------



| |  |  | FDA review of the NDA or product license application in order to determine, among other things, whether the drug is safe and effective for its intended uses.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------

Pre-clinical tests include laboratory evaluation of product chemistry and formulation, as well as animal studies, to assess
the potential safety and efficacy of the product. Certain pre-clinical tests must comply with FDA regulations regarding current good laboratory practices. The results of the pre-clinical tests are submitted to the FDA as part of an IND, to support
human clinical trials and are reviewed by the FDA, with patient safety as the primary objective, prior to the IND commencement of human clinical trials.

Clinical trials are conducted according to protocols that detail matters such as a description of the condition to be treated, the objectives of the study, a description of the patient population eligible for the
study and the parameters to be used to monitor safety and efficacy. Each protocol must be submitted to the FDA as part of the IND. Protocols must be conducted in accordance with FDA regulations concerning good clinical practices to ensure the
quality and integrity of clinical trial results and data. Failure to adhere to good clinical practices and the protocols may result in FDA rejection of clinical trial results and data, and may delay or prevent the FDA from approving the drug for
commercial use.



19



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##### Index to Financial Statements

Clinical trials are typically conducted in three sequential Phases, which may overlap. During Phase I,
when the drug is initially given to human subjects, the product is tested for safety, dosage tolerance, absorption, distribution, metabolism and excretion. Phase I studies are often conducted with healthy volunteers depending on the drug being
tested; however, in oncology, Phase I trials are more often conducted in cancer patients. Phase II involves studies in a limited patient population, typically patients with the conditions needing treatment, to:



| |  |  | evaluate preliminarily the efficacy of the product for specific, targeted indications;
| | - |  | --------------------------------------------------------------------------------------



| |  |  | determine dosage tolerance and optimal dosage; and
| | - |  | --------------------------------------------------



| |  |  | identify possible adverse effects and safety risks.
| | - |  | ---------------------------------------------------

Pivotal or Phase III adequate and well-controlled trials are undertaken in order to evaluate efficacy and safety in a comprehensive fashion within an expanded patient population for the purpose of registering the new drug. The FDA may
suspend or terminate clinical trials at any point in this process if it concludes that patients are being exposed to an unacceptable health risk or if they decide it is unethical to continue the study. Results of pre-clinical and clinical trials
must be summarized in comprehensive reports for the FDA. In addition, the results of Phase III studies are often subject to rigorous statistical analyses. This data may be presented in accordance with the guidelines for the International Committee
of Harmonization that can facilitate registration in the United States, the EU and Japan.

FDA approval of our own and our
collaborators products is required before the products may be commercialized in the United States. FDA approval of an NDA will be based, among other factors, on the comprehensive reporting of clinical data, risk/benefit analysis, animal
studies and manufacturing processes and facilities. The process of obtaining NDA approvals from the FDA can be costly and time consuming and may be affected by unanticipated delays.

Among the conditions for NDA approval is the requirement that the prospective manufacturers procedures conform to current good manufacturing
practices, which must be followed at all times. In complying with this requirement, manufacturers, including a drug sponsors third-party contract manufacturer, must continue to expend time, money and effort in the area of production, quality
assurance and quality control to ensure compliance. Domestic manufacturing establishments are subject to periodic inspections by the FDA in order to assess, among other things, compliance with current good manufacturing practices. To supply products
for use in the United States, foreign manufacturing establishments also must comply with current good manufacturing practices and are subject to periodic inspection by the FDA or by regulatory authorities in certain countries under reciprocal
agreements with the FDA.

An sNDA is a submission to an existing NDA that provides for changes to the NDA and therefore requires FDA
approval. Changes to the NDA that require FDA approval are the subject of either the active ingredients, the drug product and/or the labeling. A supplement is required to fully describe the change. There are two types of sNDAs depending on the
content and extent of the change. These two types are (i) supplements requiring FDA approval before the change is made and (ii) supplements for changes that may be made before FDA approval. Supplements to the labeling that change the
Indication Section require prior FDA approval before the change can be made to the labeling, e.g. a new indication.

Both before and after
market approval is obtained, a product, its manufacturer and the holder of the NDA for the product are subject to comprehensive regulatory oversight. Violations of regulatory requirements at any stage, including after approval, may result in various
adverse consequences, including the FDAs delay in approving or refusal to approve a product, withdrawal of an approved product from the market and the imposition of criminal penalties against the manufacturer and NDA holder. In addition, later
discovery of previously unknown problems may result in restrictions on the product, manufacturer or NDA holder, including withdrawal of the product from the market. Furthermore, new government requirements may be established that could delay or
prevent regulatory approval of our products under development.

FDA approval is required before a generic equivalent can be marketed. We
seek approval for such products by submitting an ANDA to the FDA. When processing an ANDA, the FDA waives the requirement of conducting



20



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##### Index to Financial Statements

complete clinical studies, although it normally requires bioavailability and/or bioequivalence studies. Bioavailability indicates the rate and
extent of absorption and levels of concentration of a drug product in the blood stream needed to produce a therapeutic effect. Bioequivalence compares the bioavailability of one drug product with another, and when established, indicates
that the rate of absorption and levels of concentration of the active drug substance in the body are equivalent for the generic drug and the previously approved drug. An ANDA may be submitted for a drug on the basis that it is the equivalent of a
previously approved drug or, in the case of a new dosage form, is suitable for use for the indications specified.

Before approving a
product, the FDA also requires that our procedures and operations or those of our contracted manufacturer conform to Current Good Manufacturing Practice (cGMP) regulations, relating to good manufacturing practices as defined in the U.S.
Code of Federal Regulations. We and our contracted manufacturer must follow the cGMP regulations at all times during the manufacture of our products. We will continue to spend significant time, money and effort in the areas of production and quality
testing to help ensure full compliance with cGMP regulations and continued marketing of our products now or in the future.

If the FDA
believes a company is not in compliance with cGMP, sanctions may be imposed upon that company including:



| |  |  | withholding from the company new drug approvals as well as approvals for supplemental changes to existing applications;
| | - |  | -----------------------------------------------------------------------------------------------------------------------



| |  |  | preventing the company from receiving the necessary export licenses to export its products; and
| | - |  | -----------------------------------------------------------------------------------------------



| |  |  | classifying the company as an unacceptable supplier and thereby disqualifying the company from selling products to federal agencies.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------

The timing of final FDA approval of an ANDA depends on a variety of factors, including whether the applicant challenges any listed patents for the drug
and whether the brand-name manufacturer is entitled to one or more statutory exclusivity periods, during which the FDA may be prohibited from accepting applications for, or approving, generic products. In certain circumstances, a regulatory
exclusivity period can extend beyond the life of a patent, and thus block ANDAs from being approved on the patent expiration date. For example, in certain circumstances the FDA may extend the exclusivity of a product by six months past the date of
patent expiry if the manufacturer undertakes studies on the effect of their product in children, a so-called pediatric extension. The pediatric extension results from a 1997 law designed to reward branded pharmaceutical companies for conducting
research on the effects of pharmaceutical products in the pediatric population. As a result, under certain circumstances, a branded company can obtain an additional six months of market exclusivity by performing pediatric research.

In May 1992, Congress enacted the Generic Drug Enforcement Act of 1992, which allows the FDA to impose debarment and other penalties on individuals
and companies that commit certain illegal acts relating to the generic drug approval process. In some situations, the Generic Drug Enforcement Act requires the FDA to not accept or review ANDAs for a period of time from a company or an individual
that has committed certain violations. It also provides for temporary denial of approval of applications during the investigation of certain violations that could lead to debarment and also, in more limited circumstances, provides for the suspension
of the marketing of approved drugs by the affected company. Lastly, the Generic Drug Enforcement Act allows for civil penalties and withdrawal of previously approved applications. Neither we nor any of our employees have ever been subject to
debarment.

Drug delivery systems such as injectors may be legally marketed as a medical device or may be evaluated as part of the drug
approval process in connection with an NDA or a Product License Application (PLA). Combination drug/device products raise unique scientific, technical and regulatory issues. The FDA has established an Office of Combination Products to
address the challenges associated with the premarket review and regulation of combination products. New drug/delivery combinations may require designation from the Office of Combination Products to determine assignment to the appropriate regulatory
center. To the extent permitted under the FD&C Act and current FDA policy, the Company intends to seek the required approvals and clearance for the use of its new injectors, as modified for use in specific drug applications under the medical
device provisions, rather than under the new drug provisions, of the FD&C Act.



21



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##### Index to Financial Statements

Products regulated as medical devices may not be commercially distributed in the United States unless
they have been found substantially equivalent to a marketed product or approved by the FDA, unless otherwise exempted from the FD&C Act and regulations thereunder. There are two methods for obtaining such clearance or approvals. Under
Section 510(k) of the FD&C Act (510(k) notification), certain products qualify for a pre-market notification (PMN) of the manufacturers intention to commence marketing the product. The manufacturer must, among
other things, establish in the PMN that the product to be marketed is substantially equivalent to another legally marketed product (that is, that it has the same intended use and that it is as safe and effective as a legally marketed device and does
not raise questions of safety and effectiveness that are different from those associated with the legally marketed device). Marketing may commence when the FDA issues a letter finding substantial equivalence to such a legally marketed device. The
FDA may require, in connection with a PMN, that it be provided with animal and/or human test results. If a medical device does not qualify for the 510(k) procedure, the manufacturer must file a pre-market approval (PMA) application under
Section 515 of the FD&C Act. A PMA must show that the device is safe and effective and is generally a much more complex submission than a 510(k) notification, typically requiring more extensive pre-filing testing and a longer FDA review
process. The Company believes that injection systems, when indicated for use with drugs or biologicals approved by the FDA, will be regulated as medical devices and are eligible for clearance through the 510(k) notification process. There can be no
assurance, however, that the FDA will not require a PMA in the future.

In addition to submission when a device is being introduced into
the market for the first time, a PMN is also required when the manufacturer makes a change or modification to a previously marketed device that could significantly affect safety or effectiveness, or where there is a major change or modification in
the intended use or in the manufacture of the device. When any change or modification is made in a device or its intended use, the manufacturer is expected to make the initial determination as to whether the change or modification is of a kind that
would necessitate the filing of a new 510(k) notification. The Medi-Jector VISION®injection system is a legally marketed device under Section 510(k) of the FD&C Act. In the future the Company or its partners may submit 510(k) notifications with regard to further device design improvements and uses with additional drug
therapies.

If the FDA concludes that any or all of the Companys new injectors must be handled under the new drug provisions of the
FD&C Act, substantially greater regulatory requirements and approval times will be imposed. Use of a modified new product with a previously unapproved new drug likely will be handled as part of the NDA for the new drug itself. Under these
circumstances, the device component will be handled as a drug accessory and will be approved, if ever, only when the NDA itself is approved. The Companys injectors may be required to be approved as a combination drug/device product under a
supplemental NDA for use with previously approved drugs. Under these circumstances, the Companys device could be used with the drug only if and when the supplemental NDA is approved for this purpose. It is possible that, for some or even all
drugs, the FDA may take the position that a drug-specific approval must be obtained through a full NDA or supplemental NDA before the device may be packaged and sold in combination with a particular drug.

To the extent that the Companys modified injectors are packaged with the drug, as part of a drug delivery system, the entire package is subject to
the requirements for drug/device combination products. These include drug manufacturing requirements, drug adverse reaction reporting requirements, and all of the restrictions that apply to drug labeling and advertising. In general, the drug
requirements under the FD&C Act are more onerous than medical device requirements. These requirements could have a substantial adverse impact on the Companys ability to commercialize its products and its operations.

The FD&C Act also regulates quality control and manufacturing procedures by requiring the Company and its contract manufacturers to demonstrate
compliance with the current Quality System Regulations (QSR). The FDAs interpretation and enforcement of these requirements have been increasingly strict in recent years and seem likely to be even more stringent in the future. The
FDA monitors compliance with these requirements by requiring manufacturers to register with the FDA and by conducting periodic FDA inspections of manufacturing facilities. If the inspector observes conditions that might violate the QSR, the
manufacturer must correct those conditions or explain them satisfactorily. Failure to adhere to QSR requirements would cause the devices produced to be considered in violation of the FDA Act and subject to FDA enforcement action that might include
physical removal of the devices from the marketplace.



22



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##### Index to Financial Statements

The FDAs Medical Device Reporting Regulation requires companies to provide information to the FDA
on the occurrence of any death or serious injuries alleged to have been associated with the use of their products, as well as any product malfunction that would likely cause or contribute to a death or serious injury if the malfunction were to
recur. In addition, FDA regulations prohibit a device from being marketed for unapproved or uncleared indications. If the FDA believes that a company is not in compliance with these regulations, it could institute proceedings to detain or seize
company products, issue a recall, seek injunctive relief or assess civil and criminal penalties against the company or its executive officers, directors or employees.

In addition to regulations enforced by the FDA, we must also comply with regulations under the Occupational Safety and Health Act, the Environmental Protection Act, the Toxic Substances Control Act, the Resource
Conservation and Recovery Act and other federal, state and local regulations.

In addition to regulations in the United States, we are
subject to various foreign regulations governing clinical trials and the commercial sales and distribution of our products. We must obtain approval of a product by the comparable regulatory authorities of foreign countries before we can commence
clinical trials or marketing of the product in those countries. The requirements governing the conduct of clinical trials, product licensing, pricing and reimbursement and the regulatory approval process all vary greatly from country to country.
Additionally, the time it takes to complete the approval process in foreign countries may be longer or shorter than that required for FDA approval. Foreign regulatory approvals of our products are necessary whether or not we obtain FDA approval for
such products. Finally, before a new drug may be exported from the United States, it must either be approved for marketing in the United States or meet the requirements of exportation of an unapproved drug under Section 802 of the Export Reform
and Enhancement Act or comply with FDA regulations pertaining to INDs.

Under European Union regulatory systems, we are permitted to submit
marketing authorizations under either a centralized or decentralized procedure. The centralized procedure provides for the grant of a single marketing authorization that is valid for all member states of the European Union. The decentralized
procedure provides for mutual recognition of national approval decisions by permitting the holder of a national marketing authorization to submit an application to the remaining member states. Within 90 days of receiving the applications and
assessment report, each member state must decide whether to recognize approval.

Sales of medical devices outside of the U.S. are subject
to foreign legal and regulatory requirements. Certain of the Companys transdermal and injection systems have been approved for sale only in certain foreign jurisdictions. Legal restrictions on the sale of imported medical devices and products
vary from country to country. The time required to obtain approval by a foreign country may be longer or shorter than that required for FDA approval, and the requirements may differ. Antares relies upon the companies marketing its injectors in
foreign countries to obtain the necessary regulatory approvals for sales of the Companys products in those countries. Generally, products having an effective 510(k) clearance or PMA may be exported without further FDA authorization.

The Company has obtained ISO 13485: 2003 certification, the newly released medical device industry standard for its quality systems. This
certification shows that the Companys development and manufacturing comply with standards for quality assurance, design capability and manufacturing process control. Such certification, along with European Medical Device Directive
certification, evidences compliance with the requirements enabling the Company to affix the CE Mark to current products. The CE Mark denotes conformity with European standards for safety and allows certified devices to be placed on the market in all
European Union countries. Semi-annual audits by the Companys notified body, British Standards Institute, are required to demonstrate continued compliance.

The Company has also received GMP approval from the Swiss Medical Institute for the production and wholesaling of medicaments, specifically related to its Advanced Transdermal Delivery (ATD) gels. This allows
the Company to produce clinical trial materials and related packaging as well as production of intermediate products and end-user medicaments.

Employees

We believe that our success is largely dependent upon our ability to attract and retain qualified personnel in
the research, development, manufacturing, business development and commercialization fields. As of March 1, 2006, we had 24 full-time and 3 part-time employees worldwide, of whom 14 are in the United States. Of the 27 employees, 14 are
primarily involved in research, development and manufacturing activities, 2 are primarily involved in business development and commercialization, with the remainder engaged in executive and administrative capacities. Although we believe that we are
appropriately sized to focus on our mission, we intend to add personnel with specialized expertise, as needed.

We believe that we have
been successful to date in attracting skilled and experienced scientific and business professionals. We consider our employee relations to be good, and none of our employees are represented by any labor union or other collective bargaining unit.
However, competition for personnel is intense and we cannot assure that we will continue to be able to attract and retain personnel of high caliber.



|Item 1A. | RISK FACTORS
|-------- | ------------

The following risk
factors contain important information about us and our business and should be read in their entirety. Additional risks and uncertainties not known to us or that we now believe to be not material could



23



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##### Index to Financial Statements

also impair our business. If any of the following risks actually occur, our business, results of operations and financial condition could suffer
significantly. As a result, the market price of our common stock could decline and you could lose all of your investment. In this Section, the terms we and our refer to Antares Pharma, Inc.

Risks Related to Our Operations

We have incurred significant
losses to date, and there is no guarantee that we will ever become profitable

We had working capital of $965,169 at December 31,
2005, and $8,489,253 at December 31, 2004. We incurred net losses of ($8,497,956) and ($8,348,532) in the fiscal years ended 2005 and 2004, respectively. In addition, we have accumulated aggregate net losses from the inception of business
through December 31, 2005 of ($91,123,107). The costs for research and product development of our drug delivery technologies along with marketing and selling expenses and general and administrative expenses have been the principal causes of our
losses.

We completed private placements in March 2006 and February and March 2004 in which we received aggregate gross proceeds of
$10,962,500 and $15,120,000, respectively. We believe that the combination of these equity financings and projected product sales and product development and license revenues will provide us with sufficient funds to support operations beyond 2006.
However, if we need additional financing and are unable to obtain such financing when needed, or obtain it on favorable terms, we may be required to curtail development of new drug technologies, limit expansion of operations, accept financing terms
that are not as attractive as we may desire or be forced to liquidate and close operations.

Long-term capital requirements will depend on
numerous factors, including, but not limited to, the status of collaborative arrangements, the progress of research and development programs and the receipt of revenues from sales of products. Our ability to achieve and/or sustain profitable
operations depends on a number of factors, many of which are beyond our control. These factors include, but are not limited to, the following:



| |  |  | the demand for our technologies from current and future biotechnology and pharmaceutical partners;
| | - |  | --------------------------------------------------------------------------------------------------



| |  |  | our ability to manufacture products efficiently and with the required quality;
| | - |  | ------------------------------------------------------------------------------



| |  |  | our ability to increase and continue to outsource manufacturing capacity to allow for new product introductions;
| | - |  | ----------------------------------------------------------------------------------------------------------------



| |  |  | the level of product competition and of price competition;
| | - |  | ----------------------------------------------------------



| |  |  | our ability to develop, maintain or acquire patent positions;
| | - |  | -------------------------------------------------------------



| |  |  | our ability to develop additional commercial applications for our products;
| | - |  | ---------------------------------------------------------------------------



| |  |  | our limited regulatory and commercialization experience;
| | - |  | --------------------------------------------------------



| |  |  | our reliance on outside consultants;
| | - |  | ------------------------------------



| |  |  | our ability to obtain regulatory approvals;
| | - |  | -------------------------------------------



| |  |  | our ability to attract the right personnel to execute our plans;
| | - |  | ----------------------------------------------------------------



| |  |  | our ability to control costs; and
| | - |  | ---------------------------------



| |  |  | general economic conditions.
| | - |  | ----------------------------

As we changed our business model to be
more commercially oriented by further developing our own products, we may not have sufficient resources to fully execute our plan.

We
must make choices as to the drugs that we will combine with our transdermal gel, fast-melt tablet and disposable mini-needle technologies to move into the marketplace. We may not make the correct choice of drug or technologies when combined with a
drug, which may not be accepted by the marketplace as we expected or at all. FDA approval processes for the drugs and drugs with devices may be longer in time and/or more costly and/or require more extended clinical evaluation than anticipated.
Funds required to bring our own products to market may be more than anticipated or may not be available at all. We have limited experience in development of compounds and in regulatory matters and bringing such products to market; therefore, we may
experience difficulties in making this change or not be able to achieve the change at all.



24



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##### Index to Financial Statements

We currently depend on a limited number of customers for the majority of our revenue, and the loss of any one of these
customers could substantially reduce our revenue and impact our liquidity

During 2005, we derived approximately 48% and 12% of our
revenue, from Ferring and JCR Pharmaceuticals, Co., Ltd., respectively.

The loss of either of these customers would cause our revenues to
decrease significantly, increase our continuing losses from operations and, ultimately, could require us to cease operating. If we cannot broaden our customer base, we will continue to depend on a few customers for the majority of our revenues.
Additionally, if we are unable to negotiate favorable business terms with these customers in the future, our revenues and gross profits may be insufficient to allow us to achieve and/or sustain profitability or continue operations.

If we or our third-party manufacturer are unable to supply Ferring with our devices pursuant to our current license agreement with Ferring, Ferring would own a fully
paid up license for certain of our intellectual property

Pursuant to our license agreement with Ferring, we licensed certain of our
intellectual property related to our needle-free injection devices, including a license that allows Ferring to manufacture our devices on its own for use with its human growth hormone product. This license becomes effective if we are unable to
continue to supply product to Ferring under our current supply agreement. In accordance with the license agreement, we entered into a manufacturing agreement with a third party to manufacture our devices for Ferring. If we or this third party are
unable to meet our obligations to supply Ferring with our devices, Ferring would own a fully paid up license to manufacture our devices and to use and exploit our intellectual property in connection with Ferrings human growth hormone product.
In such event, we would no longer receive royalties or manufacturing margins from Ferring.

If we do not develop and maintain relationships with
manufacturers of our drug candidates, then we may not successfully manufacture and sell our pharmaceutical products.

We do not possess the
capabilities, resources or facilities to manufacture Anturol, which is currently in clinical studies for over active bladder, or any other of our future drug candidates. We must contract with manufacturers to produce Anturol according to
government regulations. Our future development and delivery of our product candidates depends on the timely, profitable and competitive performance of these manufacturers. A limited number of manufacturers exist which are capable of manufacturing
our product candidates. We may fail to contract with the necessary manufacturers or we may contract with manufactures on terms that may not be entirely acceptable to us. Our manufacturers must obtain FDA approval for their manufacturing processes,
and we have no control over this approval process.

We have not contracted with a commercial supplier of active pharmaceutical ingredients of oxybutynin
for Anturol. We are currently working towards selecting a manufacturer to provide us with oxybutynin in a manner which meets FDA requirements.

We
have contracted with Patheon, a manufacturing development company, to supply clinical quantities of Anturol in a manner that meets FDA requirements. The FDA has not approved the manufacturing processes of Patheon. Any failure by Patheon to
achieve compliance with FDA standards could significantly harm our business since we do not have an approved secondary manufacturer for Anturol.

We have limited device manufacturing experience and may experience manufacturing difficulties related to the use of new device materials and procedures, which could increase our production costs and, ultimately, decrease our profits

Our past assembly, testing and device manufacturing experience for certain of our device technologies has involved the assembly of
products from machined stainless steel and composite components in limited quantities. Our planned future drug delivery device technologies necessitate significant changes and additions to our manufacturing and assembly process to accommodate new
components. These systems must be manufactured in compliance with regulatory requirements, in a timely manner and in sufficient quantities while maintaining quality and acceptable manufacturing costs. In the course of these changes and additions to
our manufacturing and



25



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##### Index to Financial Statements

production methods, we may encounter difficulties, including problems involving yields, quality control and assurance, product reliability, manufacturing
costs, existing and new equipment, component supplies and shortages of personnel, any of which could result in significant delays in production. Additionally, in February 2003, we entered into a manufacturing agreement under which a third party
assembles our MJ7 devices and certain related disposable component parts. There can be no assurance that this third-party manufacturer will be able to meet these regulatory requirements or our own quality control standards. Therefore, there can be
no assurance that we will be able to successfully produce and manufacture our products. Any failure to do so would negatively impact our business, financial condition and results of operations. We are now in the process of outsourcing manufacturing
of our AJ mini-needle products to third parties. Such products will be price sensitive and may be required to be manufactured in large quantities, and we have no assurance that this can be done.

Our products have achieved only limited acceptance by patients and physicians, which continues to restrict marketing penetration and the resulting sales of more units

Our business ultimately depends on patient and physician acceptance of our needle-free injectors, gels, fast-melt tablets and our other
drug delivery technologies as an alternative to more traditional forms of drug delivery, including injections using a needle, orally ingested drugs and more traditional transdermal patch products. To date, our device technologies have achieved only
limited acceptance from such parties. The degree of acceptance of our drug delivery systems depends on a number of factors. These factors include, but are not limited to, the following:



| |  | advantages over alternative drug delivery systems or similar products from other companies;
| | - | -------------------------------------------------------------------------------------------



| |  | demonstrated clinical efficacy, safety and enhanced patient compliance;
| | - | -----------------------------------------------------------------------



| |  | cost-effectiveness;
| | - | -------------------



| |  | convenience and ease of use of injectors and transdermal gels; and
| | - | ------------------------------------------------------------------



| |  | marketing and distribution support.
| | - | -----------------------------------

Physicians may
refuse to prescribe products incorporating our drug delivery technologies if they believe that the active ingredient is better administered to a patient using alternative drug delivery technologies, that the time required to explain use of the
technologies to the patient would not be offset by advantages, or they believe that the delivery method will result in patient noncompliance. Factors such as patient perceptions that a gel is inconvenient to apply or that devices do not deliver the
drug at the same rate as conventional drug delivery methods may cause patients to reject our drug delivery technologies. Because only a limited number of products incorporating our drug delivery technologies are commercially available, we cannot yet
fully assess the level of market acceptance of our drug delivery technologies.

A 2002 National Institute of Health (NIH) study and the 2003
findings from the Million Women Study first launched in 1997 in the U.K. questioned the safety of hormone replacement therapy for menopausal women, and our female hormone replacement therapy business may suffer as a result

In July 2002, the NIH halted a long-term study, known as the Womens Health Initiative, being conducted on oral female hormone replacement therapy
(HRT) using a combination of estradiol and progestin because the study showed an increased risk of breast cancer, heart disease and blood clots in women taking the combination therapy. The arm of the study using estrogen alone was
stopped in March 2004 after the NIH concluded that the benefits of estrogen did not outweigh the stroke risk for women in this trial. The halted study looked at only one brand of oral combined HRT and of estrogen, and there is no information on
whether brands with different levels of hormones would carry the same risk. In January 2003, the FDA announced that it would require new warnings on the labels of HRT products, and it advised patients to consult with their physicians about whether
to continue treatment with continuous combined HRT and to limit the period of use to that required to manage post-menopausal vasomotor symptoms only. Subsequently, additional analysis from the NIH study has suggested a slight increase in the risk of
cognitive dysfunction developing in patients on long-term combined HRT. The Million Women Study, conducted in the U.K., confirmed that current and recent use of HRT increases a womans chance of developing breast cancer and that the risk
increased with duration of use. Other HRT studies have found potential links between HRT and an increased risk of dementia and asthma. These results and recommendations impacted the use of HRT, and product sales have diminished significantly. We
cannot yet assess the impact any of the studies results may have on our contracts or on our partners perspective of the market for transdermal gel products designed for HRT. We also



26



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##### Index to Financial Statements

cannot predict whether our alternative route of transdermal administration of HRT products will carry the same risk as the oral products used in the study.

If transdermal gels do not achieve greater market acceptance, we may be unable to achieve profitability

Because transdermal gels are a newer, less understood method of drug delivery, our potential consumers have little experience with manufacturing costs or
pricing parameters. Our assumption of higher value may not be shared by the consumer. To date, transdermal gels have gained successful entry into only a limited number of markets. There can be no assurance that transdermal gels will ever gain market
acceptance beyond these markets sufficient to allow us to achieve and/or sustain profitable operations in this product area.

We rely on third parties
to supply components for our products, and any failure to retain relationships with these third parties could negatively impact our ability to manufacture our products

Certain of our technologies contain a number of customized components manufactured by various third parties. Regulatory requirements applicable to medical device manufacturing can make substitution of suppliers costly
and time-consuming. In the event that we could not obtain adequate quantities of these customized components from our suppliers, there can be no assurance that we would be able to access alternative sources of such components within a reasonable
period of time, on acceptable terms or at all. The unavailability of adequate quantities, the inability to develop alternative sources, a reduction or interruption in supply or a significant increase in the price of components could have a material
adverse effect on our ability to manufacture and market our products.

We may be unable to successfully expand into new areas of drug delivery
technology, which could negatively impact our business as a whole

We intend to continue to enhance our current technologies. Even if
enhanced technologies appear promising during various stages of development, we may not be able to develop commercial applications for them because



| |  |  | the potential technologies may fail clinical studies;
| | - |  | -----------------------------------------------------



| |  |  | we may not find a pharmaceutical company to adopt the technologies;
| | - |  | -------------------------------------------------------------------



| |  |  | it may be difficult to apply the technologies on a commercial scale;
| | - |  | --------------------------------------------------------------------



| |  |  | the technologies may not be economical to market; or
| | - |  | ----------------------------------------------------



| |  |  | we may not receive necessary regulatory approvals for the potential technologies.
| | - |  | ---------------------------------------------------------------------------------

We have not yet completed research and development work or obtained regulatory approval for any technologies for use with any drugs other than insulin, human growth hormone and estradiol. There can be no assurance
that any newly developed technologies will ultimately be successful or that unforeseen difficulties will not occur in research and development, clinical testing, regulatory submissions and approval, product manufacturing and commercial scale-up,
marketing, or product distribution related to any such improved technologies or new uses. Any such occurrence could materially delay the commercialization of such improved technologies or new uses or prevent their market introduction entirely.

As health insurance companies and other third-party payors increasingly challenge the products and services for which they will provide coverage, our
individual consumers may not be able to receive adequate reimbursement or may be unable to afford to use our products, which could substantially reduce our revenues and negatively impact our business as a whole

Our injector device products are currently sold in the European Community (EC) and in the United States for use with human growth hormone or
insulin. In the case of human growth hormone, our products are provided to users at no cost by the drug manufacturer. In the United States the injector products are legally marketed and available for use with insulin.

Although it is impossible for us to identify the amount of sales of our products that our customers will submit for payment to third-party insurers, at
least some of these sales may be dependent in part on the availability of adequate reimbursement from these third-party healthcare payors. Currently, insurance companies and other third-party



27



---

##### Index to Financial Statements

payors reimburse the cost of certain technologies on a case-by-case basis and may refuse reimbursement if they do not perceive benefits to a
technologys use in a particular case. Third-party payors are increasingly challenging the pricing of medical products and services, and there can be no assurance that such third-party payors will not in the future increasingly reject claims
for coverage of the cost of certain of our technologies. Insurance and third-party payor practice vary from country to country, and changes in practices could negatively affect our business if the cost burden for our technologies were shifted more
to the patient. Therefore, there can be no assurance that adequate levels of reimbursement will be available to enable us to achieve or maintain market acceptance of our technologies or maintain price levels sufficient to realize profitable
operations. There is also a possibility of increased government control or influence over a broad range of healthcare expenditures in the future. Any such trend could negatively impact the market for our drug delivery products and technologies.

The loss of any existing licensing agreements or the failure to enter into new licensing agreements could substantially affect our revenue

One of our business pathways requires us to enter into license agreements with pharmaceutical and biotechnology companies covering the
development, manufacture, use and marketing of drug delivery technologies with specific drug therapies. Under these arrangements, the partner company typically assists us in the development of systems for such drug therapies and collect or sponsor
the collection of the appropriate data for submission for regulatory approval of the use of the drug delivery technology with the licensed drug therapy. Our licensees may also be responsible for distribution and marketing of the technologies for
these drug therapies either worldwide or in specific territories. We are currently a party to a number of such agreements, all of which are currently in varying stages of development. We may not be able to meet future milestones established in our
agreements (such milestones generally being structured around satisfactory completion of certain phases of clinical development, regulatory approvals and commercialization of our product) and thus, would not receive the fees expected from such
arrangements or related future royalties. Moreover, there can be no assurance that we will be successful in executing additional collaborative agreements or that existing or future agreements will result in increased sales of our drug delivery
technologies. In such event, our business, results of operations and financial condition could be adversely affected, and our revenues and gross profits may be insufficient to allow us to achieve and/or sustain profitability. As a result of our
collaborative agreements, we are dependent upon the development, data collection and marketing efforts of our licensees. The amount and timing of resources such licensees devote to these efforts are not within our control, and such licensees could
make material decisions regarding these efforts that could adversely affect our future financial condition and results of operations. In addition, factors that adversely impact the introduction and level of sales of any drug covered by such
licensing arrangements, including competition within the pharmaceutical and medical device industries, the timing of regulatory or other approvals and intellectual property litigation, may also negatively affect sales of our drug delivery
technology.

The failure of any of our third-party licensees to develop, obtain regulatory approvals for, market, distribute and sell our products as
planned may result in us not meeting revenue and profit targets

Pharmaceutical company partners help us develop, obtain regulatory
approvals for, manufacture and sell our products. If one or more of these pharmaceutical company partners fail to pursue the development or marketing of the products as planned, our revenues and profits may not reach expectations or may decline. We
may not be able to control the timing and other aspects of the development of products because pharmaceutical company partners may have priorities that differ from ours. Therefore, commercialization of products under development may be delayed
unexpectedly. Generally speaking, in the near term, we do not intend to have a direct marketing channel to consumers for our drug delivery products or technologies except through current distributor agreements in the United States for our insulin
delivery device. Therefore, the success of the marketing organizations of our pharmaceutical company partners, as well as the level of priority assigned to the marketing of the products by these entities, which may differ from our priorities, will
determine the success of the products incorporating our technologies. Competition in this market could also force us to reduce the prices of our technologies below currently planned levels, which could adversely affect our revenues and future
profitability.



28



---

##### Index to Financial Statements

If we cannot develop and market our products as rapidly or cost-effectively as our competitors, then we may never be
able to achieve profitable operations.

Competitors in the over active bladder, transdermal gel drug delivery and needle-free injector
market, some with greater resources and experience than us, may enter the market, as there is an increasing recognition of a need for less invasive methods of delivering drugs. Additionally, there is an ever increasing list of competitors in the
oral disintegrating fast-melt tablet business. Our success depends, in part, upon maintaining a competitive position in the development of products and technologies in rapidly evolving fields. If we cannot maintain competitive products and
technologies, our current and potential pharmaceutical company partners may choose to adopt the drug delivery technologies of our competitors. Drug delivery companies that compete with our technologies include Bioject Medical Technologies, Inc.,
Bentley Pharmaceuticals, Inc., Aradigm, Cellegy Pharmaceuticals, Inc., Watson Pharmaceuticals, Cardinal Health, CIMA Laboratories, Laboratoires Besins-Iscovesco, MacroChem Corporation, NexMed, Inc. and Novavax, Inc., along with other companies. We
also compete generally with other drug delivery, biotechnology and pharmaceutical companies engaged in the development of alternative drug delivery technologies or new drug research and testing. Many of these competitors have substantially greater
financial, technological, manufacturing, marketing, managerial and research and development resources and experience than we do, and, therefore, represent significant competition.

Additionally, new drug delivery technologies are mostly used only with drugs for which other drug delivery methods are not possible, in particular with
biopharmaceutical proteins (drugs derived from living organisms, such as insulin and human growth hormone) that cannot currently be delivered orally or transdermally. Transdermal patches and gels are also used for drugs that cannot be delivered
orally or where oral delivery has other limitations (such as high first pass drug metabolism, meaning that the drug dissipates quickly in the digestive system and, therefore, requires frequent administration). Many companies, both large and small,
are engaged in research and development efforts on less invasive methods of delivering drugs that cannot be taken orally. The successful development and commercial introduction of such a non-injection technique could have a material adverse effect
on our business, financial condition, results of operations and general prospects.

Competitors may succeed in developing competing
technologies or obtaining governmental approval for products before we do. Competitors products may gain market acceptance more rapidly than our products, or may be priced more favorably than our products. Developments by competitors may
render our products, or potential products, noncompetitive or obsolete.

Although we have applied for, and have received, several patents, we may be
unable to protect our intellectual property, which would negatively affect our ability to compete

Our success depends, in part, on our
ability to obtain and enforce patents for our products, processes and technologies and to preserve our trade secrets and other proprietary information. If we cannot do so, our competitors may exploit our innovations and deprive us of the ability to
realize revenues and profits from our developments.

Currently, we have been granted 32 patents and an additional 111 applications pending
in the U.S. and other countries. Any patent applications we may have made or may make relating to inventions for our actual or potential products, processes and technologies may not result in patents being issued or may result in patents that
provide insufficient or incomplete coverage for our inventions. Our current patents may not be valid or enforceable and may not protect us against competitors that challenge our patents, obtain their own patents that may have an adverse effect on
our ability to conduct business, or are able to otherwise circumvent our patents. Further, we may not have the necessary financial resources to enforce or defend our patents or patent applications.

To protect our trade secrets and proprietary technologies and processes, we rely, in part, on confidentiality agreements with employees, consultants and
advisors. These agreements may not provide adequate protection for our trade secrets and other proprietary information in the event of any unauthorized use or disclosure, or if others lawfully and independently develop the same or similar
information.

Others may bring infringement claims against us, which could be time-consuming and expensive to defend

Third parties may claim that the manufacture, use or sale of our drug delivery technologies infringe their patent rights. If such claims are asserted, we
may have to seek licenses, defend infringement actions or challenge the validity of those patents in court. If we cannot obtain required licenses, are found liable for infringement or are not



29



---

##### Index to Financial Statements

able to have these patents declared invalid, we may be liable for significant monetary damages, encounter significant delays in bringing products to market
or be precluded from participating in the manufacture, use or sale of products or methods of drug delivery covered by the patents of others. We may not have identified, or be able to identify in the future, United States or foreign patents that pose
a risk of potential infringement claims.

If the pharmaceutical companies to which we license our technologies lose their patent protection or face
patent infringement claims for their drugs, we may not realize our revenue or profit plan

The drugs to which our drug delivery
technologies are applied are generally the property of the pharmaceutical companies. Those drugs may be the subject of patents or patent applications and other forms of protection owned by the pharmaceutical companies or third parties. If those
patents or other forms of protection expire, become ineffective or are subject to the control of third parties, sales of the drugs by the collaborating pharmaceutical company may be restricted or may cease. Our expected revenues, in that event, may
not materialize or may decline.

Our business may suffer if we lose certain key officers or employees or if we are not able to add additional key
officers or employees necessary to reach our goals

The success of our business is materially dependent upon the continued services of
certain of our key officers and employees. The loss of such key personnel could have a material adverse effect on our business, operating results or financial condition. There can be no assurance that we will be successful in retaining key
personnel. We consider our employee relations to be good; however, competition for personnel is intense and we cannot assume that we will continue to be able to attract and retain personnel of high caliber.

We are involved in international markets, and this subjects us to additional business risks

We have offices and a research facility in Basel, Switzerland, and we also license and distribute our products in the European Community and the United
States. These geographic localities provide economically and politically stable environments in which to operate. However, in the future, we intend to introduce products through partnerships in other countries. As we expand our geographic market, we
will face additional ongoing complexity to our business and may encounter the following additional risks:



| |  |  | increased complexity and costs of managing international operations;
| | - |  | --------------------------------------------------------------------



| |  |  | protectionist laws and business practices that favor local companies;
| | - |  | ---------------------------------------------------------------------



| |  |  | dependence on local vendors;
| | - |  | ----------------------------



| |  |  | multiple, conflicting and changing governmental laws and regulations;
| | - |  | ---------------------------------------------------------------------



| |  |  | difficulties in enforcing our legal rights;
| | - |  | -------------------------------------------



| |  |  | reduced or limited protections of intellectual property rights; and
| | - |  | -------------------------------------------------------------------



| |  |  | political and economic instability.
| | - |  | -----------------------------------

A significant
portion of our international revenues is denominated in foreign currencies. An increase in the value of the U.S. dollar relative to these currencies may make our products more expensive and, thus, less competitive in foreign markets.

If we make any acquisitions, we will incur a variety of costs and might never successfully integrate the acquired product or business into ours.

We might attempt to acquire products or businesses that we believe are a strategic complement to our business model. We might encounter operating difficulties and
expenditures relating to integrating an acquired product or business. These acquisitions might require significant management attention that would otherwise be available for ongoing development of our business. In addition, we might never realize
the anticipated benefits of any acquisition. We might also make dilutive issuances of equity securities, incur debt or experience a decrease in cash available for our operations, or incur contingent liabilities and/or amortization expenses relating
to goodwill and other intangible assets, in connection with future acquisitions.



30



---

##### Index to Financial Statements

If we do not have adequate insurance for product liability claims, then we may be subject to significant expenses
relating to these claims.

The Companys business entails the risk of product liability claims. Although the Company has not
experienced any material product liability claims to date, any such claims could have a material adverse impact on its business. The Company maintains product liability insurance with coverage of $5 million per occurrence and an annual aggregate
maximum of $5 million. The Company evaluates its insurance requirements on an ongoing basis.

Geopolitical, economic and military conditions, including
terrorist attacks and other acts of war, may materially and adversely affect the markets on which our common stock trades, the markets in which we operate, our operations and our profitability

Terrorist attacks, such as those that occurred on September 11, 2001, and other acts of war, and any response to them, may lead to armed hostilities
and such developments would likely cause instability in financial markets. Armed hostilities and terrorism may directly impact our facilities, personnel and operations, which are located in the United States and Switzerland, as well as those of our
clients. Furthermore, severe terrorist attacks or acts of war may result in temporary halts of commercial activity in the affected regions, and may result in reduced demand for our products. These developments could have a material adverse effect on
our business and the trading price of our common stock.

Risks Related to Regulatory Matters

We or our licensees may incur significant costs seeking approval for our products, which could delay the realization of revenue and, ultimately, decrease our revenues
from such products

The design, development, testing, manufacturing and marketing of pharmaceutical compounds, medical nutrition and
diagnostic products and medical devices are subject to regulation by governmental authorities, including the FDA and comparable regulatory authorities in other countries. The approval process is generally lengthy, expensive and subject to
unanticipated delays. Currently, we, along with our partners, are actively pursuing marketing approval for a number of products from regulatory authorities in other countries and anticipate seeking regulatory approval from the FDA for products
developed pursuant to our agreement with BioSante. In the future we, or our partners, may need to seek approval for newly developed products. Our revenue and profit will depend, in part, on the successful introduction and marketing of some or all of
such products by our partners or us. There can be no assurance as to when or whether such approvals from regulatory authorities will be received.

Applicants for FDA approval often must submit extensive clinical data and supporting information to the FDA. Varying interpretations of the data obtained from pre-clinical and clinical testing could delay, limit or prevent regulatory
approval of a drug product. Changes in FDA approval policy during the development period, or changes in regulatory review for each submitted new drug application also may cause delays or rejection of an approval. Even if the FDA approves a product,
the approval may limit the uses or indications for which a product may be marketed, or may require further studies. The FDA also can withdraw product clearances and approvals for failure to comply with regulatory requirements or if
unforeseen problems follow initial marketing.

In other jurisdictions, we, and the pharmaceutical companies with whom we are developing
technologies, must obtain required regulatory approvals from regulatory agencies and comply with extensive regulations regarding safety and quality. If approvals to market the products are delayed, if we fail to receive these approvals, or if we
lose previously received approvals, our revenues may not materialize or may decline. We may not be able to obtain all necessary regulatory approvals. We may be required to incur significant costs in obtaining or maintaining regulatory approvals.



31



---

##### Index to Financial Statements

Our business could be harmed if we fail to comply with regulatory requirements and, as a result, are subject to
sanctions

If we, or pharmaceutical companies with whom we are developing technologies, fail to comply with applicable regulatory
requirements, the pharmaceutical companies, and we, may be subject to sanctions, including the following:



| |  |  | warning letters;
| | - |  | ----------------



| |  |  | fines;
| | - |  | ------



| |  |  | product seizures or recalls;
| | - |  | ----------------------------



| |  |  | injunctions;
| | - |  | ------------



| |  |  | refusals to permit products to be imported into or exported out of the applicable regulatory jurisdiction;
| | - |  | ----------------------------------------------------------------------------------------------------------



| |  |  | total or partial suspension of production;
| | - |  | ------------------------------------------



| |  |  | withdrawals of previously approved marketing applications; or
| | - |  | -------------------------------------------------------------



| |  |  | criminal prosecutions.
| | - |  | ----------------------

Our revenues may be limited if the marketing
claims asserted about our products are not approved

Once a drug product is approved by the FDA, the Division of Drug Marketing,
Advertising and Communication, the FDAs marketing surveillance department within the Center for Drugs, must approve marketing claims asserted by our pharmaceutical company partners. If we or a pharmaceutical company partner fails to obtain
from the Division of Drug Marketing acceptable marketing claims for a product incorporating our drug technologies, our revenues from that product may be limited. Marketing claims are the basis for a products labeling, advertising and
promotion. The claims the pharmaceutical company partners are asserting about our drug delivery technologies, or the drug product itself, may not be approved by the Division of Drug Marketing.

Product liability claims related to participation in clinical trials or the use or misuse of our products could prove to be costly to defend and could harm our
business reputation

The testing, manufacturing and marketing of products utilizing our drug delivery technologies may expose us to
potential product liability and other claims resulting from their use in practice or in clinical development. If any such claims against us are successful, we may be required to make significant compensation payments. Any indemnification that we
have obtained, or may obtain, from contract research organizations or pharmaceutical companies conducting human clinical trials on our behalf may not protect us from product liability claims or from the costs of related litigation. Similarly, any
indemnification we have obtained, or may obtain, from pharmaceutical companies with whom we are developing drug delivery technologies may not protect us from product liability claims from the consumers of those products or from the costs of related
litigation. If we are subject to a product liability claim, our product liability insurance may not reimburse us, or may not be sufficient to reimburse us, for any expenses or losses that may have been suffered. A successful product liability claim
against us, if not covered by, or if in excess of our product liability insurance, may require us to make significant compensation payments, which would be reflected as expenses on our statement of operations. Adverse claim experience for our
products or licensed technologies or medical device, pharmaceutical or insurance industry trends may make it difficult for us to obtain product liability insurance or we may be forced to pay very high premiums, and there can be no assurance that
insurance coverage will continue to be available on commercially reasonable terms or at all.

Risks Related to our Common Stock

Together, certain of our stockholders own or have the right to acquire a significant portion of our stock and could ultimately control decisions regarding our company

As a result of our reverse business combination with Permatec in January 2001 and subsequent additional debt and equity financings,
Permatec Holding AG and its controlling shareholder, Dr. Jacques Gonella, own a substantial portion (as of March 3, 2006, approximately 18%) of our outstanding shares of common stock. Dr. Gonella, who is the Chairman of our Board of
Directors, also owns warrants to purchase an aggregate of 4,198,976 shares of common stock and options to purchase 104,500 shares of common stock. Additionally, five investors (Crestview Capital Master Fund, North Sound Funds, Perceptive Life
Sciences Fund, SCO Capital Group and SDS Funds) own warrants that are, as of March 3, 2006, exercisable into an aggregate of 6,162,904 shares of our common stock. Some of these investors plus Atlas Equity also directly own an aggregate of
approximately 5,419,884 shares of our



32



---

##### Index to Financial Statements

common stock. If Dr. Gonella and all of the above investors exercised all of the warrants and options owned by them, Dr. Gonella would own
approximately 17%, and the six investors as a group would own approximately 13%, of our common stock.

Because the parties described above
either currently own or could potentially own a large portion of our stock, they may be able to generally determine or they will be able to significantly influence the outcome of corporate actions requiring stockholder approval. As a result, these
parties may be in a position to control matters affecting our company, including decisions as to our corporate direction and policies; future issuances of certain securities; our incurrence of debt; amendments to our certificate of incorporation and
bylaws; payment of dividends on our common stock; and acquisitions, sales of our assets, mergers or similar transactions, including transactions involving a change of control. As a result, some investors may be unwilling to purchase our common
stock. In addition, if the demand for our common stock is reduced because of these stockholders control of the Company, the price of our common stock could be adversely affected.

Certain of our stockholders own large blocks of our common stock and own securities or exercisable into shares of our common stock, and any exercises, or sales by these stockholders could substantially lower the
market price of our common stock

Several of our shareholders, including Dr. Gonella, whose sales are subject to volume
limitations, Atlas Equity, Crestview Capital Master Fund, SCO Capital Group, the SDS funds, the North Sound funds and Perceptive Life Sciences Master Fund, own large blocks of our common stock or could own sizeable blocks of our common stock upon
exercise of warrants. With the exception of a portion of the stock controlled by Dr. Gonella, the shares of our common stock owned by these stockholders (or issuable to them upon exercise of warrants or options) are registered or registration
will be applied for in the near future. Future sales of large blocks of our common stock by any of the above investors could substantially adversely affect our stock price.

Future conversions or exercises by holders of warrants or options could substantially dilute our common stock

As of March 3, 2006, we have warrants outstanding that are exercisable, at prices ranging from $0.55 per share to $7.03 per share, for an aggregate of approximately 22,500,000 shares of our common stock. We also have options
outstanding that are exercisable, at exercise prices ranging from $0.70 to $15.65 per share, for an aggregate of approximately 4,400,000 shares of our common stock. Purchasers of common stock could therefore experience substantial dilution of their
investment upon exercise of the above warrants or options. The warrants and the options are not registered and may be sold only if registered under the Securities Act of 1933, as amended, or sold in accordance with an applicable exemption from
registration, such as Rule 144. The shares of common stock issuable upon exercise of the warrants or options held by these investors are currently registered or registration will be applied for in the near future.

Sales of our common stock by our officers and directors may lower the market price of our common stock

As of March 3, 2006, our officers and directors beneficially owned an aggregate of approximately 15,200,000 shares (or approximately 26%) of our
common stock, including stock options exercisable within 60 days. If our officers and directors, or other shareholders, sell a substantial amount of our common stock, it could cause the market price of our common stock to decrease and could hamper
our ability to raise capital through the sale of our equity securities.

We do not expect to pay dividends in the foreseeable future

We intend to retain any earnings in the foreseeable future for our continued growth and, thus, do not expect to declare or pay any cash dividends in the
foreseeable future.



33



---

##### Index to Financial Statements

Anti-takeover effects of certain certificate of incorporation and bylaw provisions could discourage, delay or prevent
a change in control.

Our certificate of incorporation and bylaws could discourage, delay or prevent persons from acquiring or
attempting to acquire us. Our certificates of incorporation authorizes our board of directors, without action of our stockholders, to designate and issue preferred stock in one or more series, with such rights, preferences and privileges as the
board of directors shall determine. In addition, our bylaws grant our board of directors the authority to adopt, amend or repeal all or any of our bylaws, subject to the power of the stockholders to change or repeal the bylaws. In addition, our
bylaws limit who may call meetings of our stockholders.



|Item 1B. | UNRESOLVED STAFF COMMENTS
|-------- | -------------------------

None.



|Item 2. | DESCRIPTION OF PROPERTY.
|------- | ------------------------

The Company leases
approximately 3,000 square feet of office space in Exton, Pennsylvania for its corporate headquarters facility. The lease terminated in November 2004 and continues on a month-to-month basis, with a 90-day vacate notice.

The Company leases approximately 9,300 square feet of office and laboratory space in Plymouth, a suburb of Minneapolis, Minnesota. The lease will
terminate in April 2011. The Company believes the facilities will be sufficient to meet its requirements through the lease period at this location.

The Company also leases approximately 650 square meters of facilities in Basel, Switzerland, for office space and formulation and analytical laboratories. The lease will terminate in September 2008. The Company believes the facilities will
be sufficient to meet its requirements through the lease period at this location.



|Item 3. | LEGAL PROCEEDINGS
|------- | -----------------

None.



|Item 4. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
|------- | ----------------------------------------------------

None.



34



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##### Index to Financial Statements

PART II



|Item 5. | MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
|------- | -------------------------------------------------------------------------------------------------------------

The Companys Common Stock began trading on the American Stock Exchange under the symbol AIS on September 23, 2004. Prior to that time, the
Companys Common Stock traded on the Over-the-Counter Bulletin Board under the symbol ANTR.OB. The following table sets forth the per share high and low sales prices of the Companys Common Stock for each quarterly period during the two
most recent fiscal years. Sale prices are as reported by the American Stock Exchange for 2005 and the fourth quarter of 2004, both the American Stock Exchange and the Over-the-Counter Bulletin Board for the third quarter of 2004, and the
Over-the-Counter Bulletin Board for the first two quarters of 2004.



|               |  |      |      |     |   |     
|-------------- |  | ---- | ---- | --- | - | ----
|               |  | High |      | Low
|2005:          |  |      |      |     |   |     
|First Quarter  |  | $    | 1.46 |     | $ | 0.88
|Second Quarter |  |      | 1.15 |     |   | 0.70
|Third Quarter  |  |      | 1.22 |     |   | 0.78
|Fourth Quarter |  |      | 1.61 |     |   | 0.86
|               |  |     
|2004:          |  |      |      |     |   |     
|First Quarter  |  |      | 1.63 |     |   | 1.00
|Second Quarter |  |      | 1.50 |     |   | 0.78
|Third Quarter  |  |      | 1.84 |     |   | 0.60
|Fourth Quarter |  |      | 1.61 |     |   | 0.92

Common Shareholders

As of March 3, 2006, the Company had 180 shareholders of record of its common stock.

Dividends

The Company has not paid or declared any cash dividends on its common stock during the past nine years. The Company has no intention of paying cash
dividends in the foreseeable future on common stock. The Company paid semi-annual dividends on Series A Convertible Preferred Stock (Series A) at an annual rate of 10%, payable on May 10 and November 10 each year. In June 2005,
all of the Series A was converted into common stock. In addition to the stated 10% dividend, the Company had been obligated to pay income tax withholding on the dividend payment, which equates to an effective dividend rate of 14.2%. Such tax
withholding payments have been reflected as dividends, to the extent they were non-recoverable. The Series A agreement had a provision that allowed the Company to pay the dividend by issuance of the same stock when funds were not available. The
Company exercised this provision for ten of the last twelve dividend payments.

Sales of Unregistered Securities

In November 2005, the Company received proceeds of $132,000 in connection with the issuance of 240,000 shares of common stock from the exercise of
warrants. The issuance of the shares was exempt from registration under Section 4(2) of the Securities Act of 1933.



35



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##### Index to Financial Statements

|Item 6. | SELECTED FINANCIAL DATA
|------- | -----------------------

The following table summarizes certain
selected financial data. The selected financial data is derived from, and is qualified by reference to, our financial statements accompanying this report (amounts expressed in thousands, except per share amounts).



|                                                         |  |                         |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|-------------------------------------------------------- |  | ----------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | - |  | ---- | ------- | - |  | - | ------- | -
|                                                         |  | At December 31,         |        
|                                                         |  | 2005                    |         |   | 2004 |   |         | 2003 |  |   | 2002    |   |  | 2001 |        
|Balance Sheet Data:                                      |  |                         |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Cash and cash equivalents                                |  | $                       | 2,718   |   |      | $ | 1,652   |      |  | $ | 1,929   |   |  | $    | 268     |   |  | $ | 1,965   |  
|Short-term investments                                   |  |                         |        |   |      |   | 7,972   |      |  |   |        |   |  |      |        |   |  |   |        |  
|Working capital (deficit)                                |  |                         | 965     |   |      |   | 8,489   |      |  |   | 615     |   |  |      | (2,972  | ) |  |   | 1,126   |  
|Total assets                                             |  |                         | 6,166   |   |      |   | 13,178  |      |  |   | 5,955   |   |  |      | 6,409   |   |  |   | 11,128  |  
|Long-term liabilities, less current maturities           |  |                         | 3,062   |   |      |   | 3,339   |      |  |   | 3,558   |   |  |      | 1,247   |   |  |   | 1,243   |  
|Accumulated deficit                                      |  |                         | (91,123 | ) |      |   | (82,575 | )    |  |   | (74,127 | ) |  |      | (41,166 | ) |  |   | (29,457 | )
|Total stockholders equity (deficit)                     |  |                         | 757     |   |      |   | 8,189   |      |  |   | 307     |   |  |      | 655     |   |  |   | 7,468   |  
|                                                         | 
|                                                         |  | Year Ended December 31, |        
|                                                         |  | 2005                    |         |   | 2004 |   |         | 2003 |  |   | 2002    |   |  | 2001 |        
|Statement of Operations Data:                            |  |                         |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Product sales                                            |  | $                       | 1,512   |   |      | $ | 1,834   |      |  | $ | 2,647   |   |  | $    | 2,422   |   |  | $ | 2,016   |  
|Development revenue                                      |  |                         | 184     |   |      |   | 197     |      |  |   | 310     |   |  |      | 935     |   |  |   | 754     |  
|Licensing fees                                           |  |                         | 374     |   |      |   | 635     |      |  |   | 695     |   |  |      | 639     |   |  |   | 729     |  
|Royalties                                                |  |                         | 155     |   |      |   | 80      |      |  |   | 135     |   |  |      |        |   |  |   |        |  
|                                                         |  |                         |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Revenues                                                 |  |                         | 2,225   |   |      |   | 2,746   |      |  |   | 3,787   |   |  |      | 3,996   |   |  |   | 3,499   |  
|                                                         |  |                         |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Cost of revenues                                         |  |                         | 1,137   |   |      |   | 1,372   |      |  |   | 2,008   |   |  |      | 2,574   |   |  |   | 1,863   |  
|Research and development (3) (5)                         |  |                         | 3,409   |   |      |   | 2,636   |      |  |   | 2,109   |   |  |      | 2,918   |   |  |   | 4,181   |  
|Sales, marketing and business development                |  |                         | 1,161   |   |      |   | 676     |      |  |   | 462     |   |  |      | 798     |   |  |   | 1,343   |  
|General and administrative (4) (5)                       |  |                         | 5,107   |   |      |   | 6,437   |      |  |   | 7,842   |   |  |      | 5,968   |   |  |   | 5,682   |  
|Goodwill impairment charge                               |  |                         |        |   |      |   |        |      |  |   |        |   |  |      | 2,000   |   |  |   |        |  
|                                                         |  |                         |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Operating expenses                                       |  |                         | 9,677   |   |      |   | 9,749   |      |  |   | 10,413  |   |  |      | 11,684  |   |  |   | 11,206  |  
|                                                         |  |                         |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Operating loss                                           |  |                         | (8,589  | ) |      |   | (8,375  | )    |  |   | (8,634  | ) |  |      | (10,262 | ) |  |   | (9,570  | )
|Net other income (expense)                               |  |                         | 91      |   |      |   | 26      |      |  |   | (24,184 | ) |  |      | (1,347  | ) |  |   | 71      |  
|                                                         |  |                         |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Net loss                                                 |  |                         | (8,498  | ) |      |   | (8,349  | )    |  |   | (32,818 | ) |  |      | (11,609 | ) |  |   | (9,499  | )
|In-the-money conversion feature-preferred stock dividend |  |                         |        |   |      |   |        |      |  |   |        |   |  |      |        |   |  |   | (5,314  | )
|Preferred stock dividends                                |  |                         | (50     | ) |      |   | (100    | )    |  |   | (143    | ) |  |      | (100    | ) |  |   | (100    | )
|                                                         |  |                         |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Net loss applicable to common shares                     |  | $                       | (8,548  | ) |      | $ | (8,449  | )    |  | $ | (32,961 | ) |  | $    | (11,709 | ) |  | $ | (14,913 | )
|                                                         |  |                         |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Net loss per common share (1) (2)                        |  | $                       | (0.21   | ) |      | $ | (0.23   | )    |  | $ | (2.18   | ) |  | $    | (1.22   | ) |  | $ | (1.76   | )
|                                                         |  |                         |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Weighted average number of common shares                 |  |                         | 41,460  |   |      |   | 36,348  |      |  |   | 15,093  |   |  |      | 9,618   |   |  |   | 8,495   |  
|                                                         |  |                         |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  



|(1) | Basic and diluted loss per share amounts are identical as the effect of potential common shares is anti-dilutive.
|--- | -----------------------------------------------------------------------------------------------------------------



|(2) | The Company has not paid any dividends on its Common Stock since inception.
|--- | ---------------------------------------------------------------------------



|(3) | In 2001 the Company recorded a non-cash write-off of acquired in-process research and development of $948,000.
|--- | --------------------------------------------------------------------------------------------------------------



|(4) | In 2004, 2003 and 2002 the Company recorded non-cash patent impairment charges of $233,062, $973,769 and $435,035, respectively.
|--- | --------------------------------------------------------------------------------------------------------------------------------



|(5) | Legal fees for patent related expenses previously reported as research and development were reclassified in 2005 to general and administrative expense. The amounts reclassified were
$910,803, $1,385,332, $735,675 and $322,649 for 2004, 2003, 2002 and 2001, respectively. These amounts include the patent impairment charges referred to in item (4).
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Index to Financial Statements

|Item 7. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|------- | -------------------------------------------------------------------------------------

You should read the following discussion in conjunction with Certain Risks Related to Our Business and our audited financial statements included elsewhere in this report. Some of the statements in the
following discussion are forward-looking statements. See Special Note Regarding Forward-Looking Statements.

Overview

The Company develops, produces and markets pharmaceutical delivery products, including transdermal gels, oral fast melting tablets and reusable
needle-free and disposable mini-needle injector systems. In addition, the Company has several products and compound formulations under development. The Company has operating facilities in the U.S. and Switzerland. The U.S. operation develops
reusable needle-free and disposable mini-needle injector systems and manufactures and markets reusable needle-free injection devices and related disposables. These operations, including all manufacturing and some U.S. administrative activities, are
located in Minneapolis, Minnesota and are referred to as Antares/Minnesota. The Company also has operations located in Basel, Switzerland, which consists of administration and facilities for the research and development of transdermal gels and oral
fast melt tablet products. The Swiss operations, referred to as Antares/Switzerland, focus on research, development and commercialization of pharmaceutical products. Antares/Switzerland has signed a number of license agreements with pharmaceutical
companies for the application of its drug delivery systems and began generating revenue in 1999 with the recognition of license revenues. The Companys corporate offices are located in Exton, Pennsylvania (near Philadelphia).

The Company operates as a specialty pharmaceutical company in the broader pharmaceutical industry. Companies in this sector generally bring technology
and know-how in the area of drug formulation and/or delivery devices to pharmaceutical product marketers through licensing and development agreements while actively pursuing development of its own products. The Company currently views pharmaceutical
and biotechnology companies as primary customers. The Company has negotiated and executed licensing relationships in the growth hormone segment (reusable needle-free devices in Europe and Asia) and the transdermal hormone gels segment (several
development programs in place worldwide, including the United States and Europe). In addition, the Company continues to market reusable needle-free devices for the home or alternate site administration of insulin in the U.S. market though
distributors, and has licensed its reusable needle-free technology in the diabetes and obesity fields to Eli Lilly and Company on a worldwide basis.

The Company is reporting a net loss of $8,497,956 for the year ending December 31, 2005 and expects to report a net loss for the year ending December 31, 2006, as marketing and development costs related to
bringing future generations of products to market continue. Long-term capital requirements will depend on numerous factors, including the status of collaborative arrangements, the progress of research and development programs, the receipt of
revenues from sales of products and the ability to control costs.

The Company has not historically, and does not currently, generate
enough revenue to provide the cash needed to support its operations, and has continued to operate by raising capital and issuing debt. In order to better position the Company to take advantage of potential growth opportunities and to fund future
operations, the Company raised additional capital in the first quarter of 2006. The Company received net proceeds of approximately $10.0 million in a private placement of its common stock in which a total of 8,770,000 shares of common stock were
sold at a price of $1.25 per share. Additionally, the Company issued five-year warrants to purchase an aggregate of 7,454,500 shares of common stock at an exercise price of $1.50 per share.

The Company believes that the combination of the equity financing and projected product sales and product development and license revenues will provide
sufficient funds to support operations through at least the next year. If the Company does need additional financing and is unable to obtain such financing when needed, or obtain it on favorable terms, the Company may be required to curtail
development of new drug technologies, limit expansion of operations or accept financing terms that are not as attractive as the Company may desire.



37



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##### Index to Financial Statements

Critical Accounting Policies and Use of Estimates

In preparing the financial statements in conformity with U.S. generally accepted accounting principles, management must make decisions that impact
reported amounts and related disclosures. Such decisions include the selection of the appropriate accounting principles to be applied and the assumptions on which to base accounting estimates. In reaching such decisions, management applies judgment
based on its understanding and analysis of relevant circumstances. Note 2 to the consolidated financial statements provides a summary of the significant accounting policies followed in the preparation of the consolidated financial statements. The
following accounting policies are considered by management to be the most critical to the presentation of the consolidated financial statements because they require the most difficult, subjective and complex judgments.

Revenue Recognition

The majority of
the Companys revenue relates to product sales for which revenue is recognized upon shipment, with limited judgment required related to product returns. Product sales are shipped FOB shipping point. The Company also enters into license
arrangements that are often complex as they may involve a license, development and manufacturing components. Licensing revenue recognition requires significant management judgment to evaluate the effective terms of agreements, the Companys
performance commitments and determination of fair value of the various deliverables under the arrangement. In December 2002, the Emerging Issues Task Force (EITF) issued EITF 00-21, Revenue Arrangements with Multiple Deliverables,
which addresses certain aspects of revenue recognition for arrangements that include multiple revenue-generating activities. EITF 00-21 addresses when and, if so, how an arrangement involving multiple deliverables should be divided into separate
units of accounting. In some arrangements, the different revenue-generating activities (deliverables) are sufficiently separable, and there exists sufficient evidence of their fair values to separately account for some or all of the deliverables
(that is, there are separate units of accounting). In other arrangements, some or all of the deliverables are not independently functional, or there is not sufficient evidence of their fair values to account for them separately. The Companys
ability to establish objective evidence of fair value for the deliverable portions of the contracts may significantly impact the time period over which revenues will be recognized. For instance, if there is no objective fair value of undelivered
elements of a contract, then the Company may be required to treat a multi-deliverable contract as one unit of accounting, resulting in all revenue being deferred and recognized over the entire contract period. EITF 00-21 does not change otherwise
applicable revenue recognition criteria. In all of the Companys licensing and development contracts to this point, revenue related to up-front, time-based and performance-based payments is being recognized over the entire contract performance
period. For major licensing contracts, this results in the deferral of significant revenue amounts ($3,255,266 at December 31, 2005) where non-refundable cash payments have been received, but the revenue is not immediately recognized due to the
long-term nature of the respective agreements. Subsequent factors affecting the initial estimate of the effective terms of agreements could either increase or decrease the period over which the deferred revenue is recognized.

In connection with a license agreement entered into with Eli Lilly and Company in 2003, the Company issued to Lilly a ten-year warrant to purchase
1,000,000 shares of the Companys common stock at an exercise price of $3.776 per share. The Company determined that the fair value of the warrant was $2,943,739 using the Black Scholes option pricing model. EITF 01-9, Accounting for
Consideration Given by a Vendor to a Customer (Including a Reseller of the Vendors Products), requires that the value of the warrants be treated as a reduction in revenue. The fair value of the warrant was recorded to additional paid-in
capital and to prepaid license discount, a contra equity account. The prepaid license discount will be reduced on a straight-line basis over the term of the agreement, offsetting revenue generated under the agreement. If the Company concludes that
the revenues from this arrangement will not exceed the costs, part or all of the remaining prepaid license discount may be charged to operations at that time.

Due to the requirement to defer significant amounts of revenue and the extended period over which the revenue will be recognized, along with the requirement to amortize the prepaid license discount and certain
deferred development costs over an extended period of time, revenue recognized and cost of sales may be materially different from cash flows.



38



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##### Index to Financial Statements

On an overall basis, the Companys reported revenues can differ significantly from billings and/or
accrued billings based on terms in agreements with customers. The table below is presented to help explain the impact of the deferral of revenue and amortization of prepaid license discount on reported revenues, and is not meant to be a substitute
for accounting or presentation requirements under U.S. generally accepted accounting principles.



|                                                    |  |      |           |   |      |   |           |      |  |   |            |  
|--------------------------------------------------- |  | ---- | --------- | - | ---- | - | --------- | ---- |  | - | ---------- | -
|                                                    |  | 2005 |           |   | 2004 |   |           | 2003 | 
|Product sales                                       |  | $    | 1,511,929 |   |      | $ | 1,834,431 |      |  | $ | 2,646,628  |  
|Development fees                                    |  |      | 214,210   |   |      |   | 445,625   |      |  |   | 365,387    |  
|Licensing fees and milestone payments               |  |      | 275,524   |   |      |   | 84,449    |      |  |   | 2,456,040  |  
|Royalties                                           |  |      | 155,036   |   |      |   | 80,335    |      |  |   | 134,937    |  
|                                                    |  |      |           |   |      |   |           |      |  |   |            |  
|Billings received and/or accrued per contract terms |  |      | 2,156,699 |   |      |   | 2,444,840 |      |  |   | 5,602,992  |  
|Deferred billings received and/or accrued           |  |      | (360,949  | ) |      |   | (259,537  | )    |  |   | (2,458,559 | )
|Deferred revenue recognized                         |  |      | 625,245   |   |      |   | 756,903   |      |  |   | 691,473    |  
|Amortization of prepaid license discount            |  |      | (196,249  | ) |      |   | (196,250  | )    |  |   | (49,062    | )
|                                                    |  |      |           |   |      |   |           |      |  |   |            |  
|Total revenue as reported                           |  | $    | 2,224,746 |   |      | $ | 2,745,956 |      |  | $ | 3,786,844  |  
|                                                    |  |      |           |   |      |   |           |      |  |   |            |  

Valuation of Long-Lived and Intangible Assets and Goodwill

Long-lived assets, including patents, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired,
the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of, if any, are reported at the lower of the carrying amount or fair value less costs to
sell.

The impairment analysis for patents can be very subjective as the Company relies upon signed distribution or license agreements with
variable cash flows to substantiate the recoverability of these long-lived assets. In the fourth quarter of each year the Company updated its long-range business plan. In 2004 and 2003 the Company identified certain capitalized patent costs related
to products for which there were no revenues or cash flows projected in the business plan or for which there were no signed distribution or license agreements. Therefore, the Company recognized an impairment charge of $233,062 and $973,769 in 2004
and 2003, respectively, in general and administrative expenses, which represented the carrying amount net of accumulated amortization for the identified patents. The Companys estimated aggregate patent amortization expense for the next five
years is $135,000 in 2006, $94,000 in 2007, $89,000 in 2008 and $84,000 in 2009 and 2010.

The Company evaluates the carrying value of
goodwill during the fourth quarter of each year and between annual evaluations if events occur or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying amount. Such circumstances could
include, but are not limited to: (1) a significant adverse change in legal factors or in business climate, (2) unanticipated competition, (3) an adverse action or assessment by a regulator, or (4) a sustained significant drop in
the Companys stock price. When evaluating whether goodwill is impaired, the Company compares the fair value of the Minnesota operations to the carrying amount, including goodwill. If the carrying amount of the Minnesota operations exceeds its
fair value, then the amount of the impairment loss must be measured. The impairment loss would be calculated by comparing the implied fair value of goodwill to its carrying amount. In calculating the implied fair value of goodwill, the fair value of
the Minnesota operations would be allocated to all of its other assets and liabilities based on their fair values. The excess of the fair value of the Minnesota operations over the amount assigned to its other assets and liabilities is the implied
fair value of goodwill. An impairment loss would be recognized when the carrying amount of goodwill exceeds its implied fair value. The Companys evaluation of goodwill completed during 2005, 2004 and 2003 resulted in no impairment losses.

Accounting for Debt and Equity Instruments

During the first quarter of 2003, in connection with a restructuring of its 10% convertible debentures, the Company issued warrants to purchase common stock to the debenture holders. In the third quarter of 2003, the



39



---

##### Index to Financial Statements

holders of the restructured debentures exchanged the remaining outstanding principal of such debentures for shares of the Companys Series D Convertible
Preferred Stock. Also in the third quarter of 2003, the Companys largest stockholder converted debt owed to him by the Company into shares of the Companys common stock and warrants to purchase the Companys common stock. The Company
also completed a private placement of its common stock and warrants in the third quarter of 2003 and first quarter of 2004. The accounting for debt and equity transactions is complex and requires the Company to make certain judgments regarding the
proper accounting treatment of these instruments. The Companys significant judgments related to capital transactions included:



| |  |  | the accounting for one of the convertible debentures as an extinguishment and issuance of debt instruments and the other as a troubled debt restructuring;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the determination of the fair values of the convertible debentures and the warrants issued with the transactions; and
| | - |  | ---------------------------------------------------------------------------------------------------------------------



| |  |  | the classification of the warrants as liabilities.
| | - |  | --------------------------------------------------

The Companys
significant judgments related to the debenture exchange transaction included the determination of the fair values of the Series D Convertible Preferred Stock and warrants issued in connection with the transaction. Significant judgments related to
the private placement of common stock and warrants included the determination of the fair value of the warrants, the allocation of the proceeds between the common stock and the warrants, and the initial classification of the warrants as liabilities.
In August and September of 2003, the Company modified the warrants issued in the above noted transactions resulting in the reclassification of the warrants from debt to equity.

Results of Operations

Years Ended December 31, 2005, 2004 and 2003

Revenues

Total revenue was $2,224,746, $2,745,956 and
$3,786,844 for the years ended December 31, 2005, 2004 and 2003, respectively. The decreases in each year resulted primarily from a reduction in sales to the Companys major customer, Ferring. The 2005 decrease was also partially due to
the extension of revenue recognition periods of certain development and license agreements, resulting in the recognition of remaining deferred revenue over longer periods.

Antares/Minnesota product sales include sales of reusable needle-free injector devices, related parts, disposable components, and repairs. In 2005, 2004
and 2003, a total of 2,176, 2,533 and 3,384 devices, respectively, were sold at average prices of approximately $252, $245 and $231, respectively. The average price increase in 2005 is mainly due to less promotional pricing in 2005 than in 2004. The
average price increase in 2004 compared to 2003 was due mainly to the effect of the weakening of the USD to the Euro on the devices sold to Ferring. Sales of disposable components in 2005, 2004 and 2003 totaled $896,764, $1,143,071 and $1,748,213,
respectively. The decreases in device and disposable sales in each year have been due mainly to decreases in sales to Ferring. This decrease in sales is attributable to working down of high inventory levels accumulated by Ferring. The high inventory
levels were the result of four activities. In 2002, Ferring made the decision to convert its customers to the Companys most current device model, the Medi-Jector VISION®(the VISION®), from the earlier device model (the Choice). As a result, device sales were higher in 2004 and 2003 due to stocking by Ferring subsidiaries and the subsequent upgrading of its
existing customers to the Vision®. Secondly, Vision®device stocking levels were based on previous experience with the Choice device, and after documenting improved field
reliability the stocking levels were reduced. Thirdly, Ferring increased its purchases of devices and disposable components to build safety stock as the Company transitioned from internal manufacturing and assembly to outsourcing these operations
during 2003. Fourthly, market expansion plans by Ferring that prompted the stocking of additional product did not materialize, contributing to the overstocking condition. The Company believes that this period of inventory work down has been
concluded.

Development revenue was $183,760, $196,648 and $310,035 for the years ended December 31, 2005, 2004 and 2003,
respectively. In 2005 approximately half of the development revenue was generated from device related



40



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##### Index to Financial Statements

projects, with most of this coming from one-time projects. The remainder of the recognized development revenue in 2005 and substantially all of the
recognized development revenue in 2004 and 2003 was generated under licensing and development agreements related to use of the Companys proprietary ATD gel technology in developing products for transdermal delivery of certain
medications. The development revenue decreased in 2004 and 2003 as the product generating a substantial portion of the development revenue moved past the primary major development stages and into clinical trial stages, which are being handled almost
entirely by the licensee. The Company also generated development fees of approximately $260,000 in 2004 under a device development agreement, substantially all of which was deferred and is being recognized over the life of the associated agreement.

Licensing revenue was $374,021, $634,542 and $695,244 for the years ended December 31, 2005, 2004 and 2003, respectively. The
decrease in 2005 compared to 2004 was primarily the result of a decrease in deferred revenue recognized due to an increase in the revenue recognition periods of two projects following an extension of the estimated project end dates. The decrease in
2004 compared to 2003 was due to an increase of $147,188 in prepaid license discount amortization, partially offset by an increase in one time license fees of $31,617 and an increase of $54,869 in revenue recognized on previously deferred amounts.

Royalty revenue was $155,036, $80,335 and $134,937 for the years ended December 31, 2005, 2004 and 2003, respectively. Royalty
revenue has all been related to the Vision®reusable needle-free injection device, and has
been generated primarily under the License Agreement with Ferring dated January 22, 2003, described in more detail in Note 10 to the Consolidated Financial Statements. Historically, royalties earned have been directly related to sales of
devices to Ferring. Even though device sales decreased in 2005 compared to 2004, the royalty revenue from Ferring increased, which was mainly due to royalties earned under a provision in the Ferring agreement triggered by the achievement of certain
quality standards in 2005. These triggering events did not occur in 2004. The reduction in royalty revenue in 2004 was due to fewer device sales to Ferring in 2004 as compared to 2003.

Cost of Revenues

The costs of product sales are primarily related to reusable injection devices and
disposable components. Cost of sales as a percentage of product sales were 69%, 71% and 72% for the years ended December 31, 2005, 2004 and 2003, respectively. In 2003 the Company outsourced all assembly work previously performed in the
Companys Minneapolis facility. The outsourcing resulted in the elimination of excess capacity and helped stabilize product costs.

The cost of development revenue consists of labor costs, direct external costs and an allocation of certain overhead expenses based on actual costs and time spent in these revenue-generating activities. Cost of development revenue as a
percentage of development revenue was 51%, 34% and 29% for the years ended December 31, 2005, 2004 and 2003, respectively. The increase in 2005 was due mainly to projects having more direct external costs that were billed to customers with
little or no markup.

Research and Development

Research and development expenses were $3,409,486, $2,635,635 and $2,108,634 for the years ended December 31, 2005, 2004 and 2003, respectively. The increase in 2005 from 2004 was primarily due to development projects related to
transdermal gels, including Phase II studies of Anturol, and oral fast melt tablet products and consisted mainly of increases in external costs for studies and analysis work around platform validation and proof-of-concept work. The increase in
2004 compared to 2003 was primarily due to increases in prototyping and tooling expenses in connection with device development projects and increases in expenses for studies and analysis work related to gel development projects. The increases were
partially offset by decreased rent resulting from space reductions at both the Minnesota and Swiss facilities.

Sales, Marketing and Business
Development

Sales, marketing and business development expenses were $1,160,752, $675,878 and $462,376 for the years ended
December 31, 2005, 2004 and 2003, respectively. The increase in 2005 compared to 2004 was due to increases in clinical studies related to injector devices and increases in business development activities which most



41



---

##### Index to Financial Statements

directly impacted payroll, travel and professional services. The increases in payroll and travel expenses resulted primarily from the addition of a
vice-president of corporate business development in February of 2005. The professional services increase was mainly due to the utilization of consultants for various sales and marketing and business development projects. The increase in 2004 was
primarily due to increases in travel and legal expenses related to business development activities and due to increased advertising and promotional activities related to the Medi-Jector VISION®device in the insulin market in the third and fourth quarters of 2004.

General and Administrative

General and administrative expenses were $5,106,937, $6,436,807 and
$7,841,991 for the years ended December 31, 2005, 2004 and 2003, respectively. The decrease in 2005 compared to 2004 was due primarily to decreases in legal expenses of $188,231 and professional services and investor relations expenses of
$872,662, along with a decrease in patent impairment charges from $233,062 in 2004 to none in 2005. The decrease in 2004 was primarily due to decreases in patent impairment charges, payroll, professional services and investor relations expenses,
partially offset by increases in travel and insurance expenses. In the fourth quarter of 2004 the Company recorded a patent impairment charge of $233,062 that was $740,707 less than the 2003 fourth quarter patent impairment charge of $973,769. The
patent impairment charges were recognized in connection with certain patents related to products for which there were no signed distribution or license agreements or for which no revenue was included in the Companys long-term business plan
that had been updated in the fourth quarter of each year. The impairment charges represented the gross carrying amount net of accumulated amortization for the identified patents. The payroll decrease was mainly due to the expiration of the
employment agreement with Frank Pass, former CEO and director, at the end of 2003. The professional services and investor relations expenses decreased in 2004 primarily due to a decrease in the utilization of consulting services and the number of
consulting agreements in 2004 compared to 2003. One agreement in particular, which was terminated in the first quarter of 2004, accounted for an expense decrease of $516,299 from $728,619 in 2003 to $212,320 in 2004. In 2004 and 2003 a portion of
the professional services and investor relations expenses were paid in common stock and warrants, resulting in non-cash expenses in each year of $556,843 and $1,563,041, respectively. In 2004 the Company issued 50,000 shares of common stock,
recognizing expense of $54,550 based on the market value of the stock on the dates the stock was issued, and issued warrants and options to purchase a total of 550,000 shares of common stock, which were recorded at a total value of $502,293 using
the Black Scholes option pricing model. In 2003, the Company issued 784,266 shares of common stock, recognizing expense of $639,809 based on the market value of the stock on the dates the stock was issued, and issued warrants to purchase 1,050,000
shares of the Companys common stock which were recorded at a value of $923,232 using the Black Scholes option pricing model.

Other Income
(Expense)

Other income (expense), net, was $91,218, $26,134 and ($24,183,924) for the years ended December 31, 2005, 2004 and
2003, respectively. The increase in 2005 was primarily due to a reduction in interest expense in 2005 as compared to 2004. The net decrease in other expenses in 2004 compared to 2003 was mainly due to losses on debt extinguishments, losses on
conversions of debt to equity and losses on common stock warrants of $885,770, $16,283,677 and $5,960,453, respectively, that occurred in 2003 but not in 2004. In addition, interest expense in 2004 was $819,659 less than in 2003. The 2004 interest
expense was mainly due to $75,388 recognized in connection with warrants originally issued to convertible debenture holders that were exercised at a discounted exercise price. The 2003 interest expense consisted of discount amortization and interest
accruals of $389,443 and $82,357, respectively, related to borrowings from the Companys largest stockholder, $262,564 of debt issuance discount amortization, $152,829 of interest related to convertible debentures, and $32,937 of other
interest. Also contributing to the change from net other expense in 2003 to net other income in 2004 was the increase in interest income in 2004 of $103,751. This increase was due to the increase in cash and short-term investments that resulted from
the private placement in the first quarter of 2004.

Noncash other expenses significantly impacted the net loss and net loss per common
share for 2003. The table below is presented to help explain the impact of the noncash other expenses on the net loss and net loss per common share for 2005, 2004 and 2003, and is not meant to be a substitute for accounting or presentation
requirements under U.S. generally accepted accounting principles.



42



---

##### Index to Financial Statements

|                                                                                              |  |                                  |   |      |   |         |      |  |   |             |  
|--------------------------------------------------------------------------------------------- |  | -------------------------------- | - | ---- | - | ------- | ---- |  | - | ----------- | -
|                                                                                              |  | For the Years Ended December 31, |  
|                                                                                              |  | 2005                             |   | 2004 |   |         | 2003 | 
|Noncash other expense items:                                                                  |  |                                  |   |      |   |         |      |  |   |             |  
|Loss on debt extinguishments                                                                  |  | $                                |  |      | $ |        |      |  | $ | (741,570    | )
|Loss on conversions of debt to equity                                                         |  |                                  |  |      |   |        |      |  |   | (16,283,677 | )
|Loss on common stock warrants                                                                 |  |                                  |  |      |   |        |      |  |   | (5,960,453  | )
|Interest expense                                                                              |  |                                  |  |      |   | (75,388 | )    |  |   | (862,308    | )
|                                                                                              |  |                                  |   |      |   |         |      |  |   |             |  
|Total noncash other expenses included in net loss in the consolidated statement of operations |  | $                                |  |      | $ | (75,388 | )    |  | $ | (23,848,008 | )
|                                                                                              |  |                                  |   |      |   |         |      |  |   |             |  
|Impact of noncash other expenses on basic and diluted net loss per common share               |  | $                                |  |      | $ |        |      |  | $ | (1.58       | )
|                                                                                              |  |                                  |   |      |   |         |      |  |   |             |  

Liquidity and Capital Resources

Net Cash Used in Operating Activities

Net cash used in operating activities was $7,218,529,
$7,167,313 and $3,553,323 for the years ended December 31, 2005, 2004 and 2003, respectively. This was the result of net losses of $8,497,956, $8,348,532 and $32,817,964 in 2005, 2004 and 2003, respectively, adjusted by noncash expenses and
changes in operating assets and liabilities.

Noncash expenses totaled $695,967 in 2005, consisting of depreciation and amortization of
$317,013, stock-based compensation of $182,705 and amortization of prepaid license discount of $196,249. In 2004 noncash expenses totaled $1,915,862, consisting primarily of stock-based compensation of $825,381, depreciation and amortization of
$580,080, patent rights impairment charge of $233,062 and amortization of prepaid license discount of $196,250. In 2003 noncash expenses totaled $27,805,363, consisting of losses on conversions of debt to equity, common stock warrants and debt
extinguishments in the amounts of $16,283,677, $5,960,453 and $741,570, respectively, depreciation and amortization of $845,234, noncash interest expense of $862,308, stock-based compensation expense of $1,965,165, patent rights impairment charge of
$973,769, loss on disposal and abandonment of assets of $124,125 and amortization of prepaid license discount of $49,062. The depreciation and amortization decreases in 2005 and 2004 of $263,067 and $265,154, respectively, were due primarily to
production and office equipment that became fully depreciated early in each year.

The change in operating assets and liabilities in 2005
generated cash of $583,460. This resulted mainly from the increases in accounts payable and accrued expenses of $501,614 and $194,782, respectively. These increases were primarily due to increased research and development activities near the end of
the year, particularly in connection with development projects related to transdermal gels, and increased accruals related to executive bonuses. Partially offsetting these increases was an increase in prepaid expenses and other assets, which
utilized cash of $210,753, and a decrease in deferred revenue of $63,098. The increase in prepaid expenses and other assets was almost entirely due to payments made in connection with development projects related to transdermal gels. The reduction
in deferred revenue was the result of recognizing as revenue amounts that had previously been deferred, which exceeded amounts deferred during the year totaling approximately $610,000.

The change in operating assets and liabilities in 2004 utilized cash of $734,643. This resulted primarily from decreases in deferred revenue and accrued
expenses of $577,700 and $216,011, respectively, plus an increase in other assets of $232,644, partially offset by decreases in accounts and other receivables of $66,177 and inventory of $133,064 and an increase in accounts payable of $214,367. The
decrease in deferred revenue was mainly due to the amortization of amounts deferred in prior years, partially offset by approximately $250,000 of development fees deferred during the year. Related to the development fees deferred in 2004 were
deferred costs that totaled approximately $200,000, which is the primary reason other assets increased. Receivables decreased at the end of 2004 compared to 2003 mainly due to a reduction in billable development activity at the Antares/Switzerland
operations. The decrease in inventory is mainly the result of the timing of purchases of finished goods from the third-party supplier versus shipments to customers. At the end of 2003 the Company had a large amount of finished goods in inventory
that was shipped to a customer in early January 2004. The increase in accounts payable in 2004



43



---

##### Index to Financial Statements

compared to 2003 was mainly due to an increase in operating expense activity at the end of 2004 compared to 2003, particularly in the areas of research and
development and business development.

In 2003 cash increased by $1,459,278 as a result of the change in operating assets and liabilities.
The increase was primarily due to an increase in deferred revenue of $2,508,492, which was mainly due to license fees received in connection with new license agreements in 2003. The increase in 2003 was also due to a decrease in inventory of
$333,503 that was mainly due to the outsourcing of assembly operations to a third-party supplier that carries a large portion of the inventory previously carried by the Company. Partially offsetting the increase in deferred revenue and decrease in
inventory were decreases in accounts payable and accrued expenses of $355,359 and $651,946, respectively, and an increase in accounts receivable of $307,319. The decreases in accounts payable and accrued expenses were primarily the result of being
more current on obligations at the end of 2003 due to the availability of funds as a result of cash raised in the private placements in July and cash received in connection with license agreements, compared to the end of 2002 when cash was not
readily available. The increase in receivables at the end of 2003 compared to 2002 was mainly due to the timing of Ferring shipments from Antares/Minnesota.

Net Cash Provided by (Used in) Investing Activities

In 2005 investing activities resulted in an increase in cash and cash
equivalents of $7,697,844. In 2004 and 2003, investing activities resulted in a decrease in cash and cash equivalents of $8,183,796 and $169,847, respectively. The increase in 2005 was due to proceeds from the maturity of short-term investments of
$13,897,477, partially offset by purchases of short-term investments of $5,955,789, patent additions of $154,193 and purchases of equipment, furniture and fixtures of $89,651. Nearly all of the cash generated from investing activities in 2005 was
used to fund operations. In 2004 the Company used proceeds from the private placement of common stock in the first quarter of the year to invest in short-term debt securities consisting of commercial paper and U.S. government agency discount notes.
As a security matured it was usually reinvested in a new security, although at times a matured security was not reinvested but was used to fund operations. A total of $12,000,000 of securities purchased with private placement funds or reinvested
funds matured during 2004 and a total of $19,889,565 of proceeds from the private placement or matured securities was used to acquire short-term securities in 2004. Purchases of equipment, furniture and fixtures utilized cash of $218,038 and $1,160
in 2004 and 2003, respectively. The 2004 purchases occurred mainly at the Antares/Minnesota operations and consisted primarily of furniture and office equipment in connection with the move to new office and laboratory space, new disposable component
tooling, and upgrades to computer hardware and software. Capital spending in 2003 was essentially halted. Capitalized spending related to patent development in 2004 and 2003 was $76,193 and $168,687, respectively.

Net Cash Provided by Financing Activities

Net cash
provided by financing activities totaled $619,700, $15,140,603 and $5,595,813 for the years ended December 31, 2005, 2004 and 2003, respectively. In 2005, the Company received $476,000 from the sale of common stock and $193,700 from the
exercise of warrants, which was partially offset by the payment of preferred stock dividends of $50,000. In 2004, net cash provided by financing activities resulted primarily from net proceeds of $13,753,400 from the private placement of common
stock and proceeds of $1,472,500 from the exercise of warrants, partially offset by principal payments on capital lease obligations of $35,297 and payment of preferred stock dividends of $50,000. In 2003 the Company received net proceeds of
$3,930,000 from the sale of common stock and warrants in private placements in July, proceeds from loans from a debenture holder of $621,025, and $1,600,000 in subordinated loans from stockholders. In 2003 the Company made principal payments on
convertible debentures and capital lease obligations of $464,000 and $107,461, respectively.

In the first quarter of 2006 the Company
received net proceeds of approximately $10,000,000 in a private placement of its common stock in which a total of 8,770,000 shares of common stock were sold at a price of $1.25 per share. Additionally, the Company issued five-year warrants to
purchase an aggregate of 7,454,500 shares of common stock at an exercise price of $1.50 per share.

On October 19, 2005, the
Companys largest stockholder and Chairman of the Board, Dr. Jacques Gonella, provided a line of credit of up to $4,000,000, of which $2,000,000 is available to support general working capital needs of the Company. Borrowings under the
line of credit will be at prime plus 2%. Principal and interest are



44



---

##### Index to Financial Statements

convertible into shares of the Companys common stock at the lesser of $1.26 per share or the per share price at which common shares are issued or the
exercise or conversion price of securities issued during the term of the agreement. Borrowings will generally be secured by a security interest in license, milestone payments, and royalties to the Company from licensing of its ATD gel products
and/or technology. As additional consideration for this line of credit, the Company agreed to issue to Dr. Gonella common stock warrants that will be issued at rates ranging from 18% to 32% of each borrowing. A total of 1,000,000 warrants will
be issued if the Company borrows the entire $4,000,000. At December 31, 2005 there had been no borrowings under this line of credit. As of March 3, 2006 this line of credit was terminated.

The Companys contractual cash obligations at December 31, 2005 are associated with operating leases and are summarized in the following table:



|                                   |  |                       |           |                 |   |           |  |           |         |               |   |         |  |   |  
|---------------------------------- |  | --------------------- | --------- | --------------- | - | --------- |  | --------- | ------- | ------------- | - | ------- |  | - | -
|                                   |  | Payment Due by Period
|                                   |  | Total                 |           | Less than1 year |   | 1-3 years |  | 4-5 years |         | After 5 years
|Total contractual cash obligations |  | $                     | 1,022,220 |                 | $ | 277,243   |  | $         | 619,685 |               | $ | 125,292 |  | $ | 
|                                   |  |                       |           |                 |   |           |  |           |         |               |   |         |  |   |  

Off Balance Sheet Arrangements

The Company does not have any off-balance sheet arrangements, including any arrangements with any structured finance, special purpose or variable interest
entities.

New Accounting Pronouncements

In December 2004, the FASB issued FASB Statement No. 123R, Share-Based Payment.Among other items, the standard requires that the compensation cost relating to share-based payment transactions be recognized in the
consolidated statement of operations. Note 2 to the Consolidated Financial Statements contain pro forma disclosures regarding the effect on net loss and net loss per share as if the fair value method of accounting for stock-based compensation
had been applied. The SEC deferred the effective date of Statement 123R to allow companies to implement the new standard at the beginning of calendar year 2006. The Company expects to implement the new standard beginning January 1, 2006,
and to use the modified prospective transition method. Under this method, awards that are granted, modified, or settled after the date of adoption will be measured and accounted for in accordance with Statement 123R, and unvested equity awards
granted prior to the effective date will continue to be accounted for in accordance with Statement 123 as they have been for purposes of pro forma disclosures, except that amounts will be recognized in the statement of operations. The Company
expects recognized expense in 2006 will increase by approximately $800,000 to $1,000,000 as a result of the new standard.



|Item 7(A). | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|---------- | ----------------------------------------------------------

The Companys primary market risk exposure is foreign exchange rate fluctuations of the Swiss Franc to the U.S. dollar as the financial position and operating results of the Companys subsidiaries in Switzerland are translated
into U.S. dollars for consolidation. The Companys exposure to foreign exchange rate fluctuations also arises from transferring funds to its Swiss subsidiaries in Swiss Francs. Most of the Companys sales and licensing fees are denominated
in U.S. dollars, thereby significantly mitigating the risk of exchange rate fluctuations on trade receivables. The effect of foreign exchange rate fluctuations on the Companys financial results for the years ended December 31, 2005, 2004
and 2003 was not material. Beginning in 2003 the Company also has exposure to exchange rate fluctuations between the Euro and the U.S. dollar. The licensing agreement entered into in January 2003 with Ferring, discussed in Note 10 to the
Consolidated Financial Statements, establishes pricing in Euros for products sold under the existing supply agreement and for all royalties. The Company does not currently use derivative financial instruments to hedge against exchange rate risk.
Because exposure increases as intercompany balances grow, the Company will continue to evaluate the need to initiate hedging programs to mitigate the impact of foreign exchange rate fluctuations on intercompany balances.



45



---

##### Index to Financial Statements

|Item 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
|------- | --------------------------------------------

ANTARES PHARMA, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS



|                                                                                                                            |  |   
|--------------------------------------------------------------------------------------------------------------------------- |  | --
|Report of Independent Registered Public Accounting Firm                                                                     |  | 47
|                                                                                                                            | 
|Consolidated Balance Sheets as of December 31, 2005 and 2004                                                                |  | 48
|                                                                                                                            | 
|Consolidated Statements of Operations for the Years Ended December 31, 2005, 2004 and 2003                                  |  | 49
|                                                                                                                            | 
|Consolidated Statements of Stockholders Equity and Comprehensive Loss for the Years Ended December 31, 2005, 2004 and 2003 |  | 50
|                                                                                                                            | 
|Consolidated Statements of Cash Flows for the Years Ended December 31, 2005, 2004 and 2003                                  |  | 52
|                                                                                                                            | 
|Notes to Consolidated Financial Statements                                                                                  |  | 53



46



---

##### Index to Financial Statements

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Shareholders

Antares Pharma, Inc.:

We have audited the accompanying consolidated balance
sheets of Antares Pharma, Inc. and subsidiaries (the Company) as of December 31, 2005 and 2004, and the related consolidated statements of operations, stockholders equity and comprehensive loss, and cash flows for each of the
years in the three-year period ended December 31, 2005. These consolidated financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these consolidated financial statements
based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material
respects, the financial position of Antares Pharma, Inc. and subsidiaries as of December 31, 2005 and 2004, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2005, in
conformity with U.S. generally accepted accounting principles.



/s/ KPMG LLP


Minneapolis, Minnesota

March 10, 2006



47



---

##### Index to Financial Statements

ANTARES PHARMA, INC.

CONSOLIDATED BALANCE SHEETS



|                                                                                                                                                            |  |              |             |   |      |   |             |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------ | ----------- | - | ---- | - | ----------- | -
|                                                                                                                                                            |  | December 31, |            
|                                                                                                                                                            |  | 2005         |             |   | 2004 |  
|Assets                                                                                                                                                      |  |              |             |   |      |   |             |  
|Current Assets:                                                                                                                                             |  |              |             |   |      |   |             |  
|Cash and cash equivalents                                                                                                                                   |  | $            | 2,718,472   |   |      | $ | 1,652,408   |  
|Short-term investments                                                                                                                                      |  |              |            |   |      |   | 7,971,625   |  
|Accounts receivable, less allowance for doubtful accounts of $20,800 and $22,500, respectively                                                              |  |              | 223,944     |   |      |   | 277,606     |  
|Other receivables                                                                                                                                           |  |              | 48,185      |   |      |   | 64,359      |  
|Inventories                                                                                                                                                 |  |              | 36,022      |   |      |   | 92,344      |  
|Prepaid expenses and other current assets                                                                                                                   |  |              | 286,185     |   |      |   | 81,009      |  
|                                                                                                                                                            |  |              |             |   |      |   |             |  
|Total current assets                                                                                                                                        |  |              | 3,312,808   |   |      |   | 10,139,351  |  
|Equipment, furniture and fixtures, net                                                                                                                      |  |              | 477,608     |   |      |   | 611,920     |  
|Patent rights, net                                                                                                                                          |  |              | 936,939     |   |      |   | 947,459     |  
|Goodwill                                                                                                                                                    |  |              | 1,095,355   |   |      |   | 1,095,355   |  
|Other assets                                                                                                                                                |  |              | 343,654     |   |      |   | 383,518     |  
|                                                                                                                                                            |  |              |             |   |      |   |             |  
|Total Assets                                                                                                                                                |  | $            | 6,166,364   |   |      | $ | 13,177,603  |  
|                                                                                                                                                            |  |              |             |   |      |   |             |  
|Liabilities and Stockholders Equity                                                                                                                        |  |              |             |   |      |   |             |  
|Current Liabilities:                                                                                                                                        |  |              |             |   |      |   |             |  
|Accounts payable                                                                                                                                            |  | $            | 945,028     |   |      | $ | 476,509     |  
|Accrued expenses and other liabilities                                                                                                                      |  |              | 798,468     |   |      |   | 626,583     |  
|Deferred revenue                                                                                                                                            |  |              | 604,143     |   |      |   | 547,006     |  
|                                                                                                                                                            |  |              |             |   |      |   |             |  
|Total current liabilities                                                                                                                                   |  |              | 2,347,639   |   |      |   | 1,650,098   |  
|Deferred revenue  long term                                                                                                                                |  |              | 3,062,076   |   |      |   | 3,338,666   |  
|                                                                                                                                                            |  |              |             |   |      |   |             |  
|Total liabilities                                                                                                                                           |  |              | 5,409,715   |   |      |   | 4,988,764   |  
|                                                                                                                                                            |  |              |             |   |      |   |             |  
|                                                                                                                                                            |  |             
|Stockholders Equity:                                                                                                                                       |  |              |             |   |      |   |             |  
|Series A Convertible Preferred Stock: $0.01 par; authorized 10,000 shares; 0 and 1,500 issued and outstanding at December 31, 2005 and
2004, respectively   |  |              |            |   |      |   | 15          |  
|Series D Convertible Preferred Stock: $0.01 par; authorized 245,000 shares; 0 and 63,588 issued and outstanding at December 31, 2005 and
2004, respectively |  |              |            |   |      |   | 636         |  
|Common Stock: $0.01 par; authorized 100,000,000 shares; 43,019,486 and 40,418,406 issued and outstanding at December 31, 2005 and 2004,
respectively        |  |              | 430,195     |   |      |   | 404,184     |  
|Additional paid-in capital                                                                                                                                  |  |              | 95,253,209  |   |      |   | 94,479,402  |  
|Prepaid license discount                                                                                                                                    |  |              | (2,502,178  | ) |      |   | (2,698,427  | )
|Accumulated deficit                                                                                                                                         |  |              | (91,123,107 | ) |      |   | (82,575,151 | )
|Deferred compensation                                                                                                                                       |  |              | (706,104    | ) |      |   | (759,342    | )
|Accumulated other comprehensive loss                                                                                                                        |  |              | (595,366    | ) |      |   | (662,478    | )
|                                                                                                                                                            |  |              |             |   |      |   |             |  
|                                                                                                                                                            |  |              | 756,649     |   |      |   | 8,188,839   |  
|                                                                                                                                                            |  |              |             |   |      |   |             |  
|Total Liabilities and Stockholders Equity                                                                                                                  |  | $            | 6,166,364   |   |      | $ | 13,177,603  |  
|                                                                                                                                                            |  |              |             |   |      |   |             |  

See accompanying notes to consolidated financial statements.



48



---

##### Index to Financial Statements

ANTARES PHARMA, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS



|                                                             |  |                          |            |   |      |   |            |      |  |   |             |  
|------------------------------------------------------------ |  | ------------------------ | ---------- | - | ---- | - | ---------- | ---- |  | - | ----------- | -
|                                                             |  | Years Ended December 31, |           
|                                                             |  | 2005                     |            |   | 2004 |   |            | 2003 | 
|Revenues:                                                    |  |                          |            |   |      |   |            |      |  |   |             |  
|Product sales                                                |  | $                        | 1,511,929  |   |      | $ | 1,834,431  |      |  | $ | 2,646,628   |  
|Development revenue                                          |  |                          | 183,760    |   |      |   | 196,648    |      |  |   | 310,035     |  
|Licensing fees                                               |  |                          | 374,021    |   |      |   | 634,542    |      |  |   | 695,244     |  
|Royalties                                                    |  |                          | 155,036    |   |      |   | 80,335     |      |  |   | 134,937     |  
|                                                             |  |                          |            |   |      |   |            |      |  |   |             |  
|Total revenue                                                |  |                          | 2,224,746  |   |      |   | 2,745,956  |      |  |   | 3,786,844   |  
|Cost of revenues:                                            |  |                          |            |   |      |   |            |      |  |   |             |  
|Cost of product sales                                        |  |                          | 1,042,504  |   |      |   | 1,304,504  |      |  |   | 1,917,647   |  
|Cost of development revenue                                  |  |                          | 94,241     |   |      |   | 67,798     |      |  |   | 90,236      |  
|                                                             |  |                          |            |   |      |   |            |      |  |   |             |  
|Total cost of revenues                                       |  |                          | 1,136,745  |   |      |   | 1,372,302  |      |  |   | 2,007,883   |  
|                                                             |  |                          |            |   |      |   |            |      |  |   |             |  
|Gross profit                                                 |  |                          | 1,088,001  |   |      |   | 1,373,654  |      |  |   | 1,778,961   |  
|                                                             |  |                          |            |   |      |   |            |      |  |   |             |  
|Operating expenses:                                          |  |                          |            |   |      |   |            |      |  |   |             |  
|Research and development                                     |  |                          | 3,409,486  |   |      |   | 2,635,635  |      |  |   | 2,108,634   |  
|Sales, marketing and business development                    |  |                          | 1,160,752  |   |      |   | 675,878    |      |  |   | 462,376     |  
|General and administrative                                   |  |                          | 5,106,937  |   |      |   | 6,436,807  |      |  |   | 7,841,991   |  
|                                                             |  |                          |            |   |      |   |            |      |  |   |             |  
|                                                             |  |                          | 9,677,175  |   |      |   | 9,748,320  |      |  |   | 10,413,001  |  
|                                                             |  |                          |            |   |      |   |            |      |  |   |             |  
|Operating loss                                               |  |                          | (8,589,174 | ) |      |   | (8,374,666 | )    |  |   | (8,634,040  | )
|                                                             |  |                          |            |   |      |   |            |      |  |   |             |  
|Other income (expense):                                      |  |                          |            |   |      |   |            |      |  |   |             |  
|Interest income                                              |  |                          | 128,832    |   |      |   | 120,292    |      |  |   | 16,541      |  
|Interest expense                                             |  |                          | (576       | ) |      |   | (100,471   | )    |  |   | (920,130    | )
|Foreign exchange gains (losses)                              |  |                          | (36,718    | ) |      |   | (6,849     | )    |  |   | 1,926       |  
|Loss on debt extinguishments                                 |  |                          |           |   |      |   |           |      |  |   | (885,770    | )
|Loss on conversions of debt to equity                        |  |                          |           |   |      |   |           |      |  |   | (16,283,677 | )
|Loss on common stock warrants                                |  |                          |           |   |      |   |           |      |  |   | (5,960,453  | )
|Other, net                                                   |  |                          | (320       | ) |      |   | 13,162     |      |  |   | (152,361    | )
|                                                             |  |                          |            |   |      |   |            |      |  |   |             |  
|                                                             |  |                          | 91,218     |   |      |   | 26,134     |      |  |   | (24,183,924 | )
|                                                             |  |                          |            |   |      |   |            |      |  |   |             |  
|Net loss                                                     |  |                          | (8,497,956 | ) |      |   | (8,348,532 | )    |  |   | (32,817,964 | )
|Preferred stock dividends                                    |  |                          | (50,000    | ) |      |   | (100,000   | )    |  |   | (142,857    | )
|                                                             |  |                          |            |   |      |   |            |      |  |   |             |  
|Net loss applicable to common shares                         |  | $                        | (8,547,956 | ) |      | $ | (8,448,532 | )    |  | $ | (32,960,821 | )
|                                                             |  |                          |            |   |      |   |            |      |  |   |             |  
|Basic and diluted net loss per common share                  |  | $                        | (0.21      | ) |      | $ | (0.23      | )    |  | $ | (2.18       | )
|                                                             |  |                          |            |   |      |   |            |      |  |   |             |  
|Basic and diluted weighted average common shares outstanding |  |                          | 41,459,533 |   |      |   | 36,347,892 |      |  |   | 15,092,803  |  
|                                                             |  |                          |            |   |      |   |            |      |  |   |             |  

See accompanying notes to consolidated financial statements.



49



---

##### Index to Financial Statements

ANTARES PHARMA, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY AND COMPREHENSIVE LOSS

Years Ended December 31, 2003, 2004 and 2005



|                                                                                      |  |                             |  |          |    |                 |         |        |   |                  |  |            |  |                            |         |  |                          |            |   |                                      |   |            |                       |  |   |             |                            |  |   |          |   |  |   |          |   |  |   |             |  
|------------------------------------------------------------------------------------- |  | --------------------------- |  | -------- | -- | --------------- | ------- | ------ | - | ---------------- |  | ---------- |  | -------------------------- | ------- |  | ------------------------ | ---------- | - | ------------------------------------ | - | ---------- | --------------------- |  | - | ----------- | -------------------------- |  | - | -------- | - |  | - | -------- | - |  | - | ----------- | -
|                                                                                      |  | Convertible Preferred Stock |  |          |    |                 |         |        |   |                  |  |            |  |                            |         |  |                          |            |   |                                      |   |            |                       | 
|                                                                                      |  | Series A                    |  | Series D |    | Common Stock    |         |        |   |                  |  |            |  |                            |         |  |                          |            |   | Accumulated Other Comprehensive Loss |   |            |                       | 
|                                                                                      |  | Numberof Shares             |  | Amount   |    | Numberof Shares |         | Amount |   | Number of Shares |  | Amount     |  | Additional Paid-In Capital |         |  | Prepaid License Discount |            |   | Accumulated Deficit                  |   |            | Deferred Compensation |  |   |             | Total Stockholders Equity | 
|December 31, 2002                                                                     |  | 1,350                       |  | $        | 14 |                 |        |        | $ |                 |  | 10,776,885 |  | $                          | 107,769 |  | $                        | 42,353,492 |   |                                      | $ |           |                       |  | $ | (41,165,798 | )                          |  | $ | (137,352 | ) |  | $ | (502,837 | ) |  | $ | 655,288     |  
|Warrants issued with debt to stockholder                                              |  |                            |  |          |   |                 |        |        |   |                 |  |           |  |                            |        |  |                          | 735,514    |   |                                      |   |           |                       |  |   |            |                            |  |   |         |   |  |   |         |   |  |   | 735,514     |  
|Conversion of stockholder loans to equity                                             |  |                            |  |          |   |                 |        |        |   |                 |  | 2,398,635  |  |                            | 23,986  |  |                          | 12,294,909 |   |                                      |   |           |                       |  |   |            |                            |  |   |         |   |  |   |         |   |  |   | 12,318,895  |  
|Convertible debentures converted into common stock                                    |  |                            |  |          |   |                 |        |        |   |                 |  | 1,831,110  |  |                            | 18,311  |  |                          | 594,518    |   |                                      |   |           |                       |  |   |            |                            |  |   |         |   |  |   |         |   |  |   | 612,829     |  
|Reacquired intrinsic value of beneficial conversion feature of convertible debentures |  |                            |  |          |   |                 |        |        |   |                 |  |           |  |                            |        |  |                          | (1,225,630 | ) |                                      |   |           |                       |  |   |            |                            |  |   |         |   |  |   |         |   |  |   | (1,225,630  | )
|Convertible debentures converted into Preferred Series D                              |  |                            |  |          |   |                 | 243,749 |        |   | 2,437            |  |           |  |                            |        |  |                          | 7,084,211  |   |                                      |   |           |                       |  |   |            |                            |  |   |         |   |  |   |         |   |  |   | 7,086,648   |  
|Issuance of common stock in private placement                                         |  |                            |  |          |   |                 |        |        |   |                 |  | 4,000,000  |  |                            | 40,000  |  |                          | 2,301,414  |   |                                      |   |           |                       |  |   |            |                            |  |   |         |   |  |   |         |   |  |   | 2,341,414   |  
|Stock-based compensation                                                              |  |                            |  |          |   |                 |        |        |   |                 |  | 814,266    |  |                            | 8,143   |  |                          | 1,881,357  |   |                                      |   |           |                       |  |   |            |                            |  |   | 113,664  |   |  |   |         |   |  |   | 2,003,164   |  
|Exercise of stock options                                                             |  |                            |  |          |   |                 |        |        |   |                 |  | 10,400     |  |                            | 104     |  |                          | 16,146     |   |                                      |   |           |                       |  |   |            |                            |  |   |         |   |  |   |         |   |  |   | 16,250      |  
|Preferred stock issued in lieu of dividends                                           |  | 100                         |  |          | 1  |                 |        |        |   |                 |  |           |  |                            |        |  |                          | 99,999     |   |                                      |   |           |                       |  |   | (142,857    | )                          |  |   |         |   |  |   |         |   |  |   | (42,857     | )
|Reclassification of warrants as equity from debt                                      |  |                            |  |          |   |                 |        |        |   |                 |  |           |  |                            |        |  |                          | 8,691,480  |   |                                      |   |           |                       |  |   |            |                            |  |   |         |   |  |   |         |   |  |   | 8,691,480   |  
|Prepaid license discount, net of amortization                                         |  |                            |  |          |   |                 |        |        |   |                 |  |           |  |                            |        |  |                          | 2,943,739  |   |                                      |   | (2,894,677 | )                     |  |   |            |                            |  |   |         |   |  |   |         |   |  |   | 49,062      |  
|Net loss                                                                              |  |                            |  |          |   |                 |        |        |   |                 |  |           |  |                            |        |  |                          |           |   |                                      |   |           |                       |  |   | (32,817,964 | )                          |  |   |         |   |  |   |         |   |  |   | (32,817,964 | )
|Translation adjustments                                                               |  |                            |  |          |   |                 |        |        |   |                 |  |           |  |                            |        |  |                          |           |   |                                      |   |           |                       |  |   |            |                            |  |   |         |   |  |   | (116,999 | ) |  |   | (116,999    | )
|                                                                                      |  |                             |  |          |    |                 |         |        |   |                  |  |            |  |                            |         |  |                          |            |   |                                      |   |            |                       |  |   |             |                            |  |   |          |   |  |   |          |   |  |   |             |  
|Comprehensive loss                                                                    |  |                            |  |          |   |                 |        |        |   |                 |  |           |  |                            |        |  |                          |           |   |                                      |   |           |                       |  |   |            |                            |  |   |         |   |  |   |         |   |  |   | (32,934,963 | )
|                                                                                      |  |                             |  |          |    |                 |         |        |   |                  |  |            |  |                            |         |  |                          |            |   |                                      |   |            |                       |  |   |             |                            |  |   |          |   |  |   |          |   |  |   |             |  
|December 31, 2003                                                                     |  | 1,450                       |  | $        | 15 |                 | 243,749 |        | $ | 2,437            |  | 19,831,296 |  | $                          | 198,313 |  | $                        | 77,771,149 |   |                                      | $ | (2,894,677 | )                     |  | $ | (74,126,619 | )                          |  | $ | (23,688  | ) |  | $ | (619,836 | ) |  | $ | 307,094     |  

See accompanying notes to consolidated financial statements.



50



---

##### Index to Financial Statements

ANTARES PHARMA, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY AND COMPREHENSIVE LOSS (CONTINUED)

Years
Ended December 31, 2003, 2004 and 2005



|                                               |  |                             |   |  |          |     |   |                 |          |   |        |   |        |                  |  |            |  |                            |         |  |                                      |            |   |                     |   |            |                       |  |   |             |                            |  |   |          |   |  |   |          |   |  |   |            |  
|---------------------------------------------- |  | --------------------------- | - |  | -------- | --- | - | --------------- | -------- | - | ------ | - | ------ | ---------------- |  | ---------- |  | -------------------------- | ------- |  | ------------------------------------ | ---------- | - | ------------------- | - | ---------- | --------------------- |  | - | ----------- | -------------------------- |  | - | -------- | - |  | - | -------- | - |  | - | ---------- | -
|                                               |  | Convertible Preferred Stock |   |  |          |     |   |                 |          |   |        |   |        |                  |  |            |  |                            |         |  | Accumulated Other Comprehensive Loss |            |   |                     |  
|                                               |  | Series A                    |   |  | Series D |     |   | Common Stock    |          |   |        |   |        |                  |  |            |  |                            |         |  |                                      |            |   |                    
|                                               |  | Numberof Shares             |   |  | Amount   |     |   | Numberof Shares |          |   | Amount |   |        | Number of Shares |  | Amount     |  | Additional Paid-In Capital |         |  | Prepaid License Discount             |            |   | Accumulated Deficit |   |            | Deferred Compensation |  |   |             | Total Stockholders Equity | 
|December 31, 2003                              |  | 1,450                       |   |  | $        | 15  |   |                 | 243,749  |   |        | $ | 2,437  |                  |  | 19,831,296 |  | $                          | 198,313 |  | $                                    | 77,771,149 |   |                     | $ | (2,894,677 | )                     |  | $ | (74,126,619 | )                          |  | $ | (23,688  | ) |  | $ | (619,836 | ) |  | $ | 307,094    |  
|Preferred Series D converted into common stock |  |                            |   |  |          |    |   |                 | (180,161 | ) |        |   | (1,801 | )                |  | 1,801,610  |  |                            | 18,016  |  |                                      | (16,215    | ) |                     |   |           |                       |  |   |            |                            |  |   |         |   |  |   |         |   |  |   |           |  
|Issuance of common stock in private placement  |  |                            |   |  |          |    |   |                 |         |   |        |   |       |                  |  | 15,120,000 |  |                            | 151,200 |  |                                      | 13,602,200 |   |                     |   |           |                       |  |   |            |                            |  |   |         |   |  |   |         |   |  |   | 13,753,400 |  
|Stock-based compensation                       |  |                            |   |  |          |    |   |                 |         |   |        |   |       |                  |  | 185,000    |  |                            | 1,850   |  |                                      | 1,559,185  |   |                     |   |           |                       |  |   |            |                            |  |   | (735,654 | ) |  |   |         |   |  |   | 825,381    |  
|Exercise of warrants                           |  |                            |   |  |          |    |   |                 |         |   |        |   |       |                  |  | 3,480,500  |  |                            | 34,805  |  |                                      | 1,513,083  |   |                     |   |           |                       |  |   |            |                            |  |   |         |   |  |   |         |   |  |   | 1,547,888  |  
|Preferred stock dividends                      |  | 50                          |   |  |          |    |   |                 |         |   |        |   |       |                  |  |           |  |                            |        |  |                                      | 50,000     |   |                     |   |           |                       |  |   | (100,000    | )                          |  |   |         |   |  |   |         |   |  |   | (50,000    | )
|Amortization of prepaid license discount       |  |                            |   |  |          |    |   |                 |         |   |        |   |       |                  |  |           |  |                            |        |  |                                      |           |   |                     |   | 196,250    |                       |  |   |            |                            |  |   |         |   |  |   |         |   |  |   | 196,250    |  
|Net loss                                       |  |                            |   |  |          |    |   |                 |         |   |        |   |       |                  |  |           |  |                            |        |  |                                      |           |   |                     |   |           |                       |  |   | (8,348,532  | )                          |  |   |         |   |  |   |         |   |  |   | (8,348,532 | )
|Translation adjustments                        |  |                            |   |  |          |    |   |                 |         |   |        |   |       |                  |  |           |  |                            |        |  |                                      |           |   |                     |   |           |                       |  |   |            |                            |  |   |         |   |  |   | (42,642  | ) |  |   | (42,642    | )
|                                               |  |                             |   |  |          |     |   |                 |          |   |        |   |        |                  |  |            |  |                            |         |  |                                      |            |   |                     |   |            |                       |  |   |             |                            |  |   |          |   |  |   |          |   |  |   |            |  
|Comprehensive loss                             |  |                            |   |  |          |    |   |                 |         |   |        |   |       |                  |  |           |  |                            |        |  |                                      |           |   |                     |   |           |                       |  |   |            |                            |  |   |         |   |  |   |         |   |  |   | (8,391,174 | )
|                                               |  |                             |   |  |          |     |   |                 |          |   |        |   |        |                  |  |            |  |                            |         |  |                                      |            |   |                     |   |            |                       |  |   |             |                            |  |   |          |   |  |   |          |   |  |   |            |  
|December 31, 2004                              |  | 1,500                       |   |  |          | 15  |   |                 | 63,588   |   |        |   | 636    |                  |  | 40,418,406 |  |                            | 404,184 |  |                                      | 94,479,402 |   |                     |   | (2,698,427 | )                     |  |   | (82,575,151 | )                          |  |   | (759,342 | ) |  |   | (662,478 | ) |  |   | 8,188,839  |  
|Preferred stock conversions                    |  | (1,500                      | ) |  |          | (15 | ) |                 | (63,588  | ) |        |   | (636   | )                |  | 1,835,880  |  |                            | 18,359  |  |                                      | (17,708    | ) |                     |   |            |                       |  |   |             |                            |  |   |          |   |  |   |          |   |  |   |           |  
|Stock-based compensation                       |  |                            |   |  |          |    |   |                 |         |   |        |   |       |                  |  | 50,000     |  |                            | 500     |  |                                      | 128,967    |   |                     |   |           |                       |  |   |            |                            |  |   | 53,238   |   |  |   |         |   |  |   | 182,705    |  
|Exercise of warrants                           |  |                            |   |  |          |    |   |                 |         |   |        |   |       |                  |  | 315,200    |  |                            | 3,152   |  |                                      | 190,548    |   |                     |   |           |                       |  |   |            |                            |  |   |         |   |  |   |         |   |  |   | 193,700    |  
|Issuance of common stock                       |  |                            |   |  |          |    |   |                 |         |   |        |   |       |                  |  | 400,000    |  |                            | 4,000   |  |                                      | 472,000    |   |                     |   |           |                       |  |   |            |                            |  |   |         |   |  |   |         |   |  |   | 476,000    |  
|Amortization of prepaid license discount       |  |                            |   |  |          |    |   |                 |         |   |        |   |       |                  |  |           |  |                            |        |  |                                      |           |   |                     |   | 196,249    |                       |  |   |            |                            |  |   |         |   |  |   |         |   |  |   | 196,249    |  
|Preferred stock dividends                      |  |                            |   |  |          |    |   |                 |         |   |        |   |       |                  |  |           |  |                            |        |  |                                      |           |   |                     |   |           |                       |  |   | (50,000     | )                          |  |   |         |   |  |   |         |   |  |   | (50,000    | )
|Net loss                                       |  |                            |   |  |          |    |   |                 |         |   |        |   |       |                  |  |           |  |                            |        |  |                                      |           |   |                     |   |           |                       |  |   | (8,497,956  | )                          |  |   |         |   |  |   |         |   |  |   | (8,497,956 | )
|Translation adjustments                        |  |                            |   |  |          |    |   |                 |         |   |        |   |       |                  |  |           |  |                            |        |  |                                      |           |   |                     |   |           |                       |  |   |            |                            |  |   |         |   |  |   | 67,112   |   |  |   | 67,112     |  
|                                               |  |                             |   |  |          |     |   |                 |          |   |        |   |        |                  |  |            |  |                            |         |  |                                      |            |   |                     |   |            |                       |  |   |             |                            |  |   |          |   |  |   |          |   |  |   |            |  
|Comprehensive loss                             |  |                            |   |  |          |    |   |                 |         |   |        |   |       |                  |  |           |  |                            |        |  |                                      |           |   |                     |   |           |                       |  |   |            |                            |  |   |         |   |  |   |         |   |  |   | (8,430,844 | )
|                                               |  |                             |   |  |          |     |   |                 |          |   |        |   |        |                  |  |            |  |                            |         |  |                                      |            |   |                     |   |            |                       |  |   |             |                            |  |   |          |   |  |   |          |   |  |   |            |  
|December 31, 2005                              |  |                            |   |  | $        |    |   |                 |         |   |        | $ |       |                  |  | 43,019,486 |  | $                          | 430,195 |  | $                                    | 95,253,209 |   |                     | $ | (2,502,178 | )                     |  | $ | (91,123,107 | )                          |  | $ | (706,104 | ) |  | $ | (595,366 | ) |  | $ | 756,649    |  
|                                               |  |                             |   |  |          |     |   |                 |          |   |        |   |        |                  |  |            |  |                            |         |  |                                      |            |   |                     |   |            |                       |  |   |             |                            |  |   |          |   |  |   |          |   |  |   |            |  

See accompanying notes to consolidated financial statements.



51



---

##### Index to Financial Statements

ANTARES PHARMA, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS



|                                                                            |  |                          |            |   |      |   |             |      |  |   |             |  
|--------------------------------------------------------------------------- |  | ------------------------ | ---------- | - | ---- | - | ----------- | ---- |  | - | ----------- | -
|                                                                            |  | Years Ended December 31, |           
|                                                                            |  | 2005                     |            |   | 2004 |   |             | 2003 | 
|Cash flows from operating activities:                                       |  |                          |            |   |      |   |             |      |  |   |             |  
|Net loss                                                                    |  | $                        | (8,497,956 | ) |      | $ | (8,348,532  | )    |  | $ | (32,817,964 | )
|Adjustments to reconcile net loss to net cash used in operating activities: |  |                          |            |   |      |   |             |      |  |   |             |  
|Patent rights impairment charge                                             |  |                          |           |   |      |   | 233,062     |      |  |   | 973,769     |  
|Depreciation and amortization                                               |  |                          | 317,013    |   |      |   | 580,080     |      |  |   | 845,234     |  
|Loss on disposal and abandonment of assets                                  |  |                          |           |   |      |   | 5,701       |      |  |   | 124,125     |  
|Stock-based compensation expense                                            |  |                          | 182,705    |   |      |   | 825,381     |      |  |   | 1,965,165   |  
|Noncash interest expense                                                    |  |                          |           |   |      |   | 75,388      |      |  |   | 862,308     |  
|Loss on conversions of debt to equity                                       |  |                          |           |   |      |   |            |      |  |   | 16,283,677  |  
|Loss on debt extinguishments                                                |  |                          |           |   |      |   |            |      |  |   | 741,570     |  
|Losses on common stock warrants                                             |  |                          |           |   |      |   |            |      |  |   | 5,960,453   |  
|Amortization of prepaid license discount                                    |  |                          | 196,249    |   |      |   | 196,250     |      |  |   | 49,062      |  
|Changes in operating assets and liabilities:                                |  |                          |            |   |      |   |             |      |  |   |             |  
|Accounts receivable                                                         |  |                          | 48,710     |   |      |   | 200,855     |      |  |   | (307,319    | )
|Other receivables                                                           |  |                          | 35,881     |   |      |   | (134,678    | )    |  |   | 30,342      |  
|Inventories                                                                 |  |                          | 56,322     |   |      |   | 133,064     |      |  |   | 333,503     |  
|Prepaid expenses and other current assets                                   |  |                          | (210,753   | ) |      |   | (16,873     | )    |  |   | (19,935     | )
|Other assets                                                                |  |                          | 20,002     |   |      |   | (232,644    | )    |  |   | (47,571     | )
|Accounts payable                                                            |  |                          | 501,614    |   |      |   | 214,367     |      |  |   | (355,359    | )
|Accrued expenses and other                                                  |  |                          | 194,782    |   |      |   | (216,011    | )    |  |   | (651,946    | )
|Due to related parties                                                      |  |                          |           |   |      |   | (105,023    | )    |  |   | (30,929     | )
|Deferred revenue                                                            |  |                          | (63,098    | ) |      |   | (577,700    | )    |  |   | 2,508,492   |  
|                                                                            |  |                          |            |   |      |   |             |      |  |   |             |  
|Net cash used in operating activities                                       |  |                          | (7,218,529 | ) |      |   | (7,167,313  | )    |  |   | (3,553,323  | )
|                                                                            |  |                          |            |   |      |   |             |      |  |   |             |  
|Cash flows from investing activities:                                       |  |                          |            |   |      |   |             |      |  |   |             |  
|Purchases of equipment, furniture and fixtures                              |  |                          | (89,651    | ) |      |   | (218,038    | )    |  |   | (1,160      | )
|Additions to patent rights                                                  |  |                          | (154,193   | ) |      |   | (76,193     | )    |  |   | (168,687    | )
|Purchase of short-term investments                                          |  |                          | (5,955,789 | ) |      |   | (19,889,565 | )    |  |   |            |  
|Proceeds from maturity of short-term investments                            |  |                          | 13,897,477 |   |      |   | 12,000,000  |      |  |   |            |  
|                                                                            |  |                          |            |   |      |   |             |      |  |   |             |  
|Net cash provided by (used in) investing activities                         |  |                          | 7,697,844  |   |      |   | (8,183,796  | )    |  |   | (169,847    | )
|                                                                            |  |                          |            |   |      |   |             |      |  |   |             |  
|Cash flows from financing activities:                                       |  |                          |            |   |      |   |             |      |  |   |             |  
|Proceeds from issuance of common stock, net                                 |  |                          | 476,000    |   |      |   | 13,753,400  |      |  |   | 2,357,663   |  
|Proceeds from exercise of warrants                                          |  |                          | 193,700    |   |      |   | 1,472,500   |      |  |   |            |  
|Proceeds from sales of warrants                                             |  |                          |           |   |      |   |            |      |  |   | 1,588,586   |  
|Proceeds from subordinated loans from stockholders                          |  |                          |           |   |      |   |            |      |  |   | 1,600,000   |  
|Proceeds from issuance of convertible debentures                            |  |                          |           |   |      |   |            |      |  |   | 621,025     |  
|Principal payments on convertible debentures                                |  |                          |           |   |      |   |            |      |  |   | (464,000    | )
|Principal payments on capital lease obligations                             |  |                          |           |   |      |   | (35,297     | )    |  |   | (107,461    | )
|Payment of preferred stock dividends                                        |  |                          | (50,000    | ) |      |   | (50,000     | )    |  |   |            |  
|                                                                            |  |                          |            |   |      |   |             |      |  |   |             |  
|Net cash provided by financing activities                                   |  |                          | 619,700    |   |      |   | 15,140,603  |      |  |   | 5,595,813   |  
|                                                                            |  |                          |            |   |      |   |             |      |  |   |             |  
|Effect of exchange rate changes on cash and cash equivalents                |  |                          | (32,951    | ) |      |   | (65,901     | )    |  |   | (211,773    | )
|                                                                            |  |                          |            |   |      |   |             |      |  |   |             |  
|Net increase (decrease) in cash and cash equivalents                        |  |                          | 1,066,064  |   |      |   | (276,407    | )    |  |   | 1,660,870   |  
|Cash and cash equivalents:                                                  |  |                          |            |   |      |   |             |      |  |   |             |  
|Beginning of year                                                           |  |                          | 1,652,408  |   |      |   | 1,928,815   |      |  |   | 267,945     |  
|                                                                            |  |                          |            |   |      |   |             |      |  |   |             |  
|End of year                                                                 |  | $                        | 2,718,472  |   |      | $ | 1,652,408   |      |  | $ | 1,928,815   |  
|                                                                            |  |                          |            |   |      |   |             |      |  |   |             |  

See accompanying notes to consolidated financial statements.



52



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##### Index to Financial Statements

ANTARES PHARMA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



|1. | Description of Business
|-- | -----------------------

Antares Pharma, Inc.
(Antares) is a specialty drug delivery/pharmaceutical company utilizing its experience and expertise in drug delivery systems to enhance the performance of established and developing pharmaceuticals. The Company currently has three
primary delivery platforms (1) transdermal gels, (2) fast-melt tablets, and (3) injection devices. The corporate headquarters are located in Exton, Pennsylvania, with research and production facilities for the injection devices in
Minneapolis, Minnesota, and research, development and commercialization facilities for the transdermal gels and fast-melt tablets in Basel, Switzerland.



|2. | Summary of Significant Accounting Policies
|-- | ------------------------------------------

Basis of
Presentation

The accompanying consolidated financial statements include the accounts of Antares Pharma, Inc. and its three wholly-owned
subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.

Foreign Currency Translation

The majority of the foreign subsidiaries revenues are denominated in U.S. dollars, and any required funding of the subsidiaries is
provided by the U.S. parent. Nearly all operating expenses of the foreign subsidiaries, including labor, materials, leasing arrangements and other operating costs, are denominated in Swiss Francs. Additionally, bank accounts held by foreign
subsidiaries are denominated in Swiss Francs, there is a low volume of intercompany transactions and there is not an extensive interrelationship between the operations of the subsidiaries and the parent company. As such, under Financial Accounting
Standards Board Statement No. 52, Foreign Currency Translation, the Company has determined that the Swiss Franc is the functional currency for its three foreign subsidiaries. The reporting currency for the Company is the
United States Dollar (USD). The financial statements of the Companys three foreign subsidiaries are translated into USD for consolidation purposes. All assets and liabilities are translated using period-end exchange rates and
statements of operations items are translated using average exchange rates for the period. The resulting translation adjustments are recorded as a separate component of stockholders equity. Sales to certain customers by the U.S. parent are in
currencies other than the U.S. dollar and are subject to foreign currency exchange rate fluctuations. Foreign currency transaction gains and losses are included in the statements of operations.

Cash Equivalents

The Company considers highly liquid
debt instruments with original maturities of 90 days or less to be cash equivalents.

Short-Term Investments

All short-term investments are commercial paper or U.S. government agency discount notes that mature within four to six months of purchase and are
classified as held-to-maturity because the Company has the positive intent and ability to hold the securities to maturity. The securities are carried at their amortized cost. At December 31, 2004 the securities had a fair value of $7,968,203
and a carrying value of $7,971,625. At December 31, 2005 there were no short-term investments.

Inventories

Inventories are stated at the lower of cost or market. Cost is determined on a first-in, first-out basis. Certain components of the Companys
products are provided by a limited number of vendors, and the Companys production and assembly operations are outsourced to a third-party supplier. Disruption of supply from key vendors or the third-party supplier may have a material adverse
impact on the Companys operations.



53



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##### Index to Financial Statements

Equipment, Furniture, and Fixtures

Equipment, furniture, and fixtures are stated at cost and are depreciated using the straight-line method over their estimated useful lives ranging from three to ten years. Certain equipment and furniture held under
capital leases is classified in equipment, furniture and fixtures and is amortized using the straight-line method over the lesser of the lease term or estimated useful life, and the related obligations are recorded as liabilities. Lease amortization
is included in depreciation expense.

Goodwill

The Company evaluates the carrying value of goodwill during the fourth quarter of each year and between annual evaluations if events occur or circumstances change that would more likely than not reduce the fair value of the Minnesota
reporting unit below its carrying amount. Such circumstances could include, but are not limited to: (1) a significant adverse change in legal factors or in business climate, (2) unanticipated competition, (3) an adverse action or
assessment by a regulator, or (4) a sustained significant drop in the Companys stock price. When evaluating whether goodwill is impaired, the Company compares the fair value of the Minnesota operations to the carrying amount, including
goodwill. If the carrying amount of the Minnesota operations exceeds its fair value, then the amount of the impairment loss must be measured. The impairment loss would be calculated by comparing the implied fair value of goodwill to its carrying
amount. In calculating the implied fair value of goodwill, the fair value of the Minnesota operations would be allocated to all of its other assets and liabilities based on their fair values. The excess of the fair value of the Minnesota operations
over the amount assigned to its other assets and liabilities is the implied fair value of goodwill. An impairment loss would be recognized when the carrying amount of goodwill exceeds its implied fair value. The Companys evaluation of goodwill
completed during 2005, 2004 and 2003 resulted in no impairment losses.

Patent Rights

The Company capitalizes the cost of obtaining patent rights. These capitalized costs are being amortized on a straight-line basis over periods ranging
from six to ten years beginning on the earlier of the date the patent is issued or the first commercial sale of product utilizing such patent rights.

Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of

Long-lived assets, including patent rights, are
reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to
future net cash flows expected to be generated by the asset. This analysis can be very subjective as the Company relies upon signed distribution or license agreements with variable cash flows to substantiate the recoverability of long-lived assets.
If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the
carrying amount or fair value less costs to sell.

In the fourth quarter of each year the Company updates its long-range business plan. The
Company then reviews patent costs for impairment and identifies patents related to products for which there are no signed distribution or license agreements or for which no revenues or cash flows are included in the business plan. In 2004 and 2003
the Company recognized impairment charges of $233,062 and $973,769, respectively, in general and administrative expenses, which represented the gross carrying amount net of accumulated amortization for the identified patents. After the impairment
charge, the gross carrying amount and accumulated amortization of patents, which are the only intangible assets of the Company subject to amortization, were $1,382,595 and $435,136, respectively, at December 31, 2004. The Companys
estimated aggregate patent amortization expense for the next five years is $135,000 in 2006, $94,000 in 2007, $89,000 in 2008 and $84,000 in 2009 and 2010.



54



---

##### Index to Financial Statements

Accounting for Debt and Equity Instruments

During the first quarter of 2003, in connection with a restructuring of its 10% convertible debentures, the Company issued warrants to purchase common
stock to the debenture holders. In the third quarter of 2003, the holders of the restructured debentures exchanged the remaining outstanding principal of such debentures for shares of the Companys Series D Convertible Preferred Stock. Also in
the third quarter of 2003, the Companys largest stockholder converted debt owed to him by the Company into shares of the Companys common stock and warrants to purchase the Companys common stock. The Company also completed a private
placement of its common stock and warrants in the third quarter of 2003 and the first quarter of 2004. The accounting for debt and equity transactions is complex and requires the Company to make certain judgments regarding the proper accounting
treatment of these instruments. The Companys significant judgments related to capital transactions included:



| |  |  | the accounting for one of the convertible debentures as an extinguishment and issuance of debt instruments and the other as a troubled debt restructuring;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the determination of the fair values of the convertible debentures and the warrants issued with the transactions; and
| | - |  | ---------------------------------------------------------------------------------------------------------------------



| |  |  | the classification of the warrants as liabilities.
| | - |  | --------------------------------------------------

The
Companys significant judgments related to the debenture exchange transaction included the determination of the fair values of the Series D Convertible Preferred Stock and warrants issued in connection with the transaction. Significant
judgments related to the private placement of common stock and warrants included the determination of the fair value of the warrants, the allocation of the proceeds between the common stock and the warrants, and the initial classification of the
warrants as liabilities. In August and September of 2003, the Company modified the warrants issued in the above noted transactions resulting in the reclassification of the warrants from debt to equity.

Fair Value of Financial Instruments

All financial
instruments are carried at amounts that approximate estimated fair value.

Revenue Recognition

The Company sells its proprietary reusable needle-free injectors and related disposable products through pharmaceutical and medical product distributors.
The Companys reusable injectors and related disposable products are not interchangeable with any competitive products and must be used together. The Company recognizes revenue upon shipment when title transfers. The Company offers no price
protection or return rights other than for customary warranty claims. Sales terms and pricing are governed by sales and distribution agreements.

The Company also records revenue from license fees, milestone payments and royalties. License fees and milestone payments received under contracts originating prior to June 15, 2003 are accounted for under the cumulative deferral
method. This method defers milestone payments with amortization to income over the contract term using the percentage of completion or straight-line basis commencing with the achievement of a contractual milestone. If the Company is required to
refund any portion of a milestone payment, the milestone will not be amortized into revenue until the repayment obligation no longer exists.

The Company recognizes royalty revenues upon the sale of licensed products by the licensee. The Company occasionally receives payment of up-front royalty advances from licensees. Under the cumulative deferral method for contracts prior to
June 15, 2003, if specific objective evidence of fair value exists, revenues from up-front royalty payments are deferred until earned through the sale of licensed product or the termination of the agreement based on the terms of the license. If
specific objective evidence of fair value does not exist, revenues from up-front royalty payments are recognized using the cumulative deferral method.

In December 2002, the Emerging Issues Task Force (EITF) issued EITF 00-21, Revenue Arrangements with Multiple Deliverables. This Issue addresses certain aspects of the accounting by a vendor for
arrangements under which it will perform multiple revenue-generating activities. In some arrangements, the different revenue-generating activities (deliverables) are sufficiently separable, and there exists sufficient evidence of their fair values
to separately account for some or all of the deliverables (that is, there are separate units of accounting). In other arrangements, some or all of the deliverables are not independently functional, or there is not sufficient evidence of



55



---

##### Index to Financial Statements

their fair values to account for them separately. This Issue addresses when and, if so, how an arrangement involving multiple deliverables should be divided
into separate units of accounting. This Issue does not change otherwise applicable revenue recognition criteria.

Under EITF 00-21, an
up-front license payment is evaluated to determine whether or not it meets the requirements to be considered a separate unit of accounting. If it meets the separation criteria it is recognized as revenue when received, but if it does not meet the
separation criteria, then an up-front payment is deferred and amortized into revenues on a straight-line basis.

If the Company earns
development fees for time and material costs incurred in connection with a development agreement, the development fees will be recognized as revenue when earned if that portion of the agreement meets the separation criteria of EITF 00-21. If the
separation criteria are not met, the development fees received will be amortized into revenues on a straight-line basis. Likewise, the labor and material costs related to the development fees are recognized as a cost of sales when incurred if the
separation criteria are met, and are capitalized and amortized on a straight-line basis over the same period as the development fees if the criteria are not met.

As discussed in Note 7, in connection with a license agreement entered into with Eli Lilly and Company, the Company issued to Lilly a ten-year warrant to purchase 1,000,000 shares of the Companys common stock at
an exercise price of $3.776 per share. The Company determined that the fair value of the warrant was $2,943,739 using the Black-Scholes option pricing model. EITF 01-9, Accounting for Consideration Given by a Vendor to a Customer (Including a
Reseller of the Vendors Products), requires that the value of the warrants be treated as a reduction in revenue. The fair value of the warrant was recorded to additional paid-in capital and to prepaid license discount, a contra equity
account. The prepaid license discount will be reduced on a straight-line basis over the term of the agreement, offsetting revenue generated under the agreement. If the Company concludes that the revenues from this arrangement will not exceed the
costs, part or all of the remaining prepaid license discount may be charged to operations at that time.

Stock-Based Compensation

The Company applies Accounting Principles Board, Opinion 25, Accounting for Stock Issued to Employees, and related interpretations in accounting
for stock plans. Accordingly, compensation expense has been recognized for restricted stock granted to employees, as discussed in Note 7, but has not been recognized for employee stock options other than the intrinsic value of options when the
exercise price of stock options was below the fair value of the options on the date of grant. In September 2003 the Company issued stock options to employees at $1.77 per share when the fair value of the stock was $2.20 per share. In 2005, 2004 and
2003 the Company recognized compensation expense of $117,820, $165,192 and $249,640, respectively, in connection with the employee stock options granted in September 2003. Had compensation cost been determined based on the fair value at the grant
date for all stock options under SFAS No. 123, Accounting and Disclosure of Stock-Based Compensation, the net loss and loss per share would have increased to the pro-forma amounts shown below:



|                                                     |  |      |            |   |      |   |            |      |  |   |             |  
|---------------------------------------------------- |  | ---- | ---------- | - | ---- | - | ---------- | ---- |  | - | ----------- | -
|                                                     |  | 2005 |            |   | 2004 |   |            | 2003 | 
|Net loss applicable to common stockholders:          |  |      |            |   |      |   |            |      |  |   |             |  
|As reported                                          |  | $    | (8,547,956 | ) |      | $ | (8,448,532 | )    |  | $ | (32,960,821 | )
|Stock based employee compensation expense recognized |  |      | 176,298    |   |      |   | 272,569    |      |  |   | 402,124     |  
|Fair-value method compensation expense               |  |      | (1,069,103 | ) |      |   | (1,141,813 | )    |  |   | (1,484,974  | )
|                                                     |  |      |            |   |      |   |            |      |  |   |             |  
|Pro Forma net loss                                   |  | $    | (9,440,761 | ) |      | $ | (9,317,776 | )    |  | $ | (34,043,671 | )
|                                                     |  |      |            |   |      |   |            |      |  |   |             |  
|Basic and diluted net loss per common share:         |  |      |            |   |      |   |            |      |  |   |             |  
|As reported                                          |  | $    | (0.21      | ) |      | $ | (0.23      | )    |  | $ | (2.18       | )
|Stock based employee compensation expense recognized |  |      |           |   |      |   |           |      |  |   | 0.02        |  
|Fair-value method compensation expense               |  |      | (0.02      | ) |      |   | (0.03      | )    |  |   | (0.10       | )
|                                                     |  |      |            |   |      |   |            |      |  |   |             |  
|Pro Forma net loss per common share                  |  | $    | (0.23      | ) |      | $ | (0.26      | )    |  | $ | (2.26       | )
|                                                     |  |      |            |   |      |   |            |      |  |   |             |  



56



---

##### Index to Financial Statements

The per share weighted-average fair value of stock based awards granted during 2005, 2004 and 2003 was estimated as
$1.25, $0.87 and $1.93 respectively, on the date of grant using the Black-Scholes option pricing model with the following assumptions:



|                                         |  |       |   |  |       |   |  |       |  
|---------------------------------------- |  | ----- | - |  | ----- | - |  | ----- | -
|                                         |  | 2005  |   |  | 2004  |   |  | 2003  |  
|Risk-free interest rate                  |  | 3.9   | % |  | 3.7   | % |  | 3.1   | %
|Annualized volatility                    |  | 131.0 | % |  | 124.0 | % |  | 140.0 | %
|Weighted average expected life, in years |  | 7.0   |   |  | 5.0   |   |  | 5.0   |  
|Expected dividend yield                  |  | 0.0   | % |  | 0.0   | % |  | 0.0   | %

The Company accounts for stock-based instruments granted to nonemployees under the fair value
method of SFAS 123 and Emerging Issues Task Force (EITF) 96-18, Accounting for Equity Instruments That Are issued to Other Than Employees for Acquiring, or in Conjunction with Selling Goods or Services. Under SFAS 123,
options granted to nonemployees are recorded at their fair value on the measurement date, which is typically the vesting date.

Product Warranty

The Company provides a warranty on its reusable needle-free injector devices. Warranty terms for devices sold to end-users by dealers
and distributors are included in the device instruction manual included with each device sold. Warranty terms for devices sold to corporate customers who provide their own warranty terms to end-users are included in the contracts with the corporate
customers. The Company is obligated to repair or replace, at the Companys option, a device found to be defective due to use of defective materials or faulty workmanship. The warranty does not apply to any product that has been used in
violation of instructions as to the use of the product or to any product that has been neglected, altered, abused or used for a purpose other than the one for which it was manufactured. The warranty also does not apply to any damage or defect caused
by unauthorized repair or the use of unauthorized parts. Warranty periods on devices range from 24 to 30 months from either the date of retail sale of the device by a dealer or distributor or the date of shipment to a customer if specified by
contract. The Company recognizes the estimated cost of warranty obligations at the time the products are shipped based on historical claims incurred by the Company. Actual warranty claim costs could differ from these estimates. Warranty liability
activity is as follows:



|     |  |                            |        |                    |   |         |                |  |   |                      |   |  |   |       
|---- |  | -------------------------- | ------ | ------------------ | - | ------- | -------------- |  | - | -------------------- | - |  | - | ------
|     |  | Balance atBeginningof Year |        | WarrantyProvisions |   |         | WarrantyClaims |  |   | Balance atEnd ofYear
|2005 |  | $                          | 30,000 |                    | $ | 6,212   |                |  | $ | (11,212              | ) |  | $ | 25,000
|2004 |  | $                          | 50,000 |                    | $ | (13,542 | )              |  | $ | (6,458               | ) |  | $ | 30,000

Research and Development

Research and development costs are expensed as incurred.

Use of Estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The
Companys significant accounting estimates relate to the revenue recognition periods for license revenues, product warranty accruals and determination of the fair value and recoverability of goodwill and patent rights. Actual results could
differ from these estimates.

Income Taxes

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the



57



---

##### Index to Financial Statements

years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date. Due to historical net losses of the Company, a valuation allowance is established to offset the deferred tax asset.

Net Loss Per Share

Basic EPS is computed by dividing
net income or loss available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted EPS is computed similar to basic earnings per share except that the weighted average shares outstanding are
increased to include additional shares from the assumed exercise of stock options, warrants, convertible debt or convertible preferred stock, if dilutive. The number of additional shares is calculated by assuming that outstanding stock options
or warrants were exercised and that the proceeds from such exercise were used to acquire shares of common stock at the average market price during the reporting period. If the convertible debentures had been dilutive, the associated interest
expense and amortization of deferred financing costs, net of taxes, would have been removed from operations and the shares issued would have been assumed outstanding for the dilutive period. Likewise, if the convertible preferred stock were
dilutive, any applicable dividends would be removed and the shares issued would be assumed to be outstanding for the dilutive period. All potentially dilutive common shares were excluded from the calculation because they were anti-dilutive for all
periods presented.

Potentially dilutive securities at December 31, 2005, 2004 and 2003, excluded from dilutive loss per share as
their effect is anti-dilutive, are as follows:



|                                                                      |  |            |  |            |  |           
|--------------------------------------------------------------------- |  | ---------- |  | ---------- |  | ----------
|                                                                      |  | 2005       |  | 2004       |  | 2003      
|Stock options and warrants                                            |  | 19,840,298 |  | 20,256,591 |  | 15,405,491
|Potentially dilutive shares from Series D convertible preferred stock |  |           |  | 635,880    |  | 2,437,490 

Reclassifications

Certain prior year amounts have been reclassified to conform to the current year presentation. These reclassifications did not impact previously reported net loss or net loss per share. In 2005 the Company
reclassified legal fees for patent related expenses previously reported as research and development expenses to general and administrative expenses. The amounts of the reclassifications were $910,803 and $1,385,332 in 2004 and 2003, respectively.
These amounts include the patent impairment charges of $233,062 and $973,769 in 2004 and 2003, respectively.

New Accounting Pronouncements

In December 2004, the FASB issued FASB Statement No. 123R, Share-Based Payment.Among other items, the standard
requires that the compensation cost relating to share-based payment transactions be recognized in the consolidated statement of operations. Note 2 to the Consolidated Financial Statements contain pro forma disclosures regarding the effect on
net loss and net loss per share as if the fair value method of accounting for stock-based compensation had been applied. The SEC deferred the effective date of Statement 123R to allow companies to implement the new standard at the beginning of
their next fiscal year. The Company expects to implement the new standard beginning with the first quarter of 2006, and to use the modified prospective transition method. Under this method, awards that are granted, modified, or settled after the
date of adoption will be measured and accounted for in accordance with Statement 123R, and unvested equity awards granted prior to the effective date will continue to be accounted for in accordance with Statement 123 as they have been for purposes
of pro forma disclosures, except that amounts will be recognized in the statement of operations. The Company expects recognized expense in 2006 will increase by approximately $800,000 to $1,000,000 as a result of the new standard.



58



---

##### Index to Financial Statements

|3. | Composition of Certain Financial Statement Captions
|-- | ---------------------------------------------------



|                                           |  |              |            |   |      |   |            |  
|------------------------------------------ |  | ------------ | ---------- | - | ---- | - | ---------- | -
|                                           |  | December 31, |           
|                                           |  | 2005         |            |   | 2004 |  
|Inventories:                               |  |              |            |   |      |   |            |  
|Raw material                               |  | $            | 22,854     |   |      | $ | 32,335     |  
|Finished goods                             |  |              | 13,168     |   |      |   | 60,009     |  
|                                           |  |              |            |   |      |   |            |  
|                                           |  | $            | 36,022     |   |      | $ | 92,344     |  
|                                           |  |              |            |   |      |   |            |  
|Equipment, furniture and fixtures:         |  |              |            |   |      |   |            |  
|Furniture, fixtures and office equipment   |  | $            | 1,161,004  |   |      | $ | 1,250,751  |  
|Production equipment                       |  |              | 2,068,887  |   |      |   | 2,183,026  |  
|Less accumulated depreciation              |  |              | (2,752,283 | ) |      |   | (2,821,857 | )
|                                           |  |              |            |   |      |   |            |  
|                                           |  | $            | 477,608    |   |      | $ | 611,920    |  
|                                           |  |              |            |   |      |   |            |  
|Patent rights:                             |  |              |            |   |      |   |            |  
|Patent rights                              |  | $            | 1,493,069  |   |      | $ | 1,382,595  |  
|Less accumulated amortization              |  |              | (556,130   | ) |      |   | (435,136   | )
|                                           |  |              |            |   |      |   |            |  
|                                           |  | $            | 936,939    |   |      | $ | 947,459    |  
|                                           |  |              |            |   |      |   |            |  
|Accrued expenses and other liabilities:    |  |              |            |   |      |   |            |  
|Retirement benefits                        |  | $            | 50,000     |   |      | $ | 100,000    |  
|Accrued employee compensation and benefits |  |              | 371,033    |   |      |   | 145,388    |  
|Other liabilities                          |  |              | 377,435    |   |      |   | 381,195    |  
|                                           |  |              |            |   |      |   |            |  
|                                           |  | $            | 798,468    |   |      | $ | 626,583    |  
|                                           |  |              |            |   |      |   |            |  



|4. | Convertible Debentures
|-- | ----------------------

In February 2003, the
Company completed a restructuring of its 10% convertible debentures. In connection with this restructuring, the Company recognized a debt extinguishment loss of $885,770 and recognized the remaining unamortized deferred financing costs as interest
expense. The restructuring resulted in the issuance of 8% Senior Secured Convertible Debentures and Amended and Restated 8% Senior Secured Convertible Debentures (collectively, the 8% Debentures) totaling $1,613,255. The 8% Debentures
contained terms similar to the 10% debentures, except that the 8% Debentures included a fixed conversion price of $.50 per share and an interest rate of 8% per annum. The 8% Debentures were due March 31, 2004. Similar to the 10%
debentures, the Company granted a senior security interest in substantially all of its assets to the holders of the 8% Debentures. In connection with this restructuring, the Company also issued to the holders of the 8% Debentures five-year warrants
to purchase an aggregate of 2,932,500 shares of the Companys common stock at an exercise price of $0.55 per share. The Company determined that the fair value of these warrants was $1,142,442 using the Black Scholes option pricing model. As
further discussed in Note 7, these common stock warrants were initially classified as debt for accounting purposes.

On September 12,
2003, $475,000 of the Companys 8% Debentures were converted into 949,998 shares of common stock, and the holders of the Companys remaining 8% Debentures exchanged the outstanding $1,218,743 aggregate principal and accrued interest for
243,749 shares of the Companys Series D Convertible Preferred Stock (the Series D Preferred). Each share of Series D Preferred was convertible into ten shares of the Companys common stock, resulting in an aggregate of
2,437,490 shares of common stock issuable upon conversion of the Series D Preferred. As a result, the Series D Preferred was convertible into the same number of shares of common stock as were the 8% Debentures. In connection with the exchange of the
8% Debentures for the Series D Preferred, the holders of the 8% Debentures executed lien release letters terminating the security interest they held in the Companys assets. As consideration for the release of the security interest, the Company
adjusted the exercise price of certain warrants issued to the holders from $0.55 per share to $0.40 per share. These warrants were exercisable for an aggregate of 2,932,500 shares of common stock. In connection with the exchange of the 8% Debentures
for the Series D Preferred and the reduction in the warrant exercise price, the Company recognized a loss on conversion of $6,017,346 during 2003. The loss consisted of the fair value of the Series D Preferred plus the increase in fair value of the
warrants due to the reduction in the exercise price, less the carrying value of the 8% Debentures. The carrying value of the 8% Debentures included the aggregate principal and accrued interest less unamortized discount and premium.



59



---

##### Index to Financial Statements

The Company capitalized costs associated with the issuance of its 10% debentures. These costs were being
amortized to interest expense using the effective-interest method over the twelve-month period of the debentures, or the unamortized balance was recorded to additional-paid-in-capital on a pro rata basis as an offset against net proceeds upon
conversion of the debentures to common stock. The 10% debentures were restructured and exchanged in January 2003 for 8% debentures. As a result of the debenture restructuring, approximately $223,223 of deferred financing costs was recognized as part
of the loss on debt extinguishments. The remaining balance was recognized as interest expense, recorded as part of debt discount on the 8% debentures, or was recorded to additional-paid-in-capital as an offset against net proceeds upon conversion of
the debentures to common stock.

As discussed in Note 7, the warrants to purchase 2,932,500 shares of common stock were exercised in 2004
and all of the Series D Preferred were converted into common stock in 2004 and 2005.



|5. | Leases
|-- | ------

The Company has non-cancelable operating
leases for its office, research and development facility in Minneapolis, MN and for its office and research facility in Basel, Switzerland. The leases require payment of all executory costs such as maintenance and property taxes. The Company also
leases certain equipment and furniture under various operating leases.

Rent expense incurred for the years ended December 31, 2005,
2004 and 2003 was $375,090, $436,152 and $670,650, respectively.

Future minimum annual operating lease payments are as follows as of December 31,
2005:



|                                    |  |        |          
|----------------------------------- |  | ------ | ---------
|                                    |  | Amount
|2006                                |  | $      | 277,243  
|2007                                |  |        | 278,632  
|2008                                |  |        | 237,328  
|2009                                |  |        | 103,725  
|2010                                |  |        | 93,660   
|Thereafter                          |  |        | 31,632   
|                                    |  |        |          
|Total future minimum lease payments |  | $      | 1,022,220
|                                    |  |        |          



|6. | Income Taxes
|-- | ------------

The Company incurred losses for both
book and tax purposes in each of the years in the three-year period ended December 31, 2005, and, accordingly, no income taxes were provided. The Company was subject to taxes in both the U.S. and Switzerland in each of the years in the
three-year period ended December 31, 2005. Effective tax rates differ from statutory income tax rates in the years ended December 31, 2005, 2004 and 2003 as follows:



|                                           |  |       |    |  |       |    |  |       |   
|------------------------------------------ |  | ----- | -- |  | ----- | -- |  | ----- | --
|                                           |  | 2005  |    |  | 2004  |    |  | 2003  |   
|Statutory income tax rate                  |  | (34.0 | )% |  | (34.0 | )% |  | (34.0 | )%
|State income taxes, net of federal benefit |  | (0.0  | )  |  | (0.0  | )  |  | (0.0  | ) 
|Research and experimentation credit        |  | (0.8  | )  |  | 0.1   |    |  | (0.3  | ) 
|Valuation allowance increase               |  | 21.0  |    |  | 5.4   |    |  | 4.1   |   
|Effect of foreign operations               |  | 12.8  |    |  | 8.1   |    |  | 2.3   |   
|Expiration of net operating losses         |  | 0.2   |    |  | 3.0   |    |  | 1.7   |   
|Intangibles impairment                     |  |      |    |  |      |    |  | 1.0   |   
|Foreign net operating loss carryforwards   |  |      |    |  | 15.7  |    |  |      |   
|Losses from various financing transactions |  |      |    |  |      |    |  | 25.0  |   
|Other                                      |  | 0.8   |    |  | 1.7   |    |  | 0.2   |   
|                                           |  |       |    |  |       |    |  |       |   
|                                           |  | 0.0   | %  |  | 0.0   | %  |  | 0.0   | % 
|                                           |  |       |    |  |       |    |  |       |   



60



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##### Index to Financial Statements

Deferred tax assets as of December 31, 2005 and 2004 consist of the following:



|                                                 |  |      |             |   |      |   |             |  
|------------------------------------------------ |  | ---- | ----------- | - | ---- | - | ----------- | -
|                                                 |  | 2005 |             |   | 2004 |  
|Net operating loss carryforward  U.S.           |  | $    | 14,753,000  |   |      | $ | 13,924,000  |  
|Net operating loss carryforward  Switzerland    |  |      | 2,875,000   |   |      |   | 2,414,000   |  
|Research and development tax credit carryforward |  |      | 867,000     |   |      |   | 796,000     |  
|Deferred revenue                                 |  |      | 876,000     |   |      |   | 964,000     |  
|Depreciation and amortization                    |  |      | 287,000     |   |      |   | 418,000     |  
|Other                                            |  |      | 873,000     |   |      |   | 795,000     |  
|                                                 |  |      |             |   |      |   |             |  
|                                                 |  |      | 20,531,000  |   |      |   | 19,311,000  |  
|Less valuation allowance                         |  |      | (20,531,000 | ) |      |   | (19,311,000 | )
|                                                 |  |      |             |   |      |   |             |  
|                                                 |  | $    |            |   |      | $ |            |  
|                                                 |  |      |             |   |      |   |             |  

The valuation allowance for deferred tax assets as of December 31, 2005 and 2004 was
$20,531,000 and $19,311,000, respectively. The net change in the total valuation allowance for the years ended December 31, 2005 and 2004 was an increase of $1,220,000 and $706,000, respectively. In assessing the realizability of deferred tax
assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income
during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. Due to the
uncertainty of realizing the deferred tax asset, management has recorded a valuation allowance against the entire deferred tax asset.

The
Company has a U.S. federal net operating loss carryforward at December 31, 2005, of approximately $40,000,000, which, subject to limitations of Internal Revenue Code Section 382, is available to reduce income taxes payable in future years.
If not used, this carryforward will expire in years 2006 through 2025, with approximately $868,000 expiring over the next three years. Additionally, the Company has a research credit carryforward of approximately $867,000. These credits expire in
years 2008 through 2025.

The Company also has a Swiss net operating loss carryforward at December 31, 2005, of approximately
$21,200,000, which is available to reduce income taxes payable in future years. If not used, this carryforward will expire in years 2006 through 2012, with approximately $1,600,000 expiring over the next three years.

Utilization of U.S. net operating losses and tax credits of Antares Pharma, Inc. are subject to annual limitations under Internal Revenue Code Sections
382 and 383, respectively, as a result of significant changes in ownership, including the business combination with Permatec, private placements, warrant exercises and conversion of Series D Convertible Preferred Stock. Subsequent significant equity
changes, including exercise of outstanding warrants, could further limit the utilization of the net operating losses and credits. The annual limitations have not yet been determined; however, when the annual limitations are determined, the gross
deferred tax assets for the net operating losses and tax credits will be reduced with a reduction in the valuation allowance of a like amount.



|7. | Stockholders Equity
|-- | --------------------

Common Stock

In November 2005, in connection with a License Development and Supply Agreement discussed further in Note 10, the Company sold 400,000 shares of its
common stock at $1.25 per share.

During 2005 the Company received proceeds of $193,700 in connection with the issuance of 315,200 shares
of common stock from the exercise of warrants. In connection with the exercise of 210,000 warrants, the Company agreed to issue new three-year warrants for the purchase of 105,000 shares of common stock with an exercise price of $1.35. The new
warrants will be issued in 2006.



61



---

##### Index to Financial Statements

During the first quarter of 2004 the Company received net proceeds of $13,753,400 in three private
placements of its common stock. A total of 15,120,000 shares of common stock were sold to investors at a price of $1.00 per share. The Company also issued to the investors five-year warrants to purchase an aggregate of 5,039,994 shares of common
stock at an exercise price of $1.25 per share. Additionally, warrants for the purchase of 1,612,000 shares of common stock at an exercise price of $1.00 per share were issued to the placement agent as a commission.

During 2004 the Company received proceeds of $1,472,500 in connection with the issuance of 3,480,500 shares of common stock from the exercise of
warrants. Of the shares issued, 2,932,500 were in connection with warrants exercised after the Company had offered a 30% discount in the exercise price to holders of warrants with an exercise price of under $1.00. In connection with the exercise of
these warrants the Company recognized interest expense of $75,388, which represents the difference between the fair values of the warrants on the exercise date before and after applying the discount. Fair value was determined using the Black-Scholes
option pricing model.

On September 12, 2003, $475,000 of the Companys 8% Senior Secured Convertible Debentures and Amended and
Restated 8% Senior Secured Convertible Debentures were converted into 949,998 shares of common stock.

As discussed in Note 14, on
September 12, 2003, principal of $2,300,000 and accrued interest of $98,635 due to the Companys largest stockholder, Dr. Jacques Gonella, was converted into 2,398,635 shares of common stock and warrants to acquire 1,798,976 shares of
common stock with an exercise price of $1.25 per share. The common stock and warrants issued in this exchange aggregated $12,318,895, resulting in a charge to earnings of $10,266,331.

In July 2003 the Company received aggregate proceeds of $4,000,000 in two separate private placements of its common stock. The Company issued 4,000,000
shares of its common stock at a price of $1.00 per share and warrants to purchase 3,000,000 shares of common stock at an exercise price of $1.25 per share. The warrants expire in July 2008. The proceeds of the private placements were allocated to
the common stock and warrants based on their relative fair values. An aggregate of $2,411,414 was allocated to the common shares and $1,588,586 to the common stock warrants issued in the transaction.

In January of 2003, $198,250 of the Companys 10% debentures was converted into 881,112 shares of common stock.

During 2005, 2004 and 2003, a total of 50,000, 50,000 and 784,266 shares of common stock, respectively, were issued to consultants or professional
services organizations as compensation for services rendered. The total value of the shares issued was $44,000, $54,550 and $677,809, respectively. In 2004 and 2003 the Company issued 35,000 and 30,000 shares of common stock, respectively, to
directors at a value of $30,300 and $39,000, respectively. Common stock values were based on the market price of the stock on the dates the shares were issued.

Stock-Based Compensation to Chief Executive Officer

Jack E. Stover was appointed President and Chief Operating Officer on
July 22, 2004, and was appointed Chief Executive Officer on September 1, 2004. The terms of the employment agreement with Mr. Stover included the issuance of options to purchase 500,000 shares of common stock at $0.70 per share and an
additional issuance of options to purchase 40,000 shares of common stock in January of 2005, with all options vesting over four years. The employment agreement also included the issuance of 100,000 shares of common stock, of which 50,000 shares
vested immediately and the remaining 50,000 shares vested on the first anniversary of his employment. The Company recorded compensation expense of $35,000 related to the shares with immediate vesting and deferred compensation expense of $35,000
related to the shares vesting over one year. The amounts recorded were based on the market value of the stock on the measurement date. The deferred compensation expense was recognized ratably over the one-year vesting period. Compensation expense of
$20,417 and $14,583 was recognized in connection with these shares during the years ended December 31, 2005 and 2004, respectively. Mr. Stover can earn up to an additional 459,999 shares of common stock upon the occurrence of various
triggering events.

Roger G. Harrison, Ph.D., was Chief Executive Officer of Antares Pharma, Inc., from March 12, 2001 until his
resignation effective September 1, 2004. Under the terms of the employment agreement with Dr. Harrison, the Company issued 88,000 restricted shares of common stock with a three-year vesting period that became fully vested



62



---

##### Index to Financial Statements

on March 12, 2004. The Company had recorded deferred compensation expense of $341,000, the aggregate market value of the 88,000 shares at the
measurement date. Compensation expense was recognized ratably over the three-year vesting period. Compensation expense of $23,688 and $113,664 was recognized in connection with these shares during the years ended December 31, 2004 and 2003,
respectively.

Series A Convertible Preferred Stock

In June 2005, all 1,500 outstanding shares of Series A Convertible Preferred Stock (Series A) were converted into 1,200,000 shares of common stock. On November 10, 1998, the Company had sold 1,000
shares of Series A and warrants to purchase 56,000 shares of common stock to Elan International Services, Ltd., for total consideration of $1,000,000. The Series A carried a 10% dividend which was payable semi-annually.

Convertible Debentures Beneficial Conversion Feature

When the Companys 10% Convertible Debentures were restructured in February 2003 as discussed in Note 4, the intrinsic value of the beneficial in-the-money conversion feature for the remaining debentures on the date of the
restructuring was $1,225,630. This amount exceeded the remaining debt issuance discount from the intrinsic value of the beneficial in-the-money conversion feature when the debentures were originally sold. In accordance with applicable accounting
literature the entire amount of the intrinsic value of the beneficial conversion feature on the date of the restructuring was deemed to have been reacquired by the Company and was recorded as a reduction to additional paid-in capital.

Series D Convertible Preferred Stock

In June and
September of 2005, the remaining 30,000 and 33,588 shares of Series D Preferred Stock, respectively, were converted into 300,000 and 335,880 shares of common stock. In August 2004, 180,161 shares of Series D Preferred Stock were converted into
1,801,610 shares of common stock. As discussed in Note 4, on September 12, 2003, the holders of the Companys 8% Senior Secured Convertible Debentures and Amended and Restated 8% Senior Secured Convertible Debentures exchanged the
outstanding $1,218,743 aggregate principal and accrued interest of these Debentures for 243,749 shares of the Companys Series D Convertible Preferred Stock. Each share of Series D Preferred was convertible into ten shares of the Companys
Common Stock, resulting in an aggregate of 2,437,490 shares of Common Stock issuable upon conversion of the Series D Preferred.

Stock Options and
Warrants

The Companys stock option plans allow for the grants of options to officers, directors, consultants and employees to
purchase shares of Common Stock at exercise prices not less than 100% of fair market value on the dates of grant. The term of the options is either ten or eleven years and they vest in varying periods. As of December 31, 2005, these plans had
2,666,178 shares available for grant.

As compensation to non-employees for professional services, in 2004 the Company issued options and
warrants to purchase 150,000 and 400,000 shares of the Companys common stock, respectively, and in 2003 issued warrants to purchase 1,050,000 shares of the Companys common stock. The Company recognized expense related to these options
and warrants of $502,293 and $923,232 in 2004 and 2003, respectively. The options and warrants have exercise prices ranging from $0.55 to $5.00 per share and expire three to five years after issuance.

The warrants to purchase 3,000,000 shares of common stock issued in the private placement in July 2003 were subject to defined indemnifications if the
underlying common shares were not fully tradable and the warrant holders incurred losses due to their inability to sell these shares. The Company analyzed the terms and conditions of the warrants and determined that the warrants should be classified
as debt under EITF 00-19, Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Companys Own Stock. As such, the Company was required to mark-to-market these warrants at each reporting period with changes in
the warrant values being recorded in the consolidated statement of operations. The proceeds of $4,000,000 were allocated between equity and debt based on the relative fair values of the common stock and the warrants on the dates of the private
placements. The fair value of the common stock was based on the market price and the warrant fair values were calculated using the



63



---

##### Index to Financial Statements

Black-Scholes option pricing model. The allocation resulted in an initial value assigned to the warrants of $1,588,586. On September 30, 2003, certain
terms and conditions of the warrant agreements were amended, causing the warrants to be classified as equity rather than as debt as of the date of the amendment and ending the requirement to adjust the market value of the warrants each reporting
period. The warrants were adjusted to their fair value of $4,254,211 on September 30, 2003, resulting in a loss of $2,665,626 on these common stock warrants in 2003.

In July 2003 the Company issued warrants to purchase 100,000 shares of the Companys common stock as compensation for agent services related to the private placement in July 2003. The warrants are exercisable at
$1.25 per share and expire in 2008.

As discussed in Note 14, during 2003 the Company issued warrants to Jacques Gonella, its largest
stockholder, for the purchase of 2,400,000 shares of common stock at an exercise price of $0.55 per share in connection with Term Notes totaling $1,600,000 and for the purchase of 1,798,976 shares of common stock at an exercise price of $1.25 per
share in connection with the conversion of Term Notes to common stock.

In connection with the debenture restructuring transactions
completed in February 2003 discussed in Note 4, the Company issued to the holders of the 8% debentures five-year warrants to purchase an aggregate of 2,932,500 shares of the Companys common stock at an exercise price of $0.55 per share, which
was subsequently reduced to $0.40 per share. The warrants were subject to defined indemnifications if the underlying common shares were not fully tradable and the warrant holders incurred losses due to their inability to sell these shares. The
Company analyzed the terms and conditions of the warrants and determined that the warrants should be classified as debt under EITF 00-19, Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Companys Own
Stock. As such, the Company was required to mark-to-market these warrants at each reporting period with changes in the warrant values being recorded in the consolidated statement of operations. The warrants were recorded with an initial fair value
on January 31, 2003 of $1,142,442, determined using the Black Scholes option pricing model, and were adjusted to their fair value of $4,437,269 at August 13, 2003, when certain terms and conditions of the warrant agreements were amended,
causing the warrants to be classified as equity rather than as debt as of the date of the amendment and ending the requirement to adjust the market value of the warrants each reporting period. The Company recognized a loss of $3,294,827 on these
common stock warrants in 2003.

As discussed in Note 10, in connection with a license agreement entered into with Eli Lilly and Company,
the Company issued to Lilly a ten-year warrant to purchase 1,000,000 shares of the Companys common stock at an exercise price of $3.776 per share. The Company granted Lilly certain registration rights with respect to the shares of common stock
issuable upon exercise of the warrant. The Company determined that the fair value of the warrant was $2,943,739 using the Black-Scholes option pricing model. The fair value of the warrant was recorded to additional paid in capital and to prepaid
license discount, a contra equity account. The prepaid license discount will be reduced on a straight-line basis over the term of the agreement, offsetting revenue generated under the agreement.

A majority of the Companys warrants have either weighted average or full antidilution protection, which may increase the number of shares issuable
under the warrants and/or reduce their effective exercise price if the Company were to sell or issue stock, warrants, options or convertible instruments, as defined in each warrant agreement, at a price less than the then current exercise price of
the warrant. Warrants to acquire 380,807 shares of common stock at exercise prices of $2.55 per share have weighted average anti-dilution protection if the Company sells or issues securities at less than the warrant exercise price. These warrants
expire in January 2006. Warrants to acquire 9,206,794 shares of common stock at exercise prices ranging from $1.00 to $1.25 have full antidilution protection which reduces the exercise price of the warrants to the effective price paid or payable
under new stock or stock equivalent issuances.



64



---

##### Index to Financial Statements

Stock option and warrant activity is summarized as follows:



|                                 |  |                 |   |          |                       |      |                 |            |   |                       |   |     
|-------------------------------- |  | --------------- | - | -------- | --------------------- | ---- | --------------- | ---------- | - | --------------------- | - | ----
|                                 |  | Options         |   | Warrants
|                                 |  | Number ofShares |   |          | WeightedAverage Price |      | Number ofShares |            |   | WeightedAverage Price
|Outstanding at December 31, 2002 |  | 818,361         |   |          | $                     | 3.77 |                 | 1,059,927  |   |                       | $ | 5.97
|Granted/Issued                   |  | 1,329,000       |   |          |                       | 1.75 |                 | 12,360,676 |   |                       |   | 1.15
|Exercised                        |  | (10,400         | ) |          |                       | 1.56 |                 |           |   |                       |   |    
|Cancelled                        |  | (152,073        | ) |          |                       | 3.78 |                 |           |   |                       |   |    
|                                 |  |                 |   |          |                       |      |                 |            |   |                       |   |     
|Outstanding at December 31, 2003 |  | 1,984,888       |   |          |                       | 2.33 |                 | 13,420,603 |   |                       |   | 1.44
|Granted/Issued                   |  | 1,351,650       |   |          |                       | 1.06 |                 | 7,051,994  |   |                       |   | 1.25
|Exercised                        |  |                |   |          |                       |     |                 | (3,480,500 | ) |                       |   | 0.42
|Cancelled                        |  | (62,044         | ) |          |                       | 2.00 |                 | (10,000    | ) |                       |   | 2.40
|                                 |  |                 |   |          |                       |      |                 |            |   |                       |   |     
|Outstanding at December 31, 2004 |  | 3,274,494       |   |          |                       | 1.79 |                 | 16,982,097 |   |                       |   | 1.43
|Granted/Issued                   |  | 225,000         |   |          |                       | 1.34 |                 |           |   |                       |   |    
|Exercised                        |  |                |   |          |                       |     |                 | (315,200   | ) |                       |   | 0.61
|Cancelled                        |  | (243,593        | ) |          |                       | 1.80 |                 | (82,500    | ) |                       |   | 2.37
|                                 |  |                 |   |          |                       |      |                 |            |   |                       |   |     
|Outstanding at December 31, 2005 |  | 3,255,901       |   |          |                       | 1.76 |                 | 16,584,397 |   |                       |   | 1.44
|                                 |  |                 |   |          |                       |      |                 |            |   |                       |   |     

The following table summarizes information concerning currently outstanding and exercisable
options and warrants by price range at December 31, 2005:



|                          |  |                             |  |                                         |  |                                |       |                   |            |                                |   |      
|------------------------- |  | --------------------------- |  | --------------------------------------- |  | ------------------------------ | ----- | ----------------- | ---------- | ------------------------------ | - | -----
|                          |  | Outstanding                 |  | Exercisable                            
|Price Range               |  | Number of SharesOutstanding |  | Weighted AverageRemaining Life In Years |  | Weighted AverageExercise Price |       | NumberExercisable |            | Weighted AverageExercise Price
|Pursuant to Option Plans: |  |                             |  |                                         |  |                                |       |                   |            |                                |   |      
|$        0.70 to   0.96   |  | 533,000                     |  | 8.5                                     |  | $                              | 0.71  |                   | 209,090    |                                | $ | 0.71 
|1.01 to   1.56            |  | 1,221,030                   |  | 7.1                                     |  |                                | 1.35  |                   | 817,227    |                                |   | 1.37 
|1.77 to   2.29            |  | 1,156,162                   |  | 7.3                                     |  |                                | 1.80  |                   | 1,156,162  |                                |   | 1.80 
|4.56                      |  | 339,109                     |  | 5.0                                     |  |                                | 4.56  |                   | 339,109    |                                |   | 4.56 
|9.05 to 15.65             |  | 6,600                       |  | 2.1                                     |  |                                | 11.12 |                   | 6,600      |                                |   | 11.12
|                          |  |                             |  |                                         |  |                                |       |                   |            |                                |   |      
|                          |  | 3,255,901                   |  | 7.2                                     |  |                                | 1.76  |                   | 2,528,188  |                                |   | 1.97 
|                          |  |                             |  |                                         |  |                                |       |                   |            |                                |   |      
|Warrants:                 |  |                             |  |                                         |  |                                |       |                   |            |                                |   |      
|$        0.55 to 1.10     |  | 7,638,000                   |  | 2.7                                     |  |                                | 0.85  |                   | 7,638,000  |                                |   | 0.85 
|1.25                      |  | 6,338,970                   |  | 3.0                                     |  |                                | 1.25  |                   | 6,338,970  |                                |   | 1.25 
|1.29 to 3.00              |  | 1,080,807                   |  | 0.6                                     |  |                                | 2.06  |                   | 1,080,807  |                                |   | 2.06 
|3.78                      |  | 1,000,000                   |  | 7.5                                     |  |                                | 3.78  |                   | 1,000,000  |                                |   | 3.78 
|4.00 to 7.03              |  | 526,620                     |  | 0.8                                     |  |                                | 6.55  |                   | 526,620    |                                |   | 6.55 
|                          |  |                             |  |                                         |  |                                |       |                   |            |                                |   |      
|                          |  | 16,584,397                  |  | 2.9                                     |  |                                | 1.44  |                   | 16,584,397 |                                |   | 1.44 
|                          |  |                             |  |                                         |  |                                |       |                   |            |                                |   |      
|Total Options & Warrants  |  | 19,840,298                  |  | 3.6                                     |  |                                | 1.49  |                   | 19,112,585 |                                |   | 1.51 
|                          |  |                             |  |                                         |  |                                |       |                   |            |                                |   |      
|                          |  |                             |  |                                         |  |                                |       |                   |            |                                |   |      



|8. | Employee Savings Plan
|-- | ---------------------

The Company has an employee
savings plan that covers all U.S. employees who have met minimum age and service requirements. Under the plan, eligible employees may contribute up to 50% of their compensation into the plan. At the discretion of the Board of Directors, the Company
may contribute elective amounts to the plan, allocated in proportion to employee contributions to the plan, employees salary, or both. For the years ended December 31, 2005 and 2004, the Company elected to make contributions to the plan
totaling $73,955 and $65,571, respectively. No elective contributions were made for the year ended December 31, 2003.



|9. | Supplemental Disclosures of Cash Flow Information
|-- | -------------------------------------------------

Cash paid for interest during the years ended December 31, 2005, 2004 and 2003 was $576, $25,106 and $20,321, respectively.

As discussed in Note 4, the Company completed a number of noncash financing transactions in 2003 related to its convertible debentures.



65



---

##### Index to Financial Statements

As discussed in Note 14, on September 12, 2003, the total of all Term Note agreements with the
Companys largest stockholder, which included principal of $2,300,000 and accrued interest of $98,635, was converted into 2,398,635 shares of common stock.



|10. | License Agreements
|--- | ------------------

Teva License Development and Supply
Agreement

On November 23, 2005, Antares Pharma, Inc. entered into an exclusive License Development and Supply Agreement with an
affiliate of Teva Pharmaceutical Industries Ltd. Pursuant to the parties agreement, the affiliate is obligated to purchase all of its delivery device requirements from Antares for an undisclosed product to be marketed in the United States
only. Antares will receive an upfront cash royalty payment, milestone fees and a royalty payment equal to a negotiated percentage of the gross profit of each product sold. Antares also granted the affiliate a right of first offer to obtain rights
for use of the delivery device for the undisclosed product in other territories. In addition, pursuant to a Stock Purchase Agreement, the affiliate has purchased 400,000 shares of Antares common stock at a per share price of $1.25. Antares granted
the affiliate certain registration rights with respect to the purchased shares of common stock.

Eli Lilly Development and License Agreement

On September 12, 2003, the Company entered into a Development and License Agreement (the License Agreement) with Eli
Lilly and Company. Under the License Agreement, the Company granted Lilly an exclusive license to certain of the Companys reusable needle-free technology in the fields of diabetes and obesity. The Company also granted an option to Lilly to
apply the technology in one additional therapeutic area. Additionally, as further discussed in Note 7, the Company issued to Lilly a ten-year warrant to purchase shares of the Companys common stock. The Company granted Lilly certain
registration rights with respect to the shares of common stock issuable upon exercise of the warrant. The Company determined that the fair value of the warrant was $2,943,739 using the Black-Scholes option pricing model. The fair value of the
warrant was recorded to additional paid in capital and to prepaid license discount, a contra equity account.

The Company analyzed this
contract to determine the proper accounting treatment under EITF 00-21, discussed in Note 2. The Company reached the conclusion that although there are multiple deliverables in the contract, the entire contract must be accounted for as one unit of
accounting. Therefore, all revenue will be deferred when billed under the contract terms and will be recognized into revenue on a straight-line basis over the remaining life of the contract. All related costs will also be deferred and recognized as
expense over the remaining life of the contract on a straight-line basis. The prepaid license discount will be amortized against revenue on a straight-line basis over the life of the contract. If the Company concludes that the revenues from this
arrangement will not exceed the costs, part or all of the remaining prepaid license discount may be charged to earnings at that time.

Ferring License
Agreement

The Company entered into a License Agreement, dated January 22, 2003, with Ferring, under which the Company licensed
certain of its intellectual property and extended the territories available to Ferring for use of certain of the Companys reusable needle-free injector devices. Specifically, the Company granted to Ferring an exclusive, perpetual, irrevocable,
royalty-bearing license, within a prescribed manufacturing territory, to manufacture certain of the Companys reusable needle-free injector devices for the field of human growth hormone. The Company granted to Ferring similar non-exclusive
rights outside of the prescribed manufacturing territory. In addition, the Company granted to Ferring a non-exclusive right to make and have made the equipment required to manufacture the licensed products, and an exclusive, perpetual, royalty-free
license in a prescribed territory to use and sell the licensed products.

The Company also granted to Ferring a right of first offer to
obtain an exclusive worldwide license to manufacture and sell the Companys AJ-1 device for the treatment of limited medical conditions.



66



---

##### Index to Financial Statements

As consideration for the license grants, Ferring paid the Company EUR500,000 ($532,400) upon execution of
the License Agreement, and paid an additional EUR1,000,000 ($1,082,098) on February 24, 2003. Ferring will also pay the Company royalties for each device manufactured by or on behalf of Ferring, including devices manufactured by the Company.
Beginning on January 1, 2004, EUR500,000 ($541,049) of the license fee received on February 24, 2003, will be credited against the royalties owed by Ferring, until such amount is exhausted. These royalty obligations expire, on a
country-by-country basis, when the respective patents for the products expire, despite the fact that the License Agreement does not itself expire until the last of such patents expires. The license fees have been deferred and are being recognized in
income over the period from January 22, 2003 through expiration of the patents in December 2016.

The Company also agreed that it
would enter into a third-party supply agreement to supply sufficient licensed products to meet the Companys obligations to Ferring under the License Agreement and under the parties existing supply agreement.

BioSante License Agreement

In June 2000, the Company
entered into an exclusive agreement to license four applications of its drug-delivery technology to BioSante Pharmaceuticals, Inc. in the United States, Canada, China, Australia, New Zealand, South Africa, Israel, Mexico, Malaysia and Indonesia
(collectively, the BioSante Territories). The Company is required to transfer technology know-how and to provide significant development assistance to BioSante until each countrys regulatory authorities approve the licensed
product. BioSante will use the licensed technology for the development of hormone replacement therapy products. At the signing of the contract, BioSante made an upfront payment to the Company, a portion of which will offset future royalties from
BioSantes sale of licensed products and/or sublicense up front payments. This milestone payment was for the delivery of intellectual property to BioSante. BioSante is required to tender milestone payments upon commencement of manufacturing of
each of the first two licensed products. In the event that the Company fails to produce or have produced the ordered clinical batches, then the Company is required to repay 25% of these two milestone payments to BioSante.

The Company will receive payments upon the achievement of certain milestones and will receive from BioSante a royalty from the sale of licensed products.
The Company will also receive a portion of any sublicense fees received by BioSante. The Company is obligated to incur the first $150,000 of production costs for each of the four products, for an aggregate of $600,000. The Company is further
obligated to provide BioSante licensed products under a twenty-year supply agreement. The supply agreement is a separately priced, independent agreement that is not tied to the license agreement.

In the agreement, the Company has granted BioSante the option for additional licensed territories and the licensed products. The Company will receive
additional milestone payments if this option is exercised.

Under the cumulative deferral method, the Company ratably recognizes revenue
related to milestone payments from the date of achievement of the milestone through the estimated date of receipt of final regulatory approval in the BioSante Territory. The Company is recognizing the initial milestone payment in revenue over a
129-month period. All other milestone payments will be recognized ratably on a product-by-product basis from the date the milestone payment is earned and all repayment obligations have been satisfied until the receipt of final regulatory approval in
the BioSante Territory for each respective product. It is expected that these milestones will be earned at various dates from January 2005 to March 2011 and will be recognized as revenue over periods of up to 75 months.

In August 2001, BioSante entered into an exclusive agreement with Solvay in which Solvay has sublicensed from BioSante the U.S. and Canadian rights to an
estrogen/progestogen combination transdermal hormone replacement gel product, one of the four drug-delivery products the Company has licensed to BioSante. Under the terms of the license agreement between the Company and BioSante, the Company
received a portion of the up front payment made by Solvay to BioSante, net of the portion of the initial up front payment the Company received from BioSante intended to offset sublicense up front payments. The Company is also entitled to a portion
of any milestone payments or royalties BioSante receives from Solvay under the sublicense agreement. The Company is recognizing the payment received from BioSante in revenue over an 108-month period. The Company received a $200,000 milestone payment
in January of 2003 and is recognizing revenue over a period of 91 months. All other



67



---

##### Index to Financial Statements

milestone payments will be recognized ratably from the date the milestone payment is earned until the receipt of final regulatory approval in the U.S. and
Canada.

Solvay License Agreement

In
June 1999, the Company entered into an exclusive agreement to license one application of its gel based drug-delivery technology to Solvay Pharmaceuticals in all countries except the United States, Canada, Japan and Korea (collectively, the
Solvay Territories). The Company is required to transfer technology know-how and to provide developmental assistance to Solvay until each countrys applicable regulatory authorities approve the licensed product. Solvay will reimburse the
Company for all technical assistance provided during Solvays development. Solvay will use the licensed technology for the development of a hormone replacement therapy gel. The license agreement requires Solvay to pay the Company milestone
payments of $1,000,000 upon signing of the license, $1,000,000 upon the start of Phase IIb/III clinical trials, as defined in the agreement, $1,000,000 upon the first submission by Solvay to regulatory authorities in the Solvay Territories, and
$2,000,000 upon the first completed registration in either Germany, France or the United Kingdom. The Company will receive from Solvay a 5% royalty from the sale of licensed products. In 2002 the agreement was amended to change the terms associated
with the second $1,000,000 milestone payment, resulting in a payment of $500,000 received in 2002, and two $250,000 payments to be received upon satisfaction of certain conditions.

Under the cumulative deferral method, the Company ratably recognizes revenue related to milestone payments from the date of achievement of the milestone
through the estimated date of the first completed registration in Germany, France or the United Kingdom. The Company expects the first completed registration to occur in the second quarter of 2010. The Company is recognizing the first $1,000,000
milestone payment over a period of 133 months, the $500,000 received in 2002 over 99 months, and will recognize the two $250,000 payments and the third $1,000,000 payment from the date the milestone is earned until the estimated date of the first
completed registration.



|11. | Third Party Supply Agreement
|--- | ----------------------------

On February 22,
2003 the Company entered into a manufacturing agreement under which all assembly work that had been performed by the Company at its Minneapolis facility was to be outsourced to a third-party supplier (Supplier). Under the terms of the
agreement, the Supplier is responsible for procurement of raw materials and components, inspection of procured materials, production, assembly, testing, sterilization, labeling, packaging and shipping to the Companys customers. The
manufacturing operations were transferred to the Supplier in April 2003. The Company has responsibility for the manufacturing of the product including the quality of all products and the release of all products produced by the Supplier. The
agreement had an initial term of two years and continues with a six-month termination notice available to either party. The Company reviewed the long-lived assets related to the manufacturing operations and determined there was no impairment as a
result of the transfer. Additionally, the historical cost of assembly equipment owned by the Company used by its Supplier in assembly operations was approximately $70,000. These assets became fully depreciated in 2004 in accordance with the
Companys standard depreciation policy.



|12. | Segment Information and Significant Customers
|--- | ---------------------------------------------

The
Company has one operating segment, drug delivery, which includes the development of drug delivery transdermal and transmucosal pharmaceutical products and drug delivery injection devices and supplies.



68



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##### Index to Financial Statements

The geographic distributions of the Companys identifiable assets and revenues are summarized in the
following tables:

The Company has operating assets located in two countries as follows:



|                         |  |              |           |      |   |           
|------------------------ |  | ------------ | --------- | ---- | - | ----------
|                         |  | December 31,
|                         |  | 2005         |           | 2004
|Switzerland              |  | $            | 1,339,101 |      | $ | 1,022,485 
|United States of America |  |              | 4,827,263 |      |   | 12,155,118
|                         |  |              |           |      |   |           
|                         |  | $            | 6,166,364 |      | $ | 13,177,603
|                         |  |              |           |      |   |           

Revenues by customer location are summarized as follows:



|                         |  |                                  |           |      |   |           |  |   |          
|------------------------ |  | -------------------------------- | --------- | ---- | - | --------- |  | - | ---------
|                         |  | For the Years Ended December 31,
|                         |  | 2005                             |           | 2004 |   | 2003     
|United States of America |  | $                                | 511,567   |      | $ | 491,014   |  | $ | 883,101  
|Europe                   |  |                                  | 1,215,814 |      |   | 1,866,359 |  |   | 2,758,478
|Other                    |  |                                  | 497,365   |      |   | 388,583   |  |   | 145,265  
|                         |  |                                  |           |      |   |           |  |   |          
|                         |  | $                                | 2,224,746 |      | $ | 2,745,956 |  | $ | 3,786,844
|                         |  |                                  |           |      |   |           |  |   |          

The following summarizes significant customers comprising 10% or more of total revenue for the
years ended December 31:



|         |  |      |           |      |   |           |  |   |          
|-------- |  | ---- | --------- | ---- | - | --------- |  | - | ---------
|         |  | 2005 |           | 2004 |   | 2003     
|Ferring  |  | $    | 1,065,835 |      | $ | 1,299,469 |  | $ | 2,370,506
|JCR      |  |      | 258,949   |      |   | 161,097   |  |   | 11,500   
|BioSante |  |      | 161,021   |      |   | 289,031   |  |   | 520,977  
|Solvay   |  |      | 140,963   |      |   | 334,276   |  |   | 309,326  

The following summarizes significant customers comprising 10% or more of outstanding accounts
receivable as of December 31:



|                      |  |      |        |      |   |       
|--------------------- |  | ---- | ------ | ---- | - | ------
|                      |  | 2005 |        | 2004
|Ferring               |  | $    | 65,304 |      | $ | 86,149
|Ratiopharm            |  |      | 58,823 |      |   |      
|SciGen, Ltd.          |  |      | 56,118 |      |   | 85,141
|Eli Lilly and Company |  |      |       |      |   | 65,260



|13. | Quarterly Financial Data (unaudited)
|--- | ------------------------------------



|                                         |  |       |            |   |        |   |            |       |  |   |            |   |  |   |            |  
|---------------------------------------- |  | ----- | ---------- | - | ------ | - | ---------- | ----- |  | - | ---------- | - |  | - | ---------- | -
|                                         |  | First |            |   | Second |   |            | Third |  |   | Fourth     |  
|2005:                                    |  |       |            |   |        |   |            |       |  |   |            |   |  |   |            |  
|Total revenues                           |  | $     | 554,385    |   |        | $ | 492,425    |       |  | $ | 443,978    |   |  | $ | 733,958    |  
|Gross profit                             |  |       | 246,897    |   |        |   | 224,100    |       |  |   | 144,096    |   |  |   | 472,908    |  
|Net loss applicable to common shares (2) |  |       | (2,272,872 | ) |        |   | (2,377,729 | )     |  |   | (1,976,629 | ) |  |   | (1,920,726 | )
|Net loss per common share (2)            |  |       | (.06       | ) |        |   | (.06       | )     |  |   | (.05       | ) |  |   | (.05       | )
|Weighted average shares (1)              |  |       | 40,457,850 |   |        |   | 40,539,760 |       |  |   | 42,171,329 |   |  |   | 42,637,420 |  
|                                         |  |       |            |  
|2004:                                    |  |       |            |   |        |   |            |       |  |   |            |   |  |   |            |  
|Total revenues                           |  | $     | 725,821    |   |        | $ | 691,380    |       |  | $ | 613,175    |   |  | $ | 715,580    |  
|Gross profit                             |  |       | 380,338    |   |        |   | 288,580    |       |  |   | 347,502    |   |  |   | 357,234    |  
|Net loss applicable to common shares (2) |  |       | (1,894,427 | ) |        |   | (1,762,015 | )     |  |   | (2,219,185 | ) |  |   | (2,572,905 | )
|Net loss per common share (2)            |  |       | (.07       | ) |        |   | (.05       | )     |  |   | (.06       | ) |  |   | (.06       | )
|Weighted average shares (1)              |  |       | 28,627,275 |   |        |   | 37,943,664 |       |  |   | 38,825,537 |   |  |   | 39,982,515 |  



|(1) | Loss per Common Share is computed based upon the weighted average number of shares outstanding during each period. Basic and diluted loss per share amounts are identical as the
effect of potential Common Shares is anti-dilutive.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | The net loss applicable to common shares and net loss per common share include preferred stock dividends of $50,000 in the second quarter of 2005 and in each of the second and
fourth quarters of 2004. The fourth quarter of 2004 includes a patent rights impairment charge of $233,062.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



69



---

##### Index to Financial Statements

|14. | Related Party Transactions
|--- | --------------------------

On October 19,
2005, the Companys largest stockholder and Chairman of the Board, Dr. Jacques Gonella, provided a line of credit of up to $4,000,000, of which $2,000,000 is available to support general working capital needs of the Company. Borrowings
under the line of credit will be at prime plus 2%. Principal and interest are convertible into shares of the Companys common stock at the lesser of $1.26 per share or the per share price at which common shares are issued or the exercise or
conversion price of securities issued during the term of the agreement. Borrowings will generally be secured by a security interest in license, milestone payments, and royalties to the Company from licensing of its ATD gel products and/or
technology. As additional consideration for this line of credit, the Company agreed to issue to Dr. Gonella common stock warrants that will be issued at rates ranging from 18% to 32% of each borrowing. A total of 1,000,000 warrants will be
issued if the Company borrows the entire $4,000,000. At December 31, 2005 there had been no borrowings under this line of credit. As of March 3, 2006 this line of credit was terminated.

In 2001 the Company entered into a consulting agreement with JG Consulting AG, a company owned by the Companys largest stockholder and Chairman of
the Board, Dr. Jacques Gonella. This agreement was terminated as of December 31, 2003. The Company recognized expense of $186,000 in 2003 in connection with this agreement.

During 2003 the Company recognized expense of $26,500 for consulting services provided by John Gogol, one of the Companys board members until
September 2003.

During 2003 the Company borrowed from the Companys largest stockholder, Dr. Jacques Gonella, $1,600,000 under
various Term Note agreements. The loans were due in December 2003 with interest at the three-month Euribor Rate as of the dates of the loans, plus 5%. Dr. Gonella was also issued warrants for the purchase of 2,400,000 shares of the
Companys common stock at an exercise price of $0.55 per share in connection with the loans. The face value of the $1,600,000 of stockholder loans was allocated between the loans and the warrants based on the relative fair values of each, with
the amount allocated to the warrants being recorded as equity and as a discount on the debt, which was being amortized to interest expense over the life of the loans. The fair value of the warrants was calculated with the Black-Scholes option
pricing model using risk free interest rates ranging from 2.1% to 3.9%, volatility of 136%, option life of 5 years and dividend yield of 0.0%. On September 12, 2003, the total of all Term Note agreements, which included principal of $1,600,000
borrowed in 2003 and $700,000 borrowed in 2002 and accrued interest of $98,635, was converted into 2,398,635 shares of common stock. In connection with this conversion the stockholder was issued warrants for the purchase of 1,798,976 shares of the
Companys common stock at an exercise price of $1.25 per share. The difference between the fair value of the common stock and warrants issued to the stockholder in excess of the carrying value of the debt on September 12, 2003, the date of
the conversions, totaled $10,266,331, and was recorded as loss on conversions of debt to equity in the statement of operations.



|15. | Subsequent Event
|--- | ----------------

In the first quarter of 2006 the
Company received net proceeds of approximately $10,000,000 in a private placement of its common stock in which a total of 8,770,000 shares of common stock were sold at a price of $1.25 per share. Additionally, the Company issued five-year warrants
to purchase an aggregate of 7,454,500 shares of common stock at an exercise price of $1.50 per share.



70



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##### Index to Financial Statements

|Item 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
|------- | ------------------------------------------------------------------------------------

None



|Item 9A. | CONTROLS AND PROCEDURES
|-------- | -----------------------

Disclosure Controls and Procedures.

The Companys management, with the participation of the Companys Chief Executive
Officer and Chief Financial Officer, has evaluated the effectiveness of the Companys disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of the
end of the period covered by this report. Based on such evaluation, the Companys Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, the Companys disclosure controls and procedures are
effective.

Internal Control over Financial Reporting.

There have not been any changes in the Companys internal control over financial reporting during the Companys fourth quarter that have
materially affected, or are reasonably likely to materially affect, the Companys internal control over financial reporting.

The
Companys management, including the CEO and CFO, does not expect that its disclosure controls and procedures will prevent all error 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. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any,
within the Company have been detected. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated
goals under all potential future conditions; over time, control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a
cost-effective control system, misstatements due to error or fraud may occur and not be detected.



|Item 9B. | OTHER INFORMATION
|-------- | -----------------

None



71



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##### Index to Financial Statements

PART III



|Item 10. | DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
|-------- | --------------------------------------------------

The information required by this item concerning directors is incorporated herein by reference to the section captioned Election of Directors in the proxy statement.

The information required by this item concerning executive officers is incorporated herein by reference to the section captioned Executive Officers
of the Company in the proxy statement.

The information required by this item concerning compliance with Section 16(a) of the
United States Securities Exchange Act of 1934, as amended, is incorporated by reference to the section captioned Section 16(a) Beneficial Ownership Reporting Compliance in the proxy statement.

The Board of Directors adopted a Code of Business Conduct and Ethics that is applicable to all employees and directors. We will provide copies of our
Code of Business Conduct and Ethics without charge upon request. To obtain a copy, please send your written request to Antares Pharma, Inc., 707 Eagleview Boulevard, Suite 414, Exton, PA 19341, Attn: Corporate Secretary.



|Item 11. | EXECUTIVE COMPENSATION
|-------- | ----------------------

The information
required by this item is incorporated herein by reference to the sections captioned Compensation of Directors, Compensation Committee Interlocks and Insider Participation, Report of the Compensation Committee,
Employment Agreements with Executive Officers, Executive Compensation and Performance Graph in the proxy statement.



|Item 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
|-------- | ----------------------------------------------------------------------------------------------

The information required by this item is incorporated herein by reference to the sections captioned Security Ownership of Certain Beneficial Owners
and Management and Equity Compensation Plan Information in the proxy statement.



|Item 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
|-------- | ----------------------------------------------

The information required by this item is incorporated herein by reference to the section captioned Certain Relationships and Related Transactions in the proxy statement.



|Item 14. | PRINCIPAL ACCOUNTANT FEES AND SERVICES
|-------- | --------------------------------------

The
information required by this item is incorporated herein by reference to the sections captioned Audit Fees, Audit Related Fees, Tax Fees, All Other Fees and Pre-Approval Policies and
Procedures in the proxy statement.



72



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##### Index to Financial Statements

PART IV



|Item 15. | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
|-------- | ------------------------------------------



|(a) | The following documents are filed as part of this report:
|--- | ---------------------------------------------------------



| | (1) | Financial Statements - see Part II
| | --- | ----------------------------------



| | (2) | Financial Statement Schedules
| | --- | -----------------------------

Report of Independent
Registered Public Accounting Firm on Financial Statement Schedule.

Schedule II  Valuation and Qualifying Accounts.

All other schedules have been omitted because they are not applicable, are immaterial or are not required because the information is included in the
financial statements or the notes thereto.



| | (3) | Item 601 Exhibits - see list of Exhibits below
| | --- | ----------------------------------------------



|(b) | Exhibits
|--- | --------

The following is filed as an exhibit to Part I
of this Form 10-K:



|         |  |                                                                                                                                                                                                         
|-------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibits |  | Description                                                                                                                                                                                             
|3.1      |  | Certificate of Incorporation (u)                                                                                                                                                                        
|         | 
|3.2      |  | Bylaws (u)                                                                                                                                                                                              
|         | 
|4.1      |  | Form of Certificate for Common Stock (a)                                                                                                                                                                
|         | 
|10.0     |  | Stock Purchase Agreement with Permatec Holding AG, Permatec Pharma AG, Permatec Technologie AG and Permatec NV with First and Second Amendments dated July 14, 2000 (e)                                 
|         | 
|10.1     |  | Third Amendment to Stock Purchase Agreement, dated January 31, 2001 (f)                                                                                                                                 
|         | 
|10.2     |  | Registration Rights Agreement with Permatec Holding AG dated January 31, 2001 (f)                                                                                                                       
|         | 
|10.3     |  | Registration Rights Agreement with Aventic Partners AG, Basellandschaftliche Kantonalbank and HCI Healthcare Investments Limited dated February 5, 2001, and Lombard Odier & Cie dated
March 5, 2001 (f)
|         | 
|10.4     |  | Exclusive License & Supply Agreement with Bio-Technology General Corporation, dated December 22, 1999 (d)                                                                                               
|         | 
|10.5     |  | Preferred Stock Purchase Agreement with Bio-Technology General Corporation, dated December 22, 1999 (d)                                                                                                 
|         | 
|10.6     |  | Preferred Stock, Option and Warrant Purchase Agreement, dated January 25, 1996, with Becton Dickinson and Company (a)                                                                                   
|         | 
|10.7*    |  | Employment Agreement and Term and Compensation Addendum for 2000, dated May 1, 2000, with Lawrence Christian (f)                                                                                        



73



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##### Index to Financial Statements

|        |  |                                                                                                                                                                                                                                                                       
|------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.8*   |  | Employment Agreement and Term and Compensation Addendum for 2000, dated May 1, 2000, with Peter Sadowski (f)                                                                                                                                                          
|        | 
|10.9*   |  | Employment Agreement, dated May 31, 2000 with Dr. Dario Carrara (g)                                                                                                                                                                                                   
|        | 
|10.10*  |  | 1993 Stock Option Plan (a)                                                                                                                                                                                                                                            
|        | 
|10.11*  |  | Form of incentive stock option agreement for use with 1993 Stock Option Plan (a)                                                                                                                                                                                      
|        | 
|10.12*  |  | Form of non-qualified stock option agreement for use with 1993 Stock Option Plan (a)                                                                                                                                                                                  
|        | 
|10.13*  |  | 1996 Stock Option Plan, with form of stock option agreement (a)                                                                                                                                                                                                       
|        | 
|10.14*  |  | 1998 Stock Option Plan for Non-Employee Directors (b)                                                                                                                                                                                                                 
|        | 
|10.15#  |  | Agreement with Becton Dickinson dated January 1, 1999 (c)                                                                                                                                                                                                             
|        | 
|10.16#  |  | License & Development Agreement with Elan Corporation, plc, dated November 10, 1998 (c)                                                                                                                                                                               
|        | 
|10.17   |  | Amended and Restated 2001 Stock Option Plan for Non-Employee Directors and Consultants (l)                                                                                                                                                                            
|        | 
|10.18   |  | Amended and Restated 2001 Incentive Stock Option Plan for Employees (l)                                                                                                                                                                                               
|        | 
|10.19   |  | Office lease agreement with 707 Eagleview Boulevard Associates, a Pennsylvania Partnership, dated June 18, 2001 (g)                                                                                                                                                   
|        | 
|10.20   |  | Securities Purchase Agreement, dated July 12, 2002, between Antares Pharma, Inc. and AJW Partners, LLC; AJW/New Millennium Offshore, Ltd.; Pegasus Capital Partners, LLC; XMark Fund, L.P.;
XMark Fund, Ltd.; SDS Merchant Fund, LP; and OTATO Limited Partnership (h)
|        | 
|10.21   |  | Registration Rights Agreement, dated July 12, 2002, between Antares Pharma, Inc. and AJW Partners, LLC; AJW/New Millennium Offshore, Ltd.; Pegasus Capital Partners, LLC; XMark Fund, L.P.;
XMark Fund, Ltd.; SDS Merchant Fund, LP; and OTATO Limited Partnership (h)
|        | 
|10.22** |  | License Agreement with Solvay Pharmaceuticals BV, dated June 9, 1999 (i)                                                                                                                                                                                              
|        | 
|10.23** |  | License Agreement with BioSante Pharmaceuticals, Inc., dated June 13, 2000 (i)                                                                                                                                                                                        
|        | 
|10.24** |  | Amendment No. 1 to License Agreement with BioSante Pharmaceuticals, Inc., dated May 20, 2001 (i)                                                                                                                                                                      
|        | 
|10.25** |  | Amendment No. 2 to License Agreement with BioSante Pharmaceuticals, Inc., dated July 5, 2001 (i)                                                                                                                                                                      
|        | 
|10.26** |  | Amendment No. 3 to License Agreement with BioSante Pharmaceuticals, Inc., dated August 28, 2001 (i)                                                                                                                                                                   
|        | 
|10.27** |  | Amendment No. 4 to License Agreement with BioSante Pharmaceuticals, Inc., dated August 8, 2002 (i)                                                                                                                                                                    



74



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##### Index to Financial Statements

|        |  |                                                                                                                                                                      
|------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.28   |  | Debenture and Warrant Purchase Agreement, dated January 31, 2003, by and among Antares Pharma, Inc., XMark Fund, L.P., XMark Fund, Ltd. and SDS Merchant Fund, LP (j)
|        | 
|10.29   |  | Debenture and Warrant Purchase Agreement, dated January 31, 2003, by and among Antares Pharma, Inc., XMark Fund, L.P. and XMark Fund, Ltd. (j)                       
|        | 
|10.30   |  | Registration Rights Agreement, dated January 31, 2003, by and among Antares Pharma, Inc., XMark Fund, L.P., XMark Fund, Ltd. and SDS Merchant Fund, LP (j)           
|        | 
|10.31   |  | Form of Warrant, dated January 31, 2003 (j)                                                                                                                          
|        | 
|10.32** |  | License Agreement between Antares Pharma, Inc. and Ferring, dated January 21, 2003 (k)                                                                               
|        | 
|10.33   |  | Securities Purchase Agreement dated July 7, 2003 (m)                                                                                                                 
|        | 
|10.34   |  | Form of Registration Rights Agreement dated July 7, 2003 (m)                                                                                                         
|        | 
|10.35   |  | Voting Agreement, dated July 7, 2003, by and among Antares Pharma, Inc., XMark Fund, L.P. and XMark Fund, Ltd. (m)                                                   
|        | 
|10.36   |  | Form of Warrant, dated July 7, 2003 (m)                                                                                                                              
|        | 
|10.37   |  | Form of Securities Purchase Agreement dated July 17, 2003 (n)                                                                                                        
|        | 
|10.38   |  | Form of Registration Rights Agreement dated July 17, 2003 (n)                                                                                                        
|        | 
|10.39   |  | Form of Warrant, dated July 17, 2003 (n)                                                                                                                             
|        | 
|10.40   |  | Form of Lock-Up Agreement dated July 17, 2003 (n)                                                                                                                    
|        | 
|10.41   |  | Securities and Exchange Agreement, dated September 12, 2003 (o)                                                                                                      
|        | 
|10.42** |  | Development and License Agreement, dated September 12, 2003, with Eli Lilly and Company (p)                                                                          
|        | 
|10.43   |  | Warrant Agreement with Eli Lilly and Company dated September 12, 2003 (p)                                                                                            
|        | 
|10.44   |  | Registration Rights Agreement with Eli Lilly and Company dated September 12, 2003 (p)                                                                                
|        | 
|10.45   |  | Form of Securities Purchase Agreement dated February 10, 2004 (q)                                                                                                    
|        | 
|10.46   |  | Form of Registration Rights Agreement, dated February 10, 2004 (q)                                                                                                   
|        | 
|10.47   |  | Form of Warrant Agreement, dated February 10, 2004 (q)                                                                                                               
|        | 
|10.48   |  | Office lease with The Trustees Under the Will and of the Estate of James Campbell, Deceased, dated February 19, 2004 (r)                                             
|        | 
|10.49   |  | Form of Indemnification Agreement, dated January 2, 2004, between Antares Pharma, Inc. and each of its directors and executive officers (r)                          
|        | 
|10.50   |  | Employment Agreement, dated July 22, 2004, with Jack E. Stover (s)                                                                                                   



75



---

##### Index to Financial Statements

|        |  |                                                                                                                
|------- |  | ---------------------------------------------------------------------------------------------------------------
|10.51   |  | Employment Agreement, dated February 14, 2005, with James Hattersley (t)                                       
|        | 
|10.52   |  | Development Supply Agreement (v)                                                                               
|        | 
|10.53   |  | Line of Credit Agreement, dated October 19, 2005, between Antares Pharma, Inc. and Dr. Jacques Gonella (w)     
|        | 
|10.54** |  | License Development and Supply Agreement with Sicor Pharmaceuticals, Inc., dated November 23, 2005             
|        | 
|10.55   |  | Stock Purchase Agreement with Sicor Pharmaceuticals, Inc., dated November 23, 2005                             
|        | 
|10.56   |  | Senior Management Agreement by and between Antares Pharma, Inc. and Robert F. Apple, dated February 9, 2006 (x)
|        | 
|10.57   |  | Form of Common Stock and Warrant Purchase Agreement, dated February 27, 2006                                   
|        | 
|10.58   |  | Form of Investors Rights Agreement, dated March 2, 2006                                                        
|        | 
|10.59   |  | Form of Common Stock Purchase Warrant, dated March 2, 2006                                                     
|        | 
|14.1    |  | Code of Business Conduct and Ethics (r)                                                                        
|        | 
|21.1    |  | Subsidiaries of the Registrant                                                                                 
|        | 
|23.1    |  | Consent of Independent Registered Public Accounting Firm (KPMG LLP)                                            
|        | 
|31.1    |  | Section 302 CEO Certification                                                                                  
|        | 
|31.2    |  | Section 302 CFO Certification                                                                                  
|        | 
|32.1    |  | Section 906 CEO and CFO Certification                                                                          



|* | Indicates management contract or compensatory plan or arrangement.
|- | ------------------------------------------------------------------



|** | Confidential portions of this document have been redacted and have been separately filed with the Securities and Exchange Commission.
|-- | -------------------------------------------------------------------------------------------------------------------------------------



|# | Pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended, confidential portions of Exhibits 10.21 and 10.23 were deleted and filed separately with the Securities
and Exchange Commission pursuant to a request for confidential treatment.
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(a) | Incorporated by reference to the Registration Statement on Form S-1 (File No. 333-6661), filed with the Securities and Exchange Commission on October 1, 1996.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------



|(b) | Incorporated by reference to Form 10-K for the year ended December 31, 1997.
|--- | ----------------------------------------------------------------------------



|(c) | Incorporated by reference to Form 10-K for the year ended December 31, 1998.
|--- | ----------------------------------------------------------------------------



|(d) | Incorporated by reference to Form 10-K for the year ended December 31, 1999.
|--- | ----------------------------------------------------------------------------



|(e) | Incorporated by reference to the Proxy Statement filed December 28, 2000.
|--- | -------------------------------------------------------------------------



|(f) | Incorporated by reference to Form 10-K for the year ended December 31, 2000.
|--- | ----------------------------------------------------------------------------



|(g) | Incorporated by reference to Form 10-K for the year ended December 31, 2001.
|--- | ----------------------------------------------------------------------------



|(h) | Incorporated by reference to Form 8-K filed with the SEC on July 17, 2002.
|--- | --------------------------------------------------------------------------



|(i) | Incorporated by reference to Form 10-K/A for the year ended December 31, 2001, filed on September 19, 2002.
|--- | -----------------------------------------------------------------------------------------------------------



|(j) | Incorporated by reference to Form 8-K filed with the SEC on February 12, 2003.
|--- | ------------------------------------------------------------------------------



|(k) | Incorporated by reference to Form 8-K filed with the SEC on February 20, 2003.
|--- | ------------------------------------------------------------------------------



|(l) | Incorporated by reference to the Registration Statement on Form S-8 (File No. 333-111177), filed with the Securities and Exchange Commission on December 15, 2003.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------



76



---

##### Index to Financial Statements

|(m) | Incorporated by reference to Form 8-K filed with the SEC on July 9, 2003.
|--- | -------------------------------------------------------------------------



|(n) | Incorporated by reference to Form 8-K filed with the SEC on July 22, 2003.
|--- | --------------------------------------------------------------------------



|(o) | Incorporated by reference to Form 8-K filed with the SEC on September 15, 2003.
|--- | -------------------------------------------------------------------------------



|(p) | Incorporated by reference to Form 8-K filed with the SEC on September 18, 2003.
|--- | -------------------------------------------------------------------------------



|(q) | Incorporated by reference to Form 8-K filed with the SEC on February 10, 2004.
|--- | ------------------------------------------------------------------------------



|(r) | Previously filed as an exhibit to our Form 10-K for the year ended December 31, 2003, filed with the SEC on March 30, 2004, and incorporated herein by reference.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------



|(s) | Previously filed as an exhibit to our Form 10-Q for the quarter ended September 30, 2004, filed with the SEC on November 15, 2004, and incorporated herein by reference.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(t) | Previously filed as an exhibit to our Form 8-K filed with the SEC on February 15, 2005, and incorporated herein by reference.
|--- | -----------------------------------------------------------------------------------------------------------------------------



|(u) | Previously filed as an exhibit to our Schedule 14A filed with the SEC on March 18, 2005, and incorporated herein by reference.
|--- | ------------------------------------------------------------------------------------------------------------------------------



|(v) | Previously filed as an exhibit to our Form 10-Q for the quarter ended June 30, 2005, filed with the SEC on August 15, 2005, and incorporated herein by reference.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------



|(w) | Previously filed as an exhibit to our Form 8-K filed with the SEC on October 24, 2005, and incorporated herein by reference.
|--- | ----------------------------------------------------------------------------------------------------------------------------



|(x) | Previously filed as an exhibit to our Form 8-K filed with the SEC on February 14, 2006 and incorporated herein by reference.
|--- | ----------------------------------------------------------------------------------------------------------------------------



77



---

##### Index to Financial Statements

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized, in the City of Exton, State
of Pennsylvania, on March 20, 2006.



ANTARES PHARMA, INC./s/ Jack E. StoverJack E. StoverPresident and Chief Executive Officer


Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, this report
has been signed by the following persons on behalf of the registrant in the capacities indicated on March 20, 2006.



|                         |  |  |  |                                                  
|------------------------ |  |  |  | -------------------------------------------------
|Signature                |  |  |  | Title                                            
|                         |  | 
|/s/ Jack E. Stover       |  |  |  | President, Chief Executive Officer and Director  
|Jack E. Stover           |  |  |  | (principal executive officer)                    
|                         |  | 
|/s/ Robert F. Apple      |  |  |  | Senior Vice President and Chief Financial Officer
|Robert F. Apple          |  |  |  | (principal financial and accounting officer)     
|                         |  | 
|/s/ Dr. Jacques Gonella  |  |  |  | Director, Chairman of the Board                  
|Dr. Jacques Gonella      |  |  |  |                                                  
|                         |  | 
|/s/ Thomas J. Garrity    |  |  |  | Director                                         
|Thomas J. Garrity        |  |  |  |                                                  
|                         |  | 
|/s/ Anton Gueth          |  |  |  | Director                                         
|Anton Gueth              |  |  |  |                                                  
|                         |  | 
|/s/ Dr. Rajesh Shrotriya |  |  |  | Director                                         
|Dr. Rajesh Shrotriya     |  |  |  |                                                  
|                         |  | 
|/s/ Dr. Paul Wotton      |  |  |  | Director                                         
|Dr. Paul Wotton          |  |  |  |                                                  



78



---

##### Index to Financial Statements

Report of Independent Registered Public Accounting Firm on Financial Statement Schedule

The Board of Directors and Shareholders

Antares Pharma, Inc.:

Under the date of
March 10, 2006, we reported on the consolidated balance sheets of Antares Pharma, Inc. and subsidiaries (the Company) as of December 31, 2005 and 2004, and the related consolidated statements of operations, stockholders equity and
comprehensive loss, and cash flows for each of the years in the three-year period ended December 31, 2005, as included in Antares Pharma, Inc.s Annual Report on Form 10-K for the fiscal year ended December 31, 2005. In connection
with our audits of the aforementioned consolidated financial statements, we also audited the related consolidated financial statement schedule as listed in the accompanying index. This consolidated financial statement schedule is the responsibility
of Antares Pharma, Inc.s management. Our responsibility is to express an opinion on this consolidated financial statement schedule based on our audits.

In our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.



/s/ KPMG LLP


Minneapolis, Minnesota

March 10, 2006



79



---

##### Index to Financial Statements

Antares Pharma, Inc.

Schedule II

Valuation and Qualifying Accounts

For the Years Ended December 31, 2005, 2004 and 2003



|                                                                                                 |  |                              |        |                               |   |            |  |                        |        |  |   |       
|------------------------------------------------------------------------------------------------ |  | ---------------------------- | ------ | ----------------------------- | - | ---------- |  | ---------------------- | ------ |  | - | ------
|Description                                                                                      |  | Balance at Beginning of Year |        | Charged to Costs and Expenses |   | Deductions |  | Balance at End of Year
|Year Ended December 31, 2005 Allowance for doubtful accounts (Deducted from accounts receivable) |  | $                            | 22,500 |                               | $ | 6,173      |  | $                      | 7,873  |  | $ | 20,800
|Year Ended December 31, 2004 Allowance for doubtful accounts (Deducted from accounts receivable) |  | $                            | 21,500 |                               | $ | 1,000      |  | $                      | 0      |  | $ | 22,500
|Year Ended December 31, 2003 Allowance for doubtful accounts (Deducted from accounts receivable) |  | $                            | 12,000 |                               | $ | 33,705     |  | $                      | 24,205 |  | $ | 21,500



80