# 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, 2004

[ ] TRANSITION REPORT
PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For transition period
from __________ to __________

Commission file number
0-20945

| | ANTARES PHARMA, INC.                                   | 
| | ------------------------------------------------------ | 
| |                                                        | 
| | (Exact
name of registrant as specified in its charter) | 

|Minnesota                                                    |  | 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: None

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

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 an accelerated filer (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, 2004,
was approximately $25,682,223 (based upon the last reported sale price of $0.89 per share
on June 30, 2004, on the Over the Counter Market).

There were 40,493,606 shares of
common stock outstanding as of March 1, 2005.

1

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# PART I

Item 1.      BUSINESS

# Overview

Antares
Pharma, Inc. (Antares or the Company) 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. These technologies are summarized and briefly
described below.

# Technology Platforms

Transdermal Drug Delivery

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 avoiding the initial gastrointestinal and liver uptake
problems of some orally ingested drugs. The Companys gels consist of a
hydro-alcoholic gel containing a combination of permeation enhancers to promote rapid drug
absorption through the skin following application to the arms, shoulders, or abdomen. The
Companys transdermal gel systems provide the options for delivery both systemically
(penetrating into 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, effective on a sustained release
basis over a 24-hour duration. The Companys gel systems, known as our Advanced
Transdermal Delivery (ATD) gels are currently being developed in the
following areas:

| | ATD Single Gels, which are being developed to incorporate hormonal
formulations to deliver testosterone for the treatment of hypogonadism in men and low
libido in women, as well as an estradiol gel to treat hot flashes and vaginal atrophy. The
Company has also announced development results for the treatment of overactive bladder
syndrome (OAB) with (AP-1034), its oxybutynin ATD gel.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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| | ATD Combination Gels, Antares is currently developing two transdermal,
combination gel products for hormone therapy (HT), one containing estradiol
and testosterone and one containing estradiol with the progestin, norethindrone acetate.
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The
Companys licensee principally in North America, BioSante Pharmaceuticals, Inc.
(BioSante) a developer of male and female HT products, recently announced
successful Phase II results for LibiGel, a transdermal testosterone gel utilizing
Antares ATD gel for the treatment of female sexual dysfunction
(FSD). Antares retains rights to the resulting clinical data of
BioSantes LibiGel studies to enable the Company to file for approval to
market in countries other than those licensed to BioSante. Antares is, therefore,
exploring marketing alternatives for its own ATD testosterone gel product, possibly
with marketing partners, in Europe and Japan. BioSante also has an estradiol gel (based on
a license of Antares ATD gel), known as Bio-E-Gel, currently in Phase
III clinical trials in the U.S. Antares again retains rights to the resulting clinical
data to enable it to file for approval to market in territories not licensed to BioSante.
The Company has licensed a combination gel of estradiol and the progestin, norethindrone
acetate, to BioSante and Solvay Pharmaceuticals B.V. (Solvay) for hormone
therapy, under which Solvay is designing the Phase III clinical trials for the U.S.
market. Another combination gel, estradiol and testosterone, has also been licensed to
BioSante for development.

Antares
has developed and licensed a topical ibuprofen gel, under non-royalty bearing agreements
in 11 countries, including Russia, New Zealand, and Australia, and is exploring options
for the Canadian and U.S. markets. This product or other nonsteroidal anti-inflammatory
drugs (NSAIDs) in a gel form are being explored as an alternative that could benefit from
the safety concerns related to cyclooxygenase 2 (COX-2) medications, such as Vioxx, and
the resulting need for safe and effective pain medication alternatives.

Fast-Melt Oral Tablets

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 a key 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 as
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 be of interest to pharmaceutical firms seeking line extensions
in the marketplace and could also represent a key step in Antares evolution into a
specialty pharmaceutical company with its own products.

Injection Devices

Antares
injection device platform features three distinct products: reusable needle-free
injectors, disposable mini-needle injectors, and its emerging 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 to date, we believe that more than 100 million such injections have been
performed worldwide.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
September 2003, Antares entered into a collaborative agreement with Eli Lilly and Company
(Lilly), under which Lilly has taken a license to develop and potentially market
 the
Antares reusable needle-free technology in the fields of diabetes and obesity and
has an option to use the technology in one other smaller field on a worldwide basis. To
date, most of the development activities under this agreement have been focused on
improving the
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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| | Companys reusable needle-free injector and evaluating market
opportunities. Lilly currently holds approximately 70% of the domestic insulin market.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------

| | Disposable mini-needle injectors (Vibex)employ the same basic
technology developed for the Medi-Jector VISION®, combining a low-energy
power 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 injection capabilities with reduced
discomfort and improved convenience in 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. Antares is also exploring opportunities to develop its own
combination drug and device products incorporating the Vibex system.
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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 method 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, Antares Pharma, Inc. (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. Upon consummation of the transaction, the acquired Permatec subsidiaries were
renamed Antares Pharma AG, Antares Pharma IPL AG and Permatec NV. Prior to the closing of
the business combination, the Company did not have sufficient funds to continue operating
and had determined that it was necessary to, among other things, either raise more capital
or merge with another biopharmaceutical company. Medi-Ject was a company 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. Given that both groups were focused on delivering
drugs across the skin, 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. The transaction was accounted for as a reverse acquisition,
as Permatecs shareholders initially held approximately 67% of the outstanding stock
of Antares. Accordingly, for accounting purposes, Permatec is deemed to have acquired
Medi-Ject. Upon completion of the transaction the Companys name was changed from
Medi-Ject Corporation to Antares Pharma, Inc.

From
inception as a combined business entity, the Company had fifty-three employees with
thirty-five research and development personnel, engineers, formulation chemists and
technicians, engaged in designing, formulating and developing new products for the
pharmaceutical industry. As of March 1, 2005, the Company has twenty-seven full-time and
four part-time employees.

The
U.S. 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 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 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
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

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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.

Antares
is committed to other methods of drug delivery such as topical gel formulations. The
Company believes that transdermal gels have advantages in cost, cosmetic elegance, ease of
application and lack of irritancy compared with better-known transdermal patches and have
applications in such therapeutic markets as hormone replacement therapy, osteoporosis
therapy, cardiovascular therapy, pain management and central nervous system therapy. This
drug delivery method is now a material part of the Companys business moving forward.

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. 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 development results
for AP-1034, its oxybutynin gel for OAB. The fast-melt tablet effort resulted in patents being issued in 2004
in the U.S. and Europe.

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 views pharmaceutical and biotechnology companies as 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. Antares has also announced its plans
to develop its own products using its gel and fast-melt technology platforms and is
exploring developing its own combination drug and device products with its disposable
mini-needle injection technology platform.

The
Company is a Minnesota corporation incorporated in February 1979. 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 previous experience in the industry, the Company believes the following significant
trends in healthcare have important implications for the growth of its business.

After
a drug loses patent protection, the branded version of the drug often faces competition
from generic alternatives. It is 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 pharmaceutical manufacturers will continue to seek
differentiating 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
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 against other major companies or generic competition.

The
increasing trend of 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 topical gels, fast-melt
tablets and jet injection technologies meet these market needs.

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The
Company envisions its program with topical gel formulations as a second-generation
technology, replacing the older transdermal patch products with more patient-friendly
products. Topical gels offer patients more choices and added convenience with no
compromise of efficacy. Although newer, 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 destroyed in the
gastrointestinal tract and may only be administered through the skin, the lung or by
injection. Pulmonary delivery is complex and has not yet been commercialized for
therapeutic proteins intended for systemic delivery. Injection remains the mainstay of
protein delivery. Therefore, 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 sales for pharmaceutical
companies and increased healthcare costs for society. In addition, it is becoming
increasingly recognized that conventional syringe needles 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 an
alternative 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 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. In the
past, the Company had focused only upon the injection of medication in the home, but in
2000 the Company began to research the feasibility of using its devices for vaccines and
new vaccine ingredients and is currently seeking collaboration with vaccine companies to
support development of this application.

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

Drug
delivery companies that compete with our technologies include Bioject Medical
Technologies, Inc., Bentley Pharmaceuticals, Inc., Aradigm, Cellegy Pharmaceuticals, Inc.,
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.

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According
to one industry publication, worldwide hormone replacement revenues, the initial focus of
the Companys transdermal gel formulation program, were expected to grow to $12.7
billion by 2005. Further growth in this sector may be achieved by the use of testosterone
products in both male and female applications. 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 testosterone for treatment of FSD, a disorder that
affects an estimated 30-50% of women and for which no drug is currently approved in the
U.S. Antares Pharma, along with its U.S. partner BioSante, has a testosterone product in
clinical trial for FSD. 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. It has also been suggested that the more
physiological blood levels achieved when hormones are delivered across the skin may offer
some advantage over oral therapy although currently there is no long-term evidence to
support this contention. 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, oral drug delivery systems represented a $28 billion worldwide market
in 2002 with fast-dissolving dosage forms being in excess of $1 billion of this market
with a growth rate of more than 20% per year. There have been approximately 80
fast-dissolving dosage forms launched. 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. The Companys largest
customer is a pharmaceutical company (Ferring BV), and one of the Companys major
competitors, Bioject Medical Technologies, Inc., has a pharmaceutical company (Serono) as
its largest customer. Greystone Associates (www.greystoneassociates.org) 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 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 the delivery of
insulin for patients with diabetes and human growth hormone for children with growth
retardation. In the U.S., over 3.2 million people inject insulin for the treatment of
diabetes, resulting in an estimated 2.3 billion injections annually, and 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. 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
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. It is estimated that
there will be 190

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biotechnology injectable drugs on the market in 2005, compared with 80
in 2000 and ten in 1990. 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,
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 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 are not 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 avoids 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 (Advanced Transdermal Delivery) 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.

8

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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. A summary of the benefits of transdermal gels is provided below.

| | Benefits of Transdermal Gels                                                                                                                                                                                                                                                                            | 
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
| | 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 Advanced
Transdermal Delivery (ATD) System

Antares
Advanced Transdermal Delivery (ATD) system has produced two transdermal drug
delivery gels, both of which have demonstrated the ability to successfully penetrate 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 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 sections provide an overview of Antares
ATD Single Gels and ATD Combination Gels.

ATD Single Drug Gels

Antares
ATD single gels are single-drug transdermal gels that have demonstrated potential in
a variety of therapeutic areas. Current ATD single drug gels in advanced development
encompass a testosterone gel for men to treat hypogonadism, an estrogen gel for women to
treat vasomotor symptoms associated with menopause, a low dose testosterone gel to treat
low libido in women and an oxybutynin gel to treat overactive bladder syndrome
(OAB). 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
several 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 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.

9

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ATD Combination
Drug Gels

Antares
has also developed a transdermal combination gel product currently used in HT. This
formulation has demonstrated the ability to deliver the following combinations of active
agents as a means of HT, along with additional agents:

      Estradiol +
Norethindrone Acetate;
         
     
Estradiol + Testosterone;         
      Estradiol +
Levonorgestrel; and         
      Ethinyl Estradiol + Levonorgestrel.

Currently
the Company has ATD combination drug gels in advanced development with partners for
HT including an estradiol/progestin combination product and estradiol/testosterone
combination product.

Oral Delivery

Oral
delivery remains the preferred method of dosage, with the majority of all drugs
administered. Despite this methods widespread popularity, there remain limitations
for those patients who have difficulty swallowing conventional oral dosage forms or where
an underlying disease (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 any 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. Over 80 such products are currently marketed
and generate sales in excess of $1 billion per year with growth rates projected at 20% per
year.

Antares Easy
Tec Fast-Melt Technology

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 that no unique packaging requirements are necessary. The Company
also believes that Easy Tec possesses several other key advantages over competing
fast-melt technologies; all of these advantages are listed below.

10

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| | Easy Tec Competitive Advantages                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | 
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    | 
| |         High drug dose loading is possible
        Friability within pharmaceutical specifications
        No need for special packaging
        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
        Low cost of goods
        Uses conventional manufacturing equipment
        No specific facility required, compared to effervescent products
       Compendial and CFR listed excipients | 

Fast-melt
technology has proven attractive to customers in both OTC and prescription product fields.
Current market leadership is held by Cardinal Healths Zydis technology
followed by CIMAs (now part of Cephalon Inc. DuraSolv technology. Marketed
products include those for CNS disorders (for example, Zyprexa Zydis® from
Eli Lilly and Company), and several products aimed at the treatment of gastrointestinal
disorders.

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 and plans on filing, to seek market
approval, with the Food and Drug Administration (FDA) sometime in 2005.

Needle-Free Injection

Needle-free
injection is an emerging form of parenteraldrug delivery that is also gaining
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.

The
future product portfolios of most pharmaceutical and biotechnology companies will contain
a significant proportion of proteins and peptides derived from the so-called
biotechnology revolution that began in the 1980s. This first generation of
such products were bio-identical to natural proteins (for example, insulin and hGH) while
future generations are expected to be novel macromolecules with construction based upon an
understanding of specific targets supported by advanced research, such as that of the
human genome project.

It
is currently estimated that 350 biotechnology molecules are in clinical development. The
most significant challenge beyond discovery of such molecules is how to effectively
deliver them by means other than conventional injection technology. The majority of these
molecules are not amenable to oral administration due to a combination of several factors,
including breakdown in the gastrointestinal tract, fundamentally poor absorption, or high
first pass metabolism. 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.

Improving
patient comfort through needle-free injection increases compliance and mitigates the
problem of daily injections. Needle-free delivery eliminates the risk of needlestick
injuries as well, which occur approximately 800,000 times annually 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

11

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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.

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.

Status of Existing
Needle-Free Injection Devices On the Market and In Development

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.

Several
other companies are actively developing disposable, needle-free devices, reflecting the
interest in this sector. These companies include BioValve, Aradigm Corp., Visionary Medical
Products and Crossject. None of the products from these companies have yet been
commercialized, but such products, if and when commercialized, could compete with
Antares injection devices systems and/or its next generation of injection devices,
which are in various stages of development. Other companies, such as The Medical House and
Bioject, have products in the marketplace and currently compete with Antares.

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.

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 permits variable dosing at the time of
administration and has a maximum dosage volume of 0.5 ml per injection in 0.01 ml
increments. 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.

12

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| | 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 | 

Insulin Delivery

The
Medi-Jector VISION®is primarily used in the U.S. to provide a needle-free
means of administering insulin to patients with diabetes. The potential market for insulin
injector products is significant. The World Health Organization (WHO)
estimated the worldwide prevalence of patients with diabetes to be more than 170 million
in 2000, expected to increase to more than 360 million by 2030. Of this population,
approximately 40%, or 68 million patients require insulin. Within the U.S., WHO estimated
17.7 million people with diabetes in 2000, and the Centers for Disease Control reported
that approximately 18% of patients with diabetes (more than 3 million) used insulin in
2002.

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.

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

In
addition to the Medi-Jector VISION®, Antares is also developing a new
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 produced. The maximum dosage volume is 0.3 ml per injection in 0.01 ml
increments. Medi-Jector Valeo has been licensed worldwide to Eli Lilly and Company for use with
 its portfolio of diabetes and anti-obesity products.

Vibex Pre-filled,
Disposable Mini-Needle Injector

Beyond
Antares 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 protective 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.

13

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| | 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 to the intradermal and 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
the individual administering the injection, and providing for a more comfortable means of
vaccine delivery.

# Patents

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 24 patents and has an additional 74
applications pending in the U.S. and other countries. With the Companys topical
delivery technologies, it holds five patents, and an additional 30 applications in various
countries are pending. The patents have expiration dates ranging from 2013 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, which is assigned to Lilly.

# Manufacturing

The
Company is responsible for a U.S. device manufacturing facility 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. Final quality control is performed by the Company.

The
Company continues to have responsibility for the manufacturing of the product including
the quality of all products and the release of all products produced by the supplier. The
outsourcing agreement had an initial term of two years and continues with a six-month
termination notice available to either party.

14

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The
Company pays Becton Dickinson royalties on sales of plastic components of certain injector
systems. Such royalties will continue until the expiration of the last patent covering
such plastic components.

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 market most of its products through the existing distribution systems
of pharmaceutical and medical device companies while continuing direct-to-consumer
marketing of its insulin injection devices and related disposable elements in the U.S.

During
2004, 2003 and 2002, international revenue accounted for 82%, 77% and 59% of total
revenue, respectively. Europe (primarily Germany) accounted for 83%, 95% and 96% of
international revenue in 2004, 2003 and 2002, respectively, with the remainder coming
primarily from Asia. Ferring accounted for 47%, 62% and 49% of the Companys
worldwide revenues in 2004, 2003 and 2002, respectively. BioSante Pharmaceuticals, Inc.
accounted for 11%, 14% and 30% of the Companys worldwide revenues in 2004, 2003 and
2002, respectively. Revenue from Ferring 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.

Transdermal Delivery
Products

Over
the short term, the majority of revenues generated from topical drug formulation will
continue to be through the fees generated by licensing and development agreements.

The
following table describes existing pharmaceutical relationships in the transdermal
delivery sector.

|Pharmaceutical Company Partner                             | Compound               | Market Segment                                                                                                     | Technology
|---------------------------------------------------------- | ---------------------- | ------------------------------------------------------------------------------------------------------------------ | ----------
|Solvay                                                     | Estradiol/NETA         | Hormone replacement therapy     
          (Worldwide, excluding North America,
                  Japan and Korea) | ATD Gel  
|Solvay (sublicense agreement
            through BioSante) | Estradiol/NETA         | Hormone replacement therapy
               (North America)                                                         | ATD Gel  
|BioSante                                                   | Estradiol              | Hormone replacement therapy                                                                                        | ATD Gel  
|BioSante                                                   | Testosterone           | Male and female sexual dysfunction,Male hypogonadism
(North America, other countries)                              | ATD Gel  
|BioSante                                                   | Estradiol/Testosterone | Combination of HT and FSD
(North America, other countries)                                                         | ATD Gel  

The
agreements in the table are license agreements under which the Companys partners are
conducting clinical evaluation and development of the Companys transdermal products.
For competitive reasons, the Companys partners may not divulge the exact stage of
clinical development. The Companys two major agreements are with Solvay
Pharmaceuticals and BioSante Pharmaceuticals, Inc. 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. Once
commercial sale of the product begins, Solvay

15

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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
June 2000, the Company granted an exclusive license to BioSante to allow 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.

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 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 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 which included a $200,000 milestone payment in January of 2003.

Injection Devices

The
Company markets needle-free injectors for insulin and growth hormone delivery through
pharmaceutical companies and medical products distributors worldwide. Device and related
disposable product sales in 2004 were approximately $1.8 million. Historical product
development alliances have generated licensing and development fees and eventually sales
of product.

Ferring
is selling human growth hormone throughout Europe with a marketing campaign tied to the
Antares needle-free delivery system. Ferring has been successful in establishing a user
base of more than 3,000 children for its drug using the Antares needle-free system. In the
Netherlands, where Ferring enjoys its largest market share, we understand that 22% of
children taking growth hormone use Antares injector. During the past six years, a
Japanese pharmaceutical company, JCR, has distributed small numbers of growth hormone
injectors to hospital-based physicians in Japan. In 2004, JCR initiated a larger scale
campaign to broaden its marketing efforts with our injector. In 1999, SciGen Pte Ltd.
began distribution in Asia of Antares growth hormone injectors along with its drug,
and in 2004 Shreya Life Sciences initiated a test market evaluation that resulted in
limited distribution in India with insulin.

The
table below summarizes the Companys current collaborative and distribution/supply
agreements in the injection device sector.

|Company                                | Market                                                                                                                              
|-------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------
|Eli Lilly and Company                  | Development and license agreement
Needle-free deliveryDiabetes and Obesity
plus an option for another therapeutic market
(worldwide)
|Wal-Mart Stores, Inc.                  | Insulin  Distribution
                         (United States)                                                                     
|Ferring BV                             | Growth Hormone
             (Europe)                                                                                                
|JCR Pharmaceuticals Co., Ltd.          | Growth Hormone
                                 (Japan)                                                                             
|SciGen Pte Ltd.                        | Growth Hormone
               (Asia/Pacific)                                                                                        
|drugstore.com                          | Insulin  Distribution  E-Commerce
               (United States)                                                                  
|Care Service, Inc.  (Diabetic Express) | Insulin  Distribution  E-Commerce
                                            (United States/Canada)                              

16

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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.

Under
the Companys growth hormone agreements, the Company sells its injection devices to
partners who manufacture and/or market human growth hormone directly. The partners then
market the Companys devices with human growth hormone. The Company typically
receives benefits from these agreements in the form of manufacturing margins and royalties
on end-sales of the partners products.

On
January 22, 2003, the Company entered into a 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, 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 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, perpetual, 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 AJ-1 device in a specified field.

Under
the Companys December 1993 agreement with Ferring, the Company granted Ferring
exclusive rights to use and market, throughout Europe and the former Soviet Union, the
Companys reusable needle-free injection device for use with the administration of
human growth hormone. Under the agreement, Ferring was required to pay the Company upon
the occurrence of certain events, such as completion of certain clinical studies and
receipt of regulatory approvals. The Company has received all such payments, and
currently, the Company receives payments from Ferring for injectors and disposables
supplied to Ferring. Unless Ferring exercises its option to renew the agreement for
two-year periods, the agreement will terminate ten years following Ferrings receipt
of technical and regulatory approvals to market the Companys injector devices in
France, Germany, Italy and Spain. The last of such approvals was received December 1996.
In 2004, 2003 and 2002, revenue from Ferring accounted for 62%, 82%, and 59%,
respectively, of the Companys product sales. In 2004, revenue from JCR
Pharmaceutical Co., Ltd and SciGen, Pte. Ltd. accounted for 9% and 13% of the
Companys product sales, respectively, and in 2003 and 2002, revenue from these two
companies accounted for 5% or less of product sales.

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, had been recorded as deferred revenue and will be credited against the
royalties owed by Ferring, until such amount is exhausted. During 2004, $80,335 of the
deferred revenue royalty fee was recorded as revenue. 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.

Over
the past few years, the Company has taken several steps to increase its U.S. insulin
injector distribution. As a result, in March 2001, the Company granted non-exclusive U.S.
distribution rights to Diabetic Express, a division of Care Services, Inc. Antares has
concluded that the successful distribution of insulin devices will require additional
physician support and the marketing power of a major insulin manufacturer. However, the
Companys current effort will continue because its devices provide a vital service to
certain patients and provide the Company with considerable information regarding the needs
of people required to self-administer drugs by injection.

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
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, which option
was extended on December 16, 2004, for a currently unnamed therapeutic area.

17

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# 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 Innoject, Inc., while competition in the reusable
needle-free injector market includes Bioject Medical Technologies Inc. and The Medical
House. Most of these companies have substantially greater capital resources, more
experienced research teams, larger facilities and a broader range of products and
technologies.

Competition
in the injectable drug delivery market is intensifying. The Company faces competition from
traditional needle 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 vast 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 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.

At
least two companies currently sell injectors to the U.S. insulin market. Antares believes
that it retained the largest market share in 2004, and competes on the basis of device
size, price and ease of use. Equidyne, Inc. entered the worldwide insulin injector market
in mid-2000 but was no longer operating in this area as of late 2003. Aradigm acquired the
Weston medical injector technology and has financial resources to be a formidable
competitor.

PowderMed
Ltd (formerly Powderject Pharmaceuticals, plc), a British immunotherapeutics company, is
developing a needle-free injection system based upon the principle of injecting a fine dry
powder. Bioject and Powderject compete actively and successfully for licensing agreements
with pharmaceutical manufacturers. Powderject has recently refocused exclusively on the
use of its technology for vaccine delivery and licensed its technology for therapeutic
applications to AlgoRx, a United States company.

The
Company expects the needle-free injection market to expand, even though improvements
continue to be made in needle syringes, including syringes with hidden needles and
pen-like needle injectors. The Company expects to compete with existing needle injection
methods as well as new delivery methods yet to be commercialized. For example, Nektar
Therapeutics, in partnership with Pfizer, Inc. and Aventis Pharmaceuticals, has completed
Phase III clinical testing of inhaled insulin that, if successful, could replace the use
of injection for some patients, and in early March 2005, the companies announced the
filing of a New Drug Application ( NDA) in the U.S.

# 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, manufacture 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 FDA inspections. 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.

18

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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.

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 vigorous
statistical analysis. 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,

19

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manufacturers, including a
drug sponsors third-party contract manufacturers, 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 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.

We
believe we are currently in compliance with cGMP regulations.

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

20

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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.

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

21

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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.

In
the European Union, a drug delivery device that is an integral combination with the drug
to be delivered is considered part of the medicinal product and is regulated as a drug.
Gels are drug delivery devices which are, therefore, regulated as drugs and must comply
with the requirements described in the Council Directive 65/65/EEC.

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.

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. For example, sales, marketing and scientific/educational
grant programs must comply with the Medicare-Medicaid Anti-Fraud and Abuse Act, as
amended, the False Claims Act, also as amended, the privacy provisions of the Health
Insurance Portability and Accountability Act, and similar state laws. Pricing and rebate
programs must comply with the Medicaid rebate requirements of the Omnibus Budget
Reconciliation Act of 1990, as amended, and the Medicare Prescription Drug Improvement and
Modernization Act of 2003. If products are made available to authorized users of the
Federal Supply Schedule of the General Services administration, additional laws and
requirements may apply. All of these activities are also potentially subject to federal
and state consumer protection and unfair competition laws. In addition, our research and
development activities involve the controlled use of hazardous materials, chemicals and
various radioactive compounds the handling and disposal of which are governed by various
state and federal 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.

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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. 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 9001:2000 qualification for its manufacturing systems. This
certification shows that the Companys procedures and manufacturing facilities 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 initiated the revisions to its quality system to comply with ISO 13485:2003, the newly
released medical device industry standard.

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) gel.
 This allows the Company to produce clinical trial
materials and related packaging as well as production of intermediate products and end-user medicaments.

# Forward Looking
Statements

Antares
and its representatives may from time to time make written or oral forward-looking
statements with respect to its annual or long-term goals, including statements contained
in its filings with the Securities and Exchange Commission and in reports to shareholders.

The
words or phrases will likely result, are expected to, will
continue to, is anticipated, estimate, project,
may, should, plans, believes,
predicts, intends, potential or continue
or similar expressions identify forward-looking statements within the meaning
of the Private Securities Litigation Reform Act of 1995. Such statements are subject to
certain risks and uncertainties that could cause actual results to differ materially from
historical earnings and those presently anticipated or projected. Antares cautions readers
not to place undue reliance on any such forward-looking statements, which speak only as of
the date made.

In
connection with the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995, Antares is identifying the important risk factors below
that could affect its financial performance and could cause its actual results for future
periods to differ materially from any opinions or statements expressed with respect to
future periods in any current statements.

The
Company undertakes no obligation to publicly revise any forward-looking statements to
reflect future events or circumstances.

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# 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 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
Business

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

We
had working capital of $8,489,253 at December 31, 2004, and $615,371 at December 31, 2003.
We incurred net losses of ($8,348,532) and ($32,817,964) in the fiscal years ended 2004
and 2003, respectively. In addition, we have accumulated aggregate net losses from the
inception of business through December 31, 2004 of ($82,575,151). 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 three private placements in February and March 2004 in which we received
aggregate gross proceeds of $15,120,000. We believe that the combination of these equity
financings and projected product sales and product development and license revenues could
provide us with sufficient funds to support operations for the near future. 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 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 as a virtual pharma company;        
     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.

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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
fiscal 2004, we derived approximately 47%, 12% and 11% of our revenue, respectively, from
the following three customers:


     Ferring BV        
     Solvay Pharmaceuticals        
     BioSante Pharmaceuticals, Inc.

The
loss of any 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 BV 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 BV, 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.

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

Our
past assembly, testing and manufacturing experience for certain of our technologies has
involved the assembly of products from machined stainless steel and composite components
in limited quantities. Our planned future drug delivery 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 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 will assemble 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 will
also need to outsource manufacturing of our AJ 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;

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
     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 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.

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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 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,

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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.

Our business could suffer if we
are unable to effectively compete with our competitors

Additional
competitors in the 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 injecting drugs. Additionally, there is an ever increasing list of
competitors in the oral disintegrating fast-melt tablet business. Similarly, several
companies are competing in the transdermal gel market. 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., 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.

In
general, injection is 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, transdermally (through the skin) or pulmonarily (through the lungs). 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 would likely 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.

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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 29 patents and an additional 104 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 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.

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

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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.

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 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. 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.

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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.

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 our
Common Stock

Together, certain of our
shareholders 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 1, 2005,
approximately 23%) 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 84,500 shares of common stock.
Additionally, five investors (North Sound Funds, Perceptive Life Sciences Fund, SCO
Capital Group, SDS Funds and Xmark Funds) own Series D Convertible Preferred Stock and/or
warrants or a combination thereof that are, as of March 1, 2005, convertible into or
exercisable for an aggregate of 5,683,613 shares of our common stock. Some of these
investors plus Atlas Equity also directly own an aggregate of approximately 4,438,800
shares of our common stock. If SDS converted all of the Series D stock and if Dr. Gonella
and all of the above investors exercised all of the warrants or options owned by them, Dr.
Gonella would own approximately 27%, and the six investors as a group would own
approximately 20%, of our common stock.

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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 shareholder 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 articles 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
shareholders control of the Company, the price of our common stock could be
materially depressed.

Certain of our shareholders own
large blocks of our common stock and own securities convertible or exercisable into shares
of our common stock, and any exercises, conversions or sales by these shareholders 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, 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 or conversion of warrants or Series D stock. With the
exception of a portion of the stock controlled by Dr. Gonella, the shares of our common
stock owned by these shareholders (or issuable to them upon exercise or conversion of
warrants, Series D stock or options) are registered. Future sales of large blocks of our
common stock by any of the above investors could substantially depress our stock price.

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

As
of March 1, 2005, we currently have warrants outstanding that are exercisable, at prices
ranging from $0.55 per share to $29.55per share, for an aggregate of 16,936,897
shares of our common stock. We also have options outstanding that are exercisable, at
exercise prices ranging from $0.70 to $23.00 per share, for an aggregate of 3,499,495
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.

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

As
of March 1, 2005, our officers and directors beneficially owned an aggregate of 14,611,976
shares (or approximately 36%) 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.

Anti-takeover effects of certain
by-law provisions and Minnesota law could discourage, delay or prevent a change in control

Our
articles of incorporation and bylaws along with Minnesota law could discourage, delay or
prevent persons from acquiring or attempting to acquire us. Our articles of incorporation
authorize our board of directors, without action by our shareholders, 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 shareholders to change or repeal the bylaws. In addition, our bylaws limit
who may call meetings of our shareholders.

32

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As
a public corporation, we are prohibited by the Minnesota Business Corporation Act, except
under certain specified circumstances, from engaging in any merger, significant sale of
stock or assets or business combination with any shareholder or group of shareholders who
own at least 10% of our common stock.

# 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, 2005, we had 27 full-time and 4 part-time
employees worldwide, of whom 17 are in the United States. Of the 31 employees, 17 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.

# EXECUTIVE OFFICERS OF
THE REGISTRANT

|Name                  | Age | Position                                                         
|--------------------- | --- | -----------------------------------------------------------------
|Jack E. Stover        | 51  | President, Chief Executive Officer and
                Director  
|Lawrence M. Christian | 62  | Vice President - Finance, Secretary,  and Chief Financial Officer
|Dario Carrara, Ph.D.  | 41  | Managing Director - Formulations Group                           
|Peter Sadowski, Ph.D. | 57  | Vice President - Devices Group                                   
|James E. Hattersley   | 45  | Vice President - Business Development                            

Jack
E. Stover, joined Antares Pharma as President and Chief Operating Officer in July
2004. Effective September 1, 2004, he was appointed to the positions of Chief Executive
Officer and Director. Prior to joining Antares Pharma, Mr. Stover was Executive Vice
President and CFO of Sicor, Inc., a public injectable pharmaceuticals company that was
acquired by Teva Pharmaceutical Industries Ltd. Prior to his time at Sicor, Mr. Stover
held various senior management and operating roles with both proprietary pharmaceutical
and global medical device companies and earlier was a partner with PricewaterhouseCoopers
(formerly Coopers & Lybrand), where he headed their life sciences industry practice in
New Jersey.

Lawrence
M. Christian is currently Vice President  Finance, Secretary  and Chief Financial Officer
.. Hejoined the Company in March 1999 as Vice President, Finance &
Administration, Secretary and Chief Financial Officer. Mr. Christian took early retirement
from 3M after a 16-year career. Since 1996 Mr. Christian had been with 3M as Financial
Director  World-Wide Corporate R&D and Government Contracts and was involved in
organizing new business venture units and commercialization of new technologies. Prior to
1996 Mr. Christian served as Financial Manager  Government Contracts, European
Controller and Division Controller within 3M. Prior to joining 3M in 1982, Mr. Christian
was Vice President/CFO of APC Industries, Inc., a closely-held telecommunications
manufacturing company in Texas.

Dario
Carrara, Ph.D. is currently Managing Director  Pharmaceutical Group, located in
Basel, Switzerland. He served as General Manager of Permatecs Argentinean subsidiary
from 1995 until its liquidation in 2000. Prior to joining Permatec, between 1986 and 1995,
Dr. Carrara worked as Pharmaceutical Technology Manager for Laboratorios Beta, a
pharmaceutical laboratory in Argentina that ranks among the top ten pharmaceutical
companies in Argentina. Dr. Carrara has extensive experience in developing transdermal
drug delivery devices. He earned a double degree in Pharmacy and Biochemistry, as well as
a Ph.D. in Pharmaceutical Technology from the University of Buenos Aires.

33

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Peter
Sadowski, Ph.D., is currently Vice President  Devices Group, located in
Minneapolis, Minnesota. He joined the Company in March 1994 as Vice President, Product
Development. He was promoted to Executive Vice President and Chief Technology Officer in
1999. From October 1992 to February 1994, Dr. Sadowski served as Manager, Product
Development for GalaGen, Inc., a biopharmaceutical company. From 1988 to 1992, he was Vice
President, Research and Development for American Biosystems, Inc., a medical device
company. Dr. Sadowski holds a Ph.D. in microbiology.

James
E. Hattersley joined Antares Pharma as Vice President, Business Development, in
February 2005 and is located in Exton, Pennsylvania. Prior to joining Antares Pharma, Mr.
Hattersley served as Senior Director of Business Development at Eurand, Inc., a global
drug delivery and specialty pharma company. From 1998 to 2000, he was employed by Anesta
Corp., and from 1995 to 1998, Mr. Hattersley was Director of Program Management for JAGO
Pharma AG, which was acquired by SkyePharma. Mr. Hattersley also held technical positions
at Abbott Laboratories, Syntex Research USA and Alza Corporation between 1986 and 1995. He
holds an M.S. degree if biochemistry and an undergraduate degree in neurobiology from the
University of California.

# Liability Insurance

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 $1 million per occurrence and an annual aggregate maximum of $5
million. The Company evaluates its insurance requirements on an ongoing basis.

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.

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

On
September 25, 2003, Josephberg Grosz & Company (JGC) notified the Company
that it intends to commence an arbitration action against the Company in New York State.
The Company and JGC entered into a letter agreement on April 8, 2002. JGC claims that,
pursuant to the letter agreement, the Company owes it seven percent of the proceeds
received by the Company, as well as ten percent of various shares and securities issued by
the Company, in connection with up to $6 million in financing received by the Company
since April 5, 2002. The Company disputes that it owes any amounts to JGC. The Company
intends to vigorously defend this claim.

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

None.

34

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# PART II

Item
 5.     MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS.

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 Nasdaq Small Cap Market of the Nasdaq Stock Market from March 8, 1999 through June 30,
2003. Effective July 1, 2003, the Companys securities were delisted from The Nasdaq
SmallCap Market and began trading on the Over-the-Counter Bulletin Board under the symbol
ANTR.OB. Prior to the delisting, the Companys Common Stock had been traded under the
symbol ANTR. 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 the fourth quarter
of 2004, both the American Stock Exchange and the Over-the-Counter Bulletin Board for the
third quarter of 2004, the Over-the-Counter Bulletin Board for the third quarter of 2003
through the second quarter of 2004, and the Nasdaq Stock Market for the first two quarters
of 2003.

|               | High | Low
|-------------- | ---- | ---
|2004:          |      |    
|First Quarter  |      |    
|Second Quarter |      |    
|Third Quarter  |      |    
|Fourth Quarter |      |    
|2003:          |      |    
|First Quarter  |      |    
|Second Quarter |      |    
|Third Quarter  |      |    
|Fourth Quarter |      |    

# Common Shareholders

As
of March 1, 2005, the Company had 145 shareholders of record of its common stock, with
another estimated 3,162 shareholders whose stock is held in nominee name.

# Dividends

The
Company has not paid or declared any cash dividends on its common stock during the past
eight years. The Company has no intention of paying cash dividends in the foreseeable
future on common stock. The Company is obligated to pay 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 addition to the stated 10% dividend, the Company has
been historically obligated to pay foreign tax withholding on the dividend payment, which
equates to an effective dividend rate of 14.2%. Such foreign tax withholding payments have
been reflected as dividends, to the extent they are non-recoverable. The Series A
agreement has a provision which allows the Company to pay the dividend by issuance of the
same stock when funds are not available. The Company has exercised this provision for ten
of the last eleven dividend payments.

# Sales of Unregistered
Securities

On
October 15, 2004, the Company issued 5,000 shares of its common stock to Mark Wachs and
Associates. The shares were issued as compensation pursuant to a public relations letter
agreement. The issuance of the shares was exempt from registration under Section 4(2) of
the Securities Act of 1933.

On
December 30, 2004, the Company received proceeds of $625,000 in connection with the
issuance of 500,000 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.

As
compensation to non-employees for professional services, in November 2004 the Company
issued warrants to purchase 150,000 shares of the Companys common stock. The
warrants have exercise prices ranging from $3.00 to

35

---

$5.00 per share and expire five years
after issuance. The issuance of the shares was exempt from registration under Section 4(2)
of the Securities Act of 1933.

Item 6.    SELECTED
FINANCIAL DATA

# SELECTED FINANCIAL DATA
(In thousands, except per share data)

|                                               | At December 31,
|---------------------------------------------- | ---------------
|
|Balance Sheet Data:                            |                
|Cash and cash equivalents                      |                
|Short-term investments                         |                
|Working capital (deficit)                      |                
|Total assets                                   |                
|Long-term liabilities, less current maturities |                
|Accumulated deficit                            |                
|Total shareholders' equity (deficit)           |                



|                                                                | Year Ended December 31,
|--------------------------------------------------------------- | -----------------------
|
|Statement of Operations Data:                                   |                        
|Product sales                                                   |                        
|Development                                                     |                        
|Licensing                                                       |                        
|Royalties                                                       |                        
|                                                                |                        
|Revenues                                                        |                        
|                                                                |                        
|Cost of sales                                                   |                        
|Research and development (3)                                    |                        
|Sales and marketing                                             |                        
|General and administrative                                      |                        
|Goodwill impairment charge                                      |                        
|                                                                |                        
|Operating expenses                                              |                        
|                                                                |                        
|Net operating loss                                              |                        
|Net other income (expense)                                      |                        
|Income tax expense                                              |                        
|                                                                |                        
|Loss before cumulative effect of change in accounting principle |                        
|Cumulative effect of change in accounting principle             |                        
|                                                                |                        
|Net loss                                                        |                        
|In-the-money conversion feature-preferred stock dividend        |                        
|Preferred stock dividends                                       |                        
|                                                                |                        
|Net loss applicable to common shares                            |                        
|                                                                |                        
|Net loss per common share (1), (2)                              |                        
|                                                                |                        
|Weighted average number of common shares                        |                        
|                                                                |                        

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

36

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

# 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.
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 $8,348,532 for the year ending December 31, 2004 and
expects to report a net loss for the year ending December 31, 2005, 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 2004. The Company received net proceeds of $13,753,400 in three
private placements of its common stock in which a total of 15,120,000 shares of common
stock were sold at a price of $1.00 per share. Additionally, the Company issued five-year
warrants to purchase an aggregate of 5,039,994 shares of common stock at an exercise price
of $1.25 per share. During 2004 the Company also received proceeds of $1,472,500 in
connection with the exercise of warrants for 3,480,500 shares of common stock.

The
Company believes that the combination of these equity financings 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 we 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 or accept financing terms that are not as attractive as the
Company may desire.

37

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# Results of Operations

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 1 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 ($3,424,958 at December 31, 2004) 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 earnings 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.

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.

38

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|                                                    | 2004 | 2003 | 2002
|--------------------------------------------------- | ---- | ---- | ----
|Product sales                                       |      |      | $   
|Development fees                                    |      |      |     
|Licensing fees and milestone payments               |      |      |     
|Royalties                                           |      |      |     
|                                                    |      |      |     
|Billings received and/or accrued per contract terms |      |      |     
|Deferred billings received and/or accrued           |      |      |     
|Deferred revenue recognized                         |      |      |     
|Amortization of prepaid license discount            |      |      |     
|                                                    |      |      |     
|Total revenue as reported                           |      |      | $   
|                                                    |      |      |     

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 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 quarters of 2004, 2003 and 2002
the Company updated its long-range business plan. Certain capitalized patent costs were
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, $973,769 and $435,035
in 2004, 2003 and 2002, respectively, in research and development 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 $131,000 in 2005 and 2006, $96,000 in 2007, and $93,000 in 2008 and 2009.

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 2004 and 2003 resulted in no
impairment losses.

In
connection with the transitional goodwill impairment evaluation, SFAS 142 required the
Company to perform an assessment of whether there was an indication that goodwill was
impaired as of the January 1, 2002 adoption date. This analysis indicated that there was
not a goodwill impairment upon adoption of SFAS No. 142. The Companys annual
impairment analysis as of December 31, 2002 indicated a potential impairment charge due to
a significant decline in the Companys stock price in the fourth quarter of 2002 and
concerns about the continued existence of the Company due to continued net losses and
negative cash flows from operations. After completion of the impairment analysis
prescribed in SFAS No. 142, the Company recorded a goodwill impairment charge of
$2,000,000 in the fourth quarter of 2002.

39

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Foreign Currency
Translation

Revenues
of the subsidiaries are denominated in U.S. dollars, and any required funding of the
subsidiaries is provided by the U.S. parent. However, nearly all operating expenses,
including labor, materials, leasing arrangements and other operating costs, are
denominated in Swiss Francs. Additionally, bank accounts 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 European subsidiaries. The reporting currency for the
Company is the United States Dollar (USD). The financial statements of the
Companys three 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 shareholders equity.
Foreign currency transaction gains and losses are included in the statements of
operations. The Company recorded in comprehensive loss a loss on foreign currency
translation of $42,642, $116,999 and $122,897 for 2004, 2003 and 2002, respectively. In
2004, 2003 and 2002, the USD weakened against the Swiss Franc, causing the losses from the
Swiss subsidiaries, after translation to USD, to increase compared to what they would have
been in prior years. The Company estimates that the weakening of the USD against the Swiss
Franc has resulted in increased losses of approximately $300,000, $500,000 and $250,000 in
2004, 2003 and 2002, respectively.

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 shareholder 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 the capital restructuring 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.

Years Ended December 31,
2004, 2003 and 2002

Revenues

Revenues
decreased by $1,040,888, or 27%, to $2,745,956 in 2004 from $3,786,844 in 2003, and
decreased $208,917, or 5%, to $3,786,844 in 2003 from $3,995,761 in 2002. The decrease in
2004 resulted primarily from a reduction in sales to the Companys major customer,
Ferring. The decrease in 2003 compared to 2002 was mainly due to reduced development
revenue at the Antares/Switzerland operations, partially offset by an increase in sales to
Ferring.

Antares/Minnesota
product sales include sales of reusable needle-free injector devices, related parts,
disposable components, and repairs. In 2004, 2003 and 2002, a total of 2,533, 3,384 and
4,966 devices, respectively, were sold at average prices of approximately $245, $231 and
$245, respectively. 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. The
decrease in 2003 compared to 2002 was due primarily to a reduction in the selling price to
Ferring in 2003. Sales of disposable components in 2004, 2003 and 2002 totaled $1,143,071,
$1,748,213 and $1,033,635, respectively. The decrease in

40

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sales of devices and disposable
components in 2004 compared to 2003 was due primarily to a decrease in sales to Ferring,
whose purchasing level in 2003 was impacted by their decision to convert their customers
to the Companys most current device model, the Medi-Jector VISION®, from the
earlier device model (the Choice) and by their increased purchases of product
to sustain supply as the Company outsourced its assembly operations during 2003. The
decrease in device sales in 2003 from 2002 was due to fewer sales to Ferring. In 2002 the
Company sold both the Choice device and the Medi-Jector VISION® device to Ferring, who
began purchasing the Medi-Jector VISION® device in anticipation of converting existing
customers from the Choice device and in anticipation of launching the Medi-Jector
VISION® device in new markets. The decrease in device sales in 2003 compared to 2002
was offset by an increase in sales of disposable components, which was primarily due to
Ferrings supply building and conversion implementation efforts in 2003.

Development
revenue decreased by $113,387 in 2004 to $196,648 from $310,035 in 2003 and decreased by
$625,289 in 2003 from $935,324 in 2002. Nearly all of the recognized development revenue
has been 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 in 2002 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 $634,542, $695,244 and $638,633 in 2004, 2003 and 2002, respectively. The
decrease of $60,702 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.
The increase in licensing revenue in 2003 compared to 2002 of $56,611 was due to an
increase of $154,840 in revenue recognized on previously deferred amounts plus
amortization of $72,999 on deferred license fees received in 2003, partially offset by a
decrease in one time license fees of $122,166 and an increase in prepaid license discount
amortization of $49,062.

Royalty
revenue was related to the sale of reusable needle-free injection devices to Ferring under
the License Agreement dated January 22, 2003, described in more detail in Note 9 to the
Consolidated Financial Statements. The reduction in royalty revenue from $134,937 in 2003
to $80,335 in 2004 was due to fewer device sales to Ferring in 2004.

Cost of Sales

The
costs of product sales are primarily related to reusable injection devices and disposable
components. Cost of sales as a percentage of product sales remained relatively constant in
2004 compared to 2003, decreasing 1% to 71% in 2004 from 72% in 2003. Cost of sales as a
percentage of product sales decreased significantly in 2003 compared to 2002, decreasing
by 23% to 72% in 2003 from 95% in 2002. In February 2003 the Company entered into a
manufacturing agreement under which all assembly work previously performed in the
Companys Minneapolis facility was to be outsourced. The transition of the assembly
operations was completed by May of 2003. The 2003 decrease in cost of sales as a
percentage of sales was due partially to the outsourcing, which has resulted in the
elimination of excess capacity and has helped stabilize product costs. The 2003 decrease
was also due to unexpected costs incurred in 2002 related to disposable component
production and design issues, which resulted in an unusually high cost of sales percentage
in that year.

The
cost of development revenue consists of labor costs and an allocation of certain research
and development expenses based on actual time spent in these revenue generating
activities. Cost of development revenue as a percentage of development revenue was 34%,
29% and 29% in 2004, 2003 and 2002, respectively.

Research and Development

Research
and development expenses increased by $52,472, or 1%, to $3,546,438 in 2004 from
$3,493,966 in 2003, and in 2003 decreased by $160,367, or 4%, from $3,654,333 in 2002. 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 and by a decreased

41

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patent impairment charge in 2004 compared to 2003.
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 decrease
in research and development expenses in 2003 compared to 2002 was due primarily to a
management decision to reduce overall research and development spending, which
significantly impacted prototyping, tooling and clinical studies and which resulted in
employee reductions in both locations, lowering payroll expenses. The decrease was also
due to a reduction of $120,000 in consulting expenses after a two-year consulting
agreement ended in June of 2003. These reductions were partially offset by increased
patent related expenses, including the patent impairment charge of $973,769 in the fourth
quarter of 2003.

Sales, Marketing and
Business Development

Sales
and marketing expenses increased by $213,502, or 46%, to $675,878 in 2004 from $462,376 in
2003, and decreased in 2003 by $335,279, or 42%, from $797,655 in 2002. 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. The 2003 decrease was primarily due to payroll cost reductions, which
accounted for 65% of the decrease in 2003, while the remainder of the decrease was derived
mainly from reductions in travel costs and clinical trial expenses.

General and Administrative

General
and administrative expenses decreased $930,655, or 14%, to $5,526,004 in 2004 from
$6,456,659 in 2003, and increased in 2003 by $1,224,270, or 23%, from $5,232,389 in 2002.
The decrease in 2004 was primarily due to decreases in payroll, professional services and
investor relations expenses, partially offset by increases in travel and insurance
expenses. 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. The increase in travel in 2004 of approximately $140,000 was due primarily
to increased travel by the Board of Directors, and the insurance expense increase of
approximately $76,000 was mainly due to increased Directors and Officers insurance
coverage. In addition to increases in professional services and investor relations
expenses in 2003 as compared to 2002, rent expense increased by approximately $70,000 due
primarily to a higher rent allocation to general and administrative expenses after the
transition of the assembly operation was completed at the Antares/Minnesota location. The
increases in 2003 were partially offset by decreases in payroll costs of approximately
$330,000 due to staff reductions, travel expenses of approximately $60,000 and
depreciation of approximately $40,000. Excluding all stock-based noncash expenses, total
general and administrative expenses increased in 2004 compared to 2003 by approximately
$75,000 and decreased in 2003 compared to 2002 by approximately $125,000.

In
2004, the Company incurred approximately $62,000 of professional fees and travel expenses in
connection with documentation of internal controls over financial reporting in preparation
for compliance with the requirements of Section 404 of the Sarbanes-Oxley Act.

42

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Goodwill Impairment Charge

The
Company had no impairment charges in 2004 or 2003, but recorded a $2,000,000 impairment
charge in the fourth quarter of 2002 related to the Minnesota operations reporting unit.

Other Income (Expense)

Other
income (expense), net, changed to income of $26,134 in 2004 from expense of ($24,183,924)
in 2003, and in 2003 increased from expense of ($1,346,869) in 2002. The net decrease in
other expenses of $24,210,058 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 shareholder, $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. The increase in expense of $22,837,055 in 2003 compared to 2002
was primarily due to the losses on conversions of debt to equity, common stock warrants
and debt extinguishments in amounts aggregating $23,129,900. The loss on conversions of
debt to equity represented the difference between the fair value of the preferred stock,
common stock and warrants issued to the debt holders in excess of the carrying value of
the debt on September 12, 2003, the date of the conversions. The losses on common stock
warrants were the result of the warrants being classified as debt under EITF 00-19,
Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled
in, a Companys Own Stock and a requirement to mark-to-market the warrants at
each reporting period with changes in the warrant values being recorded in the
consolidated statement of operations. The warrants were adjusted to their fair value at
the end of each reporting period using the Black Scholes option pricing model, with the
fair value increases being recorded as losses in the consolidated statement of operations
and as increases in the debt on the consolidated balance sheets. The loss on debt
extinguishments resulted from the debenture restructuring in January of 2003 and mainly
represents the unamortized debt issuance discount related to the intrinsic value of the
beneficial in-the-money conversion feature of the 10% debentures and unamortized debt
issuance costs. Other expense in 2003 also includes an estimated $156,759 of withholding
taxes on foreign payments made in prior years. Partially offsetting the increases in other
expenses in 2003 compared to 2002 was the decrease in interest expense from $1,297,440 in
2002 to $920,130 in 2003. Interest expense in 2002 consisted mainly of $828,813 from
amortization of a debt issuance discount related to the Companys 10% convertible
debentures and of $317,335 of amortization of deferred financing costs related to the 10%
debentures and of interest on borrowings in the principal amount of $2,700,000 in 2002
from the Companys largest shareholder.

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 2004, 2003 and 2002, and is not meant to be
a substitute for accounting or presentation requirements under U.S. generally accepted
accounting principles.

|                                                                                | For the Years Ended December 31,
|------------------------------------------------------------------------------- | --------------------------------
|
|Noncash other expense items:                                                    |                                 
|Loss on debt extinguishments                                                    |                                 
|Loss on conversions of debt to equity                                           |                                 
|Loss on common stock warrants                                                   |                                 
|Interest expense                                                                |                                 
|                                                                                |                                 
|Total noncash other expenses included in net loss in the consolidated           |                                 
|statement of operations                                                         |                                 
|                                                                                |                                 
|Impact of noncash other expenses on basic and diluted net loss per common share |                                 
|                                                                                |                                 

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# Liquidity and Capital
Resources

Operating Activities

Net
cash used in operating activities was $7,167,313, $3,553,323 and $5,553,766 for the years
ended December 31, 2004, 2003 and 2002, respectively. This was the result of net losses of
$8,348,532, $32,817,964 and $11,608,765 in 2004, 2003 and 2002, respectively, adjusted by
noncash expenses and changes in operating assets and liabilities.

Noncash
expenses totaled $1,915,862 in 2004, 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 noncash expenses of $4,878,602 in
2002 consisted primarily of goodwill impairment charge of $2,000,000, patent rights
impairment charge of $435,035, depreciation and amortization of $907,131, noncash interest
expense of $1,146,148, and stock-based compensation expense of $370,410. The depreciation
and amortization decrease in 2004 from 2003 of $265,154 is due primarily to production and
office equipment that became fully depreciated early in 2004.

The
change in operating assets and liabilities in 2004 utilized cash of $717,592. 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 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.

Cash
increased by $1,176,397 as a result of the change in operating assets and liabilities in
2002. This increase was primarily due to reductions in receivables of $654,266, increases
in accrued expenses and deferred revenue of $510,992 and $348,090, respectively, offset by
increased prepaid expenses and other assets of $365,065. The decrease in receivables was
primarily due to a reduction of approximately $290,000 in VAT receivables and a reduction
of approximately $330,000 in receivables from BioSante due to a lower level of development
activity. The increase in accrued expenses was mainly due to approximately $500,000 of
customer deposits received during 2002. The deferred revenue increase was due to
approximately $500,000 of milestone payments received in 2002 that were deferred. Prepaid
expenses and other assets increased primarily in connection with deferred financing costs
related to the issuance of convertible debentures in 2002.

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Investing Activities

Net
cash used in investing activities totaled $8,183,796, $169,847 and $435,796 for the years
ended December 31, 2004, 2003 and 2002, respectively. 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, $1,160 and
$155,145 in 2004, 2003 and 2002, 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 in April, new disposable
component tooling expected to be in service in the first half of 2005, and upgrades to
computer hardware and software. Capital spending in 2003 was essentially halted and in
2002 was related mainly to purchases of furniture and office equipment in connection with
the opening of corporate offices in Exton, PA, along with smaller amounts for tooling
improvement costs and computer related acquisitions. Capitalized spending related to
patent development in 2004, 2003 and 2002 was $76,193, $168,687 and $280,651,
respectively. The Company expects capitalized patent development costs to decrease in the
future, as a larger portion of these costs are expected to be expensed as they are
incurred.

Financing Activities

The
Companys contractual cash obligations at December 31, 2004 are associated with
operating leases and are summarized in the following table:

|                                   | Payment Due by Period
|---------------------------------- | ---------------------
|
|Total contractual cash obligations |                      
|                                   |                      

Net
cash provided by financing activities totaled $15,140,603, $5,595,813 and $4,571,212 for
2004, 2003 and 2002. 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 of $16,249 from the exercise of stock
options, proceeds from loans from a debenture holder of $621,025, and $1,600,000 in
subordinated loans from shareholders. In 2003 the Company made principal payments on
convertible debentures and capital lease obligations of $464,000 and $107,461,
respectively. In 2002 net cash provided by financing activities was due to proceeds from
subordinated loans from shareholders of $2,700,000 and proceeds from issuance of
convertible debentures of $2,000,000, offset by principal payments on capital lease
obligations of $128,788.

In
February and March 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 at
a price of $1.00 per share. The Company also issued five-year warrants to purchase an
aggregate of 5,039,994 shares of common stock at an exercise price of $1.25 per share.

During
2004 the Company received proceeds of $1,472,500 in connection with the issuance of
3,480,500 shares of common stock resulting from the exercise of warrants. Of the shares
issued, 2,932,500 were in connection with warrants exercised by holders of the
Companys Series D Convertible Preferred Stock after the Company had offered, on
December 30, 2003 when the availability of equity funds was unknown, 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. Also on

45

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September 12, 2003, the holders of
the Companys 8% Senior Secured Convertible Debentures and Amended and Restated 8%
Senior Secured Convertible Debentures (collectively, the Debentures) exchanged
the outstanding $1,218,743 aggregate principal and accrued interest of the Debentures 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 Debentures. In connection with the exchange of the Debentures for the Series D
Preferred, the holders of the 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 of the Debentures on January 31, 2003 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
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 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 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 Black-Scholes option pricing model. The
allocation resulted in an initial value assigned to the warrants of $1,588,585. 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.

On
February 7, 2003, the Company completed a restructuring of its 10% debentures previously
sold to four primary investors. Specifically, as part of this restructuring, on January
24, 2003 and January 31, 2003, the Company borrowed an aggregate of $621,025 from Xmark
Funds. The Company used the proceeds of these borrowings to repurchase $464,000 principal
amount of the 10% debentures previously sold to the two original 10% debenture holders who
had converted $536,000 of principal into common stock, and to pay a repurchase premium of
$144,200 and accrued interest of $12,825. As additional repurchase compensation, the
Company issued warrants to one of the two original 10% debenture holders and paid $5,000,
in lieu of warrants, to the other. The Company recognized a debt extinguishment loss of
$885,770 in 2003 related to these transactions. Thereafter, in exchange for the surrender
and cancellation of the promissory notes, the Company issued to Xmark Funds 8% Senior
Secured Convertible Debentures in the same principal amount of the promissory notes. The
Company also exchanged Amended and Restated 8% Senior Secured Convertible Debentures for
the remaining outstanding principal and accrued interest of $955,000 and $37,230,
respectively, of the original 10% debentures. The aggregate principal amount of the 8%
debentures was $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 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 $3,294,827 on these common
stock warrants in 2003.

46

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The
aggregate original principal amount of the 8% debentures of $1,613,255 was held by two
debenture holders in the amounts of $469,513 and $1,143,742, respectively. The Company
analyzed each of the restructuring transactions for the two 8% debenture holders to
determine the proper accounting treatment. The effective borrowing rate on $469,513 of
restructured debentures was determined to be less than the effective borrowing rate on the
original debentures immediately prior to the restructuring. As a result, the Company
determined that these debentures should be accounted for as a troubled debt restructuring.
The net carrying value of these debentures at the time of the restructuring was reduced
from $140,659 to $97,710 resulting in a debt discount of $371,803 that was being amortized
to interest expense through March 31, 2004 using the effective interest method. The
unamortized discount was written off in connection with the conversions on September 12,
2003. The transaction related to the remaining $1,143,742 was accounted for as a debt
extinguishment under EITF 96-19. The restructured debentures were determined to be
substantially different from the original debentures because the present value of the cash
flows under the terms of the restructured debentures was more than 10 percent different
from the present value of the remaining cash flows under the terms of the original
debentures. The debentures were recorded at a fair value of $1,276,339, and the premium of
$132,597 was being amortized monthly through March 31, 2004 using the effective interest
method. The unamortized premium was written off in connection with the conversions on
September 12, 2003.

Effective
July 1, 2003, the Companys securities were delisted from The Nasdaq SmallCap Market
and began trading on the Over-the-Counter (OTC) Bulletin Board under the
symbol ANTR.OB, after the Nasdaq Listing Qualifications Panel determined to
delist the Companys securities. The delisting from The Nasdaq SmallCap Market
constituted an event of default under the restructured 8% debentures. However, the Company
obtained letters from the debenture holders in which they agreed to forbear from
exercising their rights and remedies with respect to such event of default, indicating
they did not intend to accelerate the payment and other obligations of the Company under
the debentures. The debenture holders reserved the right at any time to discontinue the
forbearance and, among other things, to accelerate the payment and other obligations of
the Company under the 8% debentures. If the debenture holders had decided to discontinue
their forbearance, the debentures would have become due and payable at 130% of the
outstanding principal and accrued interest. Because the debenture holders retained the
right to discontinue the forbearance and this option was outside the control of the
Company, the Company was required to record an expense and a liability of $508,123 for the
30% penalty in future periods until the debentures were converted to common stock, at
which time the liability was removed and offset against the loss on conversions of debt to
equity.

In
July 2002, the Company sold $2,000,000 aggregate principal amount of its 10% debentures,
with $700,000 maturing on July 12, 2003, $700,000 maturing on July 26, 2003 and $600,000
maturing on October 15, 2003. The debentures were convertible into shares of the
Companys common stock at a conversion price which was the lower of $2.50 or 75% of
the average of the three lowest intraday prices of the Companys common stock, as
reported on the Nasdaq SmallCap Market, during the 20 trading days preceding the
conversion date. From October 10, 2002 to January 17, 2003, three of the original four
holders of the 10% debentures converted $581,000 of principal into 1,777,992 shares of
common stock at an average conversion price of approximately $0.327 per share. Two of the
original four holders accounted for the conversion of $536,000 of principal into 1,660,863
shares of common stock.

# 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 1 to the Consolidated Financial Statements contains 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 new
standard is effective for the first interim or annual reporting period that begins after
June 15, 2005.  The Company expects to implement the new standard beginning with the
third quarter of 2005, 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.

47

---

Item 7(A).      MARKET RISK
ASSESSMENT

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, 2004, 2003 and 2002 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 9 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.

48

---

Item 8.      FINANCIAL
STATEMENTS.

# ANTARES PHARMA, INC. INDEX TO CONSOLIDATED
FINANCIAL STATEMENTS

|Report of Independent Registered Public Accounting Firm                                                                      | 50
|---------------------------------------------------------------------------------------------------------------------------- | --
|                                                                                                                             |   
|Consolidated Balance Sheets as of December 31, 2004 and 2003                                                                 | 51
|                                                                                                                             |   
|Consolidated Statements of Operations for the Years Ended December 31, 2004, 2003 and 2002                                   | 52
|                                                                                                                             |   
|Consolidated Statements of Shareholders' Equity and Comprehensive Loss for the
 Years Ended December 31, 2004, 2003 and 2002 | 53
|                                                                                                                             |   
|Consolidated Statements of Cash Flows for the Years Ended December 31, 2004, 2003 and 2002                                   | 55
|                                                                                                                             |   
|Notes to Consolidated Financial Statements                                                                                   | 56

49

---

# REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM

The Board of Directors
and ShareholdersAntares Pharma, Inc.:

We have audited the accompanying
consolidated balance sheets of Antares Pharma, Inc. and subsidiaries (the Company) as of
December 31, 2004 and 2003, and the related consolidated statements of operations,
shareholders equity and comprehensive loss, and cash flows for each of the years in
the three-year period ended December 31, 2004. These financial statements are the
responsibility of the Companys management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance
with the standards of the Public Company 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, 2004 and
2003, and the results of their operations and their cash flows for each of the years in
the three-year period ended December 31, 2004, in conformity with U.S. generally accepted
accounting principles.

/s/ KPMG LLP

Minneapolis, MinnesotaMarch 16, 2005

50

---

# ANTARES PHARMA, INC. CONSOLIDATED BALANCE
SHEETS

|                                                                                                       | December 31,
|------------------------------------------------------------------------------------------------------ | ------------
|
|Assets                                                                                                 |             
|Current Assets:                                                                                        |             
|Cash  and cash equivalents                                                                             |             
|Short-term investments                                                                                 |             
|Accounts receivable, less allowance for doubtful accounts of $22,500 and $21,500, respectively         |             
|Other receivables                                                                                      |             
|Inventories                                                                                            |             
|Prepaid expenses and other assets                                                                      |             
|                                                                                                       |             
|Total current assets                                                                                   |             
|                                                                                                       |             
|Equipment, furniture and fixtures, net                                                                 |             
|Patent rights, net                                                                                     |             
|Goodwill                                                                                               |             
|Other assets                                                                                           |             
|                                                                                                       |             
|Total Assets                                                                                           |             
|                                                                                                       |             
|Liabilities and Shareholders' Equity                                                                   |             
|Current Liabilities:                                                                                   |             
|Accounts payable                                                                                       |             
|Accrued expenses and other liabilities                                                                 |             
|Due to related parties                                                                                 |             
|Capital lease obligations - current maturities                                                         |             
|Deferred revenue                                                                                       |             
|                                                                                                       |             
|Total current liabilities                                                                              |             
|                                                                                                       |             
|Deferred revenue - long term                                                                           |             
|                                                                                                       |             
|Total liabilities                                                                                      |             
|                                                                                                       |             
|                                                                                                       |             
|Shareholders' Equity:                                                                                  |             
|Series A Convertible Preferred Stock:  $0.01 par; authorized 10,000 shares; 1,500 and 1,450 issued and |             
|outstanding at December 31, 2004 and 2003, respectively                                                |             
|Series D Convertible Preferred Stock:  $0.01 par; authorized 245,000 shares; 63,588 and 243,749 issued |             
|and outstanding at December 31, 2004 and 2003, respectively                                            |             
|Common Stock:  $0.01 par; authorized 100,000,000 shares; 40,418,406 and 19,831,296 issued              |             
|and outstanding at December 31, 2004 and 2003, respectively                                            |             
|Additional paid-in capital                                                                             |             
|Prepaid license discount                                                                               |             
|Accumulated deficit                                                                                    |             
|Deferred compensation                                                                                  |             
|Accumulated other comprehensive loss                                                                   |             
|                                                                                                       |             
|                                                                                                       |             
|                                                                                                       |             
|Total Liabilities and Shareholders' Equity                                                             |             
|                                                                                                       |             

See
accompanying notes to consolidated financial statements.

51

---

# ANTARES PHARMA, INC. CONSOLIDATED STATEMENTS OF OPERATIONS

|                                                             | Years Ended December 31,
|------------------------------------------------------------ | ------------------------
|
|Revenues:                                                    |                         
|Product sales                                                |                         
|Development revenue                                          |                         
|Licensing fees                                               |                         
|Royalties                                                    |                         
|                                                             |                         
|Total revenue                                                |                         
|                                                             |                         
|Cost of sales:                                               |                         
|Cost of product sales                                        |                         
|Cost of development revenue                                  |                         
|                                                             |                         
|Total cost of sales                                          |                         
|                                                             |                         
|Gross margin                                                 |                         
|                                                             |                         
|Operating expenses:                                          |                         
|Research and development                                     |                         
|Sales, marketing and business development                    |                         
|General and administrative                                   |                         
|Goodwill impairment charge                                   |                         
|                                                             |                         
|                                                             |                         
|                                                             |                         
|Net operating loss                                           |                         
|                                                             |                         
|Other income (expense):                                      |                         
|Loss on debt extinguishments                                 |                         
|Loss on conversions of debt to equity                        |                         
|Loss on common stock warrants                                |                         
|Interest expense                                             |                         
|Interest income                                              |                         
|Foreign exchange gains (losses)                              |                         
|Other, net                                                   |                         
|                                                             |                         
|                                                             |                         
|                                                             |                         
|Net loss                                                     |                         
|                                                             |                         
|Preferred stock dividends                                    |                         
|                                                             |                         
|Net loss applicable to common shares                         |                         
|                                                             |                         
|Basic and diluted net loss per common share                  |                         
|                                                             |                         
|Basic and diluted weighted average common shares outstanding |                         
|                                                             |                         

See
accompanying notes to consolidated financial statements.

52

---

# ANTARES PHARMA, INC. CONSOLIDATED STATEMENTS
OF SHAREHOLDERS EQUITY AND COMPREHENSIVE LOSS Years Ended December
31, 2002, 2003 and 2004

|                   | Convertible Preferred Stock |  |  |       |  |   |    | 
|------------------ | --------------------------- |  |  | ----- |  | - | -- | 
|
|
|
|
|December 31,       |                             | 
|2001               |                             |  |  | 1,250 |  | $ | 13 | 
|Conversion of      |                             | 
|shareholder        |                             |  |  |       |  |   |    | 
|loans to equity    |                             |  |  |      |  |   |   | 
|Preferred stock    |                             |  |  |       |  |   |    | 
|issued in lieu     |                             | 
|of dividends       |                             |  |  | 100   |  |   | 1  | 
|Stock-based        |                             | 
|compensation       |                             |  |  |      |  |   |   | 
|Intrinsic value of |                             | 
|beneficial con-    |                             |  |  |       |  |   |    | 
|version feature    |                             | 
|of convertible     |                             |  |  |       |  |   |    | 
|debentures         |                             |  |  |      |  |   |   | 
|Issuance of        |                             |  |  |       |  |   |    | 
|warrants in        |                             | 
|connection with    |                             |  |  |       |  |   |    | 
|convertible        |                             | 
|debentures         |                             |  |  |      |  |   |   | 
|Convertible        |                             |  |  |       |  |   |    | 
|debentures         |                             |  |  |       |  |   |    | 
|converted into     |                             | 
|common stock       |                             |  |  |      |  |   |   | 
|Net loss           |                             |  |  |      |  |   |   | 
|Translation        |                             |  |  |       |  |   |    | 
|adjustments        |                             |  |  |      |  |   |   | 
|                   |                             |  |  |       |  |   |    | 
|Comprehensive      |                             | 
|loss               |                             |  |  |      |  |   |   | 
|                   |                             |  |  |       |  |   |    | 
|December 31,       |                             |  |  |       |  |   |    | 
|2002               |                             |  |  | 1,350 |  |   | 14 | 

See
accompanying notes to consolidated financial statements.

53

---

# ANTARES PHARMA, INC. CONSOLIDATED
STATEMENTS OF SHAREHOLDERS EQUITY AND COMPREHENSIVE LOSS (CONTINUED) Years Ended December
31, 2002, 2003 and 2004

|                 | Convertible Preferred Stock |  |  |       |  |   |    | 
|---------------- | --------------------------- |  |  | ----- |  | - | -- | 
|
|
|
|
|December 31,     |                             | 
|2002             |                             |  |  | 1,350 |  |   | 14 | 
|Warrants         |                             | 
|issued with      |                             |  |  |       |  |   |    | 
|debt to          |                             | 
|shareholder      |                             |  |  |      |  |   |   | 
|Conversion of    |                             | 
|shareholder      |                             |  |  |       |  |   |    | 
|loans to         |                             | 
|equity           |                             |  |  |      |  |   |   | 
|Convertible      |                             |  |  |       |  |   |    | 
|debentures       |                             |  |  |       |  |   |    | 
|converted        |                             | 
|into common      |                             |  |  |       |  |   |    | 
|stock            |                             |  |  |      |  |   |   | 
|Required         |                             |  |  |       |  |   |    | 
|intrinsic value  |                             |  |  |       |  |   |    | 
|of beneficial    |                             |  |  |       |  |   |    | 
|conversion       |                             |  |  |       |  |   |    | 
|of convertible   |                             |  |  |       |  |   |    | 
|debentures       |                             |  |  |      |  |   |   | 
|Convertible      |                             |  |  |       |  |   |    | 
|debentures       |                             | 
|converted        |                             |  |  |       |  |   |    | 
|into Preferred   |                             | 
|Series D         |                             |  |  |      |  |   |   | 
|Issuance of      |                             | 
|common           |                             |  |  |       |  |   |    | 
|stock in         |                             | 
|private          |                             |  |  |       |  |   |    | 
|placement        |                             |  |  |      |  |   |   | 
|Stock-based      |                             |  |  |       |  |   |    | 
|compensation     |                             |  |  |      |  |   |   | 
|Exercise of      |                             |  |  |       |  |   |    | 
|stock options    |                             |  |  |      |  |   |   | 
|Preferred stock  |                             |  |  |       |  |   |    | 
|issued in lieu   |                             |  |  |       |  |   |    | 
|of dividends     |                             |  |  | 100   |  |   | 1  | 
|Reclassification |                             |  |  |       |  |   |    | 
|of warrants as   |                             |  |  |       |  |   |    | 
|equity from      |                             |  |  |       |  |   |    | 
|debt             |                             |  |  |      |  |   |   | 
|Prepaid license  |                             | 
|discount,        |                             |  |  |       |  |   |    | 
|net of           |                             |  |  |       |  |   |    | 
|amortizaton      |                             |  |  |      |  |   |   | 
|Net loss         |                             |  |  |      |  |   |   | 
|Translation      |                             |  |  |       |  |   |    | 
|adjustments      |                             |  |  |      |  |   |   | 
|                 |                             |  |  |       |  |   |    | 
|Comprehensive    |                             | 
|loss             |                             |  |  |      |  |   |   | 
|                 |                             |  |  |       |  |   |    | 
|December 31,     |                             |  |  |       |  |   |    | 
|2003             |                             |  |  | 1,450 |  |   | 15 | 
|Preferred Series |                             |  |  |       |  |   |    | 
|D converted      |                             |  |  |       |  |   |    | 
|into common      |                             |  |  |       |  |   |    | 
|stock            |                             |  |  |      |  |   |   | 
|Issuance of      |                             |  |  |       |  |   |    | 
|common           |                             | 
|stock in         |                             |  |  |       |  |   |    | 
|private          |                             | 
|placement        |                             |  |  |      |  |   |   | 
|Stock-based      |                             | 
|compensation     |                             |  |  |      |  |   |   | 
|Exercise of      |                             | 
|warrants         |                             |  |  |      |  |   |   | 
|Preferred stock  |                             |  |  |       |  |   |    | 
|dividends        |                             |  |  | 50    |  |   |   | 
|Amortization of  |                             |  |  |       |  |   |    | 
|prepaid          |                             |  |  |       |  |   |    | 
|license          |                             | 
|discount         |                             |  |  |      |  |   |   | 
|Net loss         |                             |  |  |      |  |   |   | 
|Translation      |                             |  |  |       |  |   |    | 
|adjustments      |                             |  |  |      |  |   |   | 
|                 |                             |  |  |       |  |   |    | 
|Comprehensive    |                             | 
|loss             |                             |  |  |      |  |   |   | 
|                 |                             |  |  |       |  |   |    | 
|December 31,     |                             |  |  |       |  |   |    | 
|2004             |                             |  |  | 1,500 |  | $ | 15 | 
|                 |                             |  |  |       |  |   |    | 

See
accompanying notes to consolidated financial statements.

54

---

# ANTARES PHARMA, INC.CONSOLIDATED
STATEMENTS OF CASH FLOWS

|                                                                            | Years Ended December 31,
|--------------------------------------------------------------------------- | ------------------------
|
|Cash flows from operating activities:                                       |                         
|Net loss                                                                    |                         
|Adjustments to reconcile net loss to net cash used in operating activities: |                         
|Goodwill impairment charge                                                  |                         
|Patent rights impairment charge                                             |                         
|Depreciation and amortization                                               |                         
|Loss on disposal and abandonment of assets                                  |                         
|Stock-based compensation expense                                            |                         
|Noncash interest expense                                                    |                         
|Loss on conversions of debt to equity                                       |                         
|Loss on debt extinguishments                                                |                         
|Losses on common stock warrants                                             |                         
|Amortization of prepaid license discount                                    |                         
|Changes in operating assets and liabilities:                                |                         
|Accounts receivable                                                         |                         
|Other receivables                                                           |                         
|Inventories                                                                 |                         
|Prepaid expenses and other assets                                           |                         
|Accounts payable                                                            |                         
|Accrued expenses and other                                                  |                         
|Due to related parties                                                      |                         
|Deferred revenue                                                            |                         
|Other                                                                       |                         
|                                                                            |                         
|Net cash used in operating activities                                       |                         
|                                                                            |                         
|Cash flows from investing activities:                                       |                         
|Purchases of equipment, furniture and fixtures                              |                         
|Additions to patent rights                                                  |                         
|Purchase of short-term investments                                          |                         
|Proceeds from maturity of short-term investments                            |                         
|                                                                            |                         
|Net cash used in investing activities                                       |                         
|                                                                            |                         
|Cash flows from financing activities:                                       |                         
|Proceeds from issuance of common stock, net                                 |                         
|Proceeds from exercise of warrants                                          |                         
|Proceeds from sales of warrants                                             |                         
|Proceeds from subordinated loans from shareholders                          |                         
|Proceeds from issuance of convertible debentures                            |                         
|Principal payments on convertible debentures                                |                         
|Principal payments on capital lease obligations                             |                         
|Payment of preferred stock dividends                                        |                         
|                                                                            |                         
|Net cash provided by financing activities                                   |                         
|                                                                            |                         
|Effect of exchange rate changes on cash and cash equivalents                |                         
|                                                                            |                         
|Net increase (decrease) in cash and cash equivalents                        |                         
|Cash and cash equivalents:                                                  |                         
|Beginning of year                                                           |                         
|                                                                            |                         
|End of year                                                                 |                         
|                                                                            |                         

See
accompanying notes to consolidated financial statements.

55

---

# ANTARES PHARMA, INC. NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS December 31, 2004,
2003 and 2002

# 1.    Description of
Business and Summary of Significant Accounting Policies

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 in Minneapolis, Minnesota, and research, development and
commercialization facilities in Basel, Switzerland. As discussed in Note 10, in 2003 the
Company outsourced all assembly work previously performed at its Minneapolis facility to a
third-party supplier.

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

Sales
transactions of foreign subsidiaries are denominated in U.S. dollars, and any required
funding of the subsidiaries is provided by the U.S. parent. However, nearly all operating
expenses, including labor, materials, leasing arrangements and other operating costs, are
denominated in Swiss Francs. Additionally, bank accounts 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 subsidiaries. The reporting currency for the Company is
the United States Dollar (USD). The financial statements of the Companys
three 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 shareholders 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 have a fair value of $7,968,203 and a carrying value of $7,971,625.

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 as discussed in Note 10 the Companys production and assembly
operations have been transferred 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.

56

---

# ANTARES PHARMA, INC. NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued) December 31, 2004,
2003 and 2002

# 1.    Description of
Business and Summary of Significant Accounting Policies (Continued)

Deferred Financing Costs

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. As further described in Note 3, the 10%
debentures were restructured and exchanged in January 2003 for 8% debentures. As a result
of the debenture restructuring, approximately $223,223 of the deferred financing costs of
$454,910 at December 31, 2002 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.

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. Depreciation expense for 2004,
2003 and 2002 was $423,107, $667,050 and $727,705, respectively.

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 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 2004 and 2003 resulted in no
impairment losses.

In
connection with the transitional goodwill impairment evaluation, SFAS 142 required the
Company to perform an assessment of whether there was an indication that goodwill was
impaired as of the January 1, 2002 adoption date. This analysis indicated that there was
not a goodwill impairment upon adoption of SFAS No. 142. The Companys annual
impairment analysis as of December 31, 2002 indicated a potential impairment charge due to
a significant decline in the Companys stock price in the fourth quarter of 2002 and
concerns about the continued existence of the Company due to continued net losses and
negative cash flows from operations. After completion of the impairment analysis
prescribed in SFAS No. 142, the Company recorded a goodwill impairment charge of
$2,000,000 in the fourth quarter of 2002.

57

---

# ANTARES PHARMA, INC. NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued) December 31, 2004,
2003 and 2002

# 1.    Description of
Business and Summary of Significant Accounting Policies (Continued)

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 quarters of 2004 and 2003 the Company updated its long-range business plan. The
Company then reviewed patent costs for impairment and identified certain patents related
to products for which there were no signed distribution or license agreements or for which
no revenues or cash flows were included in the business plan. Therefore, in 2004 and 2003
the Company recognized impairment charges of $233,062 and $973,769, respectively, in
research and development expenses, which represented the gross carrying amount net of
accumulated amortization for the identified patents. After the impairment charges, 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 and were $1,756,711 and $542,355, respectively, at
December 31, 2003. The Companys estimated aggregate amortization expense for the
next five years is $131,000 in 2005 and 2006, $96,000 in 2007, and $93,000 in 2008 and
2009.

The
Companys goodwill impairment analysis as of December 31, 2002 indicated that the
Companys goodwill might be impaired which required the Company to assess the
recoverability of its capitalized patent portfolio costs and other long-lived assets as of
December 31, 2002. As a result of this analysis, the Company recognized an impairment
charge related to its patent portfolio of $435,035 in research and development expenses
for the year ended December 31, 2002. The analysis of patent costs was performed by
management based on values provided through third-party corporate development activities.

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 shareholder 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 the capital restructuring 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

58

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# ANTARES PHARMA, INC. NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued) December 31, 2004,
2003 and 2002

# 1.    Description of
Business and Summary of Significant Accounting Policies (Continued)

        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 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. This Issue was applicable for the Company effective June 15,
2003 and was applied to the license agreement with Eli Lilly and Company, discussed
further in Note 9.

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.

59

---

# ANTARES PHARMA, INC. NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued) December 31, 2004,
2003 and 2002

# 1.    Description of
Business and Summary of Significant Accounting Policies (Continued)

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 6, 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
earnings 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 not been recognized for stock-based compensation plans other than
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 2004 and 2003 the
Company recognized compensation expense of $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:

|                                              | 2004 | 2003 | 2002
|--------------------------------------------- | ---- | ---- | ----
|Net loss applicable to common shareholders:   |      |      |     
|As reported                                   |      |      | $   
|Add intrinsic value of stock options granted  |      |      |     
|Deduct fair-value method compensation expense |      |      |     
|                                              |      |      |     
|Pro Forma net loss                            |      |      | $   
|                                              |      |      |     
|Basic and diluted net loss per common share:  |      |      |     
|As reported                                   |      |      | $   
|Add intrinsic value of stock options granted  |      |      |     
|Deduct fair-value method compensation expense |      |      |     
|                                              |      |      |     
|Pro Forma net loss per common share           |      |      | $   
|                                              |      |      |     

The
per share weighted-average fair value of stock based awards granted during 2004, 2003 and
2002 was estimated as $0.87, $1.93 and $3.66 respectively, on the date of grant using the
Black-Scholes option pricing model with the following assumptions:

|                                         | 2004 | 2003 | 2002
|---------------------------------------- | ---- | ---- | ----
|Risk-free interest rate                  |      | 3    | .7% 
|Annualized volatility                    |      | 124  | .0% 
|Weighted average expected life, in years |      | 5    | .0  
|Expected dividend yield                  |      | 0    | .0% 

60

---

# ANTARES PHARMA, INC. NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued) December 31, 2004,
2003 and 2002

# 1.    Description of
Business and Summary of Significant Accounting Policies (Continued)

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 12 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 at
Beginning of
Year | Warranty
Provisions | Warranty
Claims | Balance at
End of Year
|---- | ---------------------------- | ------------------- | --------------- | ----------------------
|2004 |                              |                     | $               | 50,000                
|2003 |                              |                     | $               | 179,000               

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 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.

61

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# ANTARES PHARMA, INC. NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued) December 31, 2004,
2003 and 2002

# 1.    Description of
Business and Summary of Significant Accounting Policies (Continued)

Net Loss Per Share

Basic
EPS is computed by dividing net income or loss available to common shareholders 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, 2004, 2003 and 2002, excluded from dilutive loss per
share as their effect is anti-dilutive, are as follows:

|                                                                      | 2004 | 2003             | 2002
|--------------------------------------------------------------------- | ---- | ---------------- | ----
|Stock options and warrants                                            |      | 20,256,591       |     
|Principal of convertible debentures                                   |      | $               |     
|Potentially dilutive shares from Series D convertible preferred stock |      | 635,880          |     

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.

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 1 to the Consolidated Financial Statements contains 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 new
standard is effective for the first interim or annual reporting period that begins after
June 15, 2005.  The Company expects to implement the new standard beginning with the
third quarter of 2005, 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.

62

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# ANTARES PHARMA, INC. NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued) December 31, 2004,
2003 and 2002

# 2.    Composition of
Certain Financial Statement Captions

|                                                  | December 31,
|------------------------------------------------- | ------------
|
|Inventories:                                      |             
|Raw material                                      |             
|Finished goods                                    |             
|                                                  |             
|                                                  |             
|                                                  |             
|Equipment, furniture and fixtures:                |             
|Furniture, fixtures and office equipment          |             
|Production equipment                              |             
|Less accumulated depreciation                     |             
|                                                  |             
|                                                  |             
|                                                  |             
|Patent rights:                                    |             
|Patent rights                                     |             
|Less accumulated amortization                     |             
|                                                  |             
|                                                  |             
|                                                  |             
|Goodwill:                                         |             
|Goodwill                                          |             
|Less accumulated amortization                     |             
|                                                  |             
|                                                  |             
|                                                  |             
|Accrued expenses and other liabilities:           |             
|Retirement benefits                               |             
|Estimated withholding tax due on foreign payments |             
|Other liabilities                                 |             
|                                                  |             
|                                                  |             
|                                                  |             

# 3.    Convertible Debentures

In
July 2002, the Company sold $2,000,000  aggregate  principal  amount of its 10%
debentures,  with $700,000  maturing on July 12, 2003,  $700,000  maturing on July 26,
2003 and $600,000  maturing on October 15, 2003. The debentures were convertible into
 shares of the  Company's  common  stock at a  conversion  price  which is the lower of
$2.50 or 75% of the average of the three lowest intraday prices of the Company's  common
stock, as reported on the Nasdaq SmallCap  Market,  during the 20 trading days preceding
the conversion  date.  From October 10, 2002 to January 17, 2003,  three of the original
four holders of the 10% debentures  converted  $581,000  of  principal  into  1,777,992
 shares  of  common  stock at an  average  conversion  price of approximately  $0.327 per
share.  Two of the original four holders  accounted for the  conversion of $536,000 of
principal into 1,660,863  shares of common  stock.  As a result of the  Company's  low
common stock price,  the 10%  debentures  became highly dilutive to the Company's current
common shareholders.

To
reduce the risk of  substantial  dilution to common  shareholders  in the  near-term,  on
February 7, 2003, the Company completed a  restructuring  of its 10% debentures
 previously  sold to four primary  investors.  Specifically,  as part of this
restructuring,  on January 24, 2003 and January 31, 2003, the Company  borrowed an
aggregate of $621,025 from Xmark Funds.  The Company used the proceeds of these
borrowings to repurchase  $464,000  principal  amount of the 10% debentures  previously
sold to the two original 10% debenture  holders who had converted  $536,000 of principal
into common stock,  and to pay a repurchase premium of $144,200 and accrued  interest of
$12,825.  As additional  repurchase  compensation,  the Company issued warrants to one of
the two original 10% debenture  holders and paid $5,000,  in lieu of warrants,  to the
other.  The Company  recognized a debt  extinguishment  loss  of  $885,770  related  to
 these  transactions.  Thereafter,  in  exchange  for the  surrender  and cancellation of
the promissory  notes, the Company issued to Xmark Funds 8% Senior Secured  Convertible
 Debentures in the same principal  amount of the  promissory  notes.  The Company also
 exchanged  Amended and Restated 8% Senior  Secured  Convertible Debentures  for the
 remaining  outstanding  principal  and accrued  interest of $955,000  and  $37,230,
 respectively,  of the original 10%  debentures.  The aggregate  principal  amount of the
8% debentures was  $1,613,255.  The 8% debentures  contained terms similar to the 10%
debentures, except that the 8%

63

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# ANTARES PHARMA, INC. NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued) December 31, 2004,
2003 and 2002

# 3.      Convertible
Debentures (Continued)

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
aggregate  original  principal  amount of the 8% debentures  of  $1,613,255  was held by
two debenture  holders in the amounts of $469,513 and $1,143,742,  respectively.  The
Company analyzed each of the restructuring  transactions for the two 8% debenture
 holders to determine the proper  accounting  treatment.  The effective  borrowing  rate
on $469,513 of  restructured debentures was  determined to be less than the effective
 borrowing rate on the original  debentures  immediately  prior to the restructuring.  As
a result,  the  Company  determined  that  these  debentures  should be  accounted  for
as a  troubled  debt restructuring.  The net carrying  value of these  debentures  at the
time of the  restructuring  was reduced  from  $140,659 to $97,710  resulting in a debt
discount of $371,803  that was being  amortized to interest  expense  through March 31,
2004 using the effective  interest  method.  The unamortized  discount was written off in
connection with the conversions on September 12, 2003. The transaction  related to the
remaining  $1,143,742 was accounted for as a debt  extinguishment  under EITF 96-19.  The
restructured  debentures were determined to be substantially  different from the original
 debentures because the present value of the cash flows under the terms of the
restructured  debentures was more than 10 percent  different from the present value of
the  remaining  cash  flows  under the terms of the  original  debentures.  The
 debentures  were  recorded  at a fair value of $1,276,339,  and the premium of $132,597
 was being  amortized  monthly  through  March 31, 2004 using the  effective  interest
method.  The  unamortized  premium was written off in  connection  with the  conversions
 on September  12, 2003. In connection with both  transactions,  the Company issued
warrants to acquire 2,932,500 shares of common stock. 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 6, these common stock warrants were initially
classified as debt for accounting purposes.

Effective
July 1, 2003, the Company's  securities  were delisted from The Nasdaq  SmallCap Market
and began trading on the Over-the-Counter  ("OTC") Bulletin Board under the symbol
"ANTR.OB," after the Nasdaq Listing  Qualifications  Panel determined to delist the
Company's  securities.  The delisting from The Nasdaq SmallCap  Market  constituted an
event of default under the restructured 8% debentures.  However,  the Company obtained
letters from the debenture  holders in which they agreed to forbear from exercising
 their rights and remedies with respect to such event of default,  indicating they did
not intend to accelerate the payment and other  obligations of the Company under the
debentures.  The debenture  holders  reserved the right at any time to discontinue the
forbearance  and, among other things,  to accelerate the payment and other  obligations
of the Company under the 8% debentures.  If the debenture  holders had decided to
discontinue  their  forbearance,  the debentures would have become due and payable at
130% of the outstanding  principal and accrued  interest.  Because the debenture  holders
retained the right to discontinue the  forbearance  and this option was outside the
control of the Company,  the Company was required to record an expense and a liability
 of $508,123  for the 30% penalty in future  periods  until the  debentures  were
 converted  to common stock, at which time the liability was removed and offset against
the loss on conversions of debt to equity.

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.

On
September 12, 2003, the holders of the Company's 8% Senior Secured  Convertible
 Debentures and Amended and Restated 8% Senior  Secured  Convertible  Debentures
 (collectively,  the  "Debentures")  exchanged the  outstanding  $1,218,743  aggregate
principal and accrued  interest of the  Debentures  for 243,749 shares of the Company's
 Series D Convertible  Preferred  Stock (the  "Series D  Preferred").  Each share of
Series D  Preferred  is  currently  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 is

64

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# ANTARES PHARMA, INC. NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued) December 31, 2004,
2003 and 2002

# 3.      Convertible
Debentures (Continued)

convertible
 into the same number of shares of Common  Stock as were the  Debentures.  In  connection
 with the exchange of the Debentures for the Series D Preferred,  the holders of the
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 of
the  Debentures  on January 31, 2003 from $0.55 per share to $0.40 per share.  These
 warrants are  exercisable  for an aggregate of 2,932,500  shares of Common Stock and are
redeemable at the option of the Company  upon the  achievement  of certain  milestones
 set forth in the  warrants.  In  connection  with the exchange of the 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 the quarter  ended  September 30,
2003.  The loss consists 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 Debentures.  The carrying value of the Debentures  included the
aggregate  principal and accrued interest less unamortized discount and premium.

# 4.      Leases

The
Company has non-cancelable  operating leases for its office,  research and manufacturing
facility in Minneapolis,  MN, for office space in Exton, PA, 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.  The cost of equipment and
furniture under  capital  leases at December 31, 2003 was $191,881 and  accumulated
 amortization  was $153,289.  The  Company's  capital lease was fully repaid in 2004.

Rent
 expense  incurred  for the years ended  December  31,  2004,  2003 and 2002 was
 $436,152,  $670,650  and  $559,512, respectively.

Future
minimum annual operating lease payments are as follows as of December 31, 2004:

|                                    | Amount
|----------------------------------- | ------
|2005                                |       
|2006                                |       
|2007                                |       
|2008                                |       
|2009                                |       
|Thereafter                          |       
|                                    |       
|Total future minimum lease payments |       
|                                    |       

65

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# ANTARES PHARMA, INC. NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued) December 31, 2004,
2003 and 2002

# 5.    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, 2004, 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, 2004. Effective tax rates differ from
statutory income tax rates in the years ended December 31, 2004, 2003 and 2002 as follows:

|                                           | 2004 | 2003 | 2002
|------------------------------------------ | ---- | ---- | ----
|Statutory income tax rate                  |      |      |     
|State income taxes, net of federal benefit |      |      |     
|Research and experimentation credit        |      |      |     
|Intangibles impairment                     |      |      |     
|Valuation allowance increase               |      |      |     
|Expiration of net operating losses         |      |      |     
|Foreign net operating loss carryforwards   |      |      |     
|Effect of foreign operations               |      |      |     
|Losses from various financing transactions |      |      |     
|Other                                      |      |      |     
|                                           |      |      |     
|                                           |      |      |     
|                                           |      |      |     

Deferred tax assets as of December
31, 2004 and 2003 consist of the following:

|                                                           | 2004 | 2003
|---------------------------------------------------------- | ---- | ----
|Net operating loss carryforward - U.S.                     |      |     
|Net operating loss carryforward - Switzerland              |      |     
|Research and development costs and tax credit carryforward |      |     
|Deferred revenue                                           |      |     
|Depreciation and amortization                              |      |     
|Other                                                      |      |     
|                                                           |      |     
|                                                           |      |     
|Less valuation allowance                                   |      |     
|                                                           |      |     
|                                                           |      |     
|                                                           |      |     

The
valuation allowance for deferred tax assets as of December 31, 2004 and 2003 was
$19,311,000 and $18,605,000, respectively. The net change in the total valuation allowance
for the years ended December 31, 2004 and 2003 was an increase of $706,000 and $1,783,000,
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
placed a valuation allowance against the entire deferred tax asset.

The
Company has a U.S. federal net operating loss carryforward at December 31, 2004, of
approximately $38,000,000, 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 2005 through 2024, with approximately $437,000 expiring
over the next three years. Additionally, the Company has a research credit carryforward of
approximately $796,000. These credits expire in years 2008 through 2024.

66

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# ANTARES PHARMA, INC. NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued) December 31, 2004,
2003 and 2002

# 5.    Income Taxes
(Continued)

The
Company also has a Swiss net operating loss carryforward at December 31, 2004, of
approximately $17,800,000, which is available to reduce income taxes payable in future
years. If not used, this carryforward will expire in years 2006 through 2011, with
approximately $1,800,000 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.

# 6.    Shareholders
Equity

Common Stock

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 13, on September 12, 2003, principal of $2,300,000 and accrued interest
of $98,635 due to the Companys largest shareholder, 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. On June 10, 2002, Dr. Gonella converted principal and interest of $2,036,550,
loaned to the Company under a Term Note agreement, into 509,137 shares of common stock at
$4.00 per share, the market price of the Companys stock on that date.

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. As of December 31, 2002, $382,750 of the 10% debentures and
accrued interest of $17,085 had been converted into 947,750 shares of common stock.

67

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# ANTARES PHARMA, INC. NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued) December 31, 2004,
2003 and 2002

# 6.    Shareholders
Equity (Continued)

During
2004, 2003 and 2002, a total of 50,000, 784,266 and 118,810 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 $54,550,
$677,809 and $304,300, 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, upon the resignation of Roger G.
Harrison, Ph.D. 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 will become fully 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 is being recognized ratably over
the one-year vesting period. Compensation expense of $14,583 was recognized in connection
with these shares during the year ended December 31, 2004. Mr. Stover can earn up to an
additional 459,999 shares of common stock upon the occurrence of various triggering
events. The Company will begin recognizing expense in connection with these additional
shares when it becomes probable that a triggering event will be reached.

Roger
G. Harrison, Ph.D., was appointed Chief Executive Officer of Antares Pharma, Inc.,
effective March 12, 2001. 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 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, $113,664 and $113,664 was recognized in
connection with these shares during the years ended December 31, 2004, 2003 and 2002,
respectively. Dr. Harrison resigned as Chief Executive Officer effective September 1,
2004, and on that date entered into an agreement with the Company under which he will
provide consulting services.

Series A Convertible
Preferred Stock

On
November 10, 1998, the Company sold 1,000 shares of Series A Convertible Preferred Stock
(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 carries
a 10% dividend which is payable semi-annually. The Series A is redeemable at the
Companys option at any time and is convertible into common stock for sixty days
following the 10th anniversary of the date of issuance at the lower of $7.50
per share or 95% of the market price of the Common Stock. The warrants to purchase Common
Stock may be exercised at any time prior to November 10, 2005, at a price of $1.29 per
share.

Convertible Debentures
Beneficial Conversion Feature

As
discussed in Note 3, on July 12, 2002 the Company entered into a Securities Purchase
Agreement for the sale and purchase of up to $2,000,000 aggregate principal amount of the
Companys 10% Convertible Debentures. As the per share conversion price of the
debentures was substantially lower than the market price of the common stock on the date
the debentures were sold, the Company recorded a debt issuance discount of $1,720,000 in
2002 for the intrinsic value of the beneficial in-the-money conversion feature of the
debentures. Interest expense of $606,456 was

68

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# ANTARES PHARMA, INC. NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued) December 31, 2004,
2003 and 2002

# 6.    Shareholders
Equity (Continued)

recorded as amortization of the
$1,720,000 of debt issuance discount over the original one year redemption period, and an
additional $222,357 of the debt issuance discount was recorded as interest expense due to
conversions of the 10% debentures to common stock. When the debentures were restructured
in February 2003, 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

As
discussed in Note 3, 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. In August 2004, 180,161 shares of
Series D Preferred Stock were converted into 1,801,610 shares of common stock.

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, 2004, these plans
had 2,636,147 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 Black-Scholes option pricing model. The
allocation resulted in an initial value assigned to the warrants of $1,588,585. 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.

69

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# ANTARES PHARMA, INC. NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued) December 31, 2004,
2003 and 2002

# 6.    Shareholders
Equity (Continued)

As
discussed in Note 13, during 2003 the Company issued warrants to Jacques Gonella, its
largest shareholder, 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 3, 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 $3,294,827 on these common stock warrants in 2003.

As
discussed in Note 9, 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.

Warrants
were issued in connection with debt financing, financial consulting and technology
procurement during 1996 through 2002. The terms of the warrants do not exceed ten years
and vest in varying periods. Under the terms of an equity advisor agreement in connection
with the Companys 10% Convertible Debentures, the Company issued in July and October
2002, warrants to purchase an aggregate of 112,000 and 48,000 shares, respectively, valued
at $412,117 and $54,899, respectively, which were recorded to deferred financing costs.
During 2002 the deferred financing costs were being amortized to interest expense over the
one-year life of the debentures. As debentures were converted to common stock, the
unamortized portion of the allocated deferred financing costs was recorded to additional
paid in capital. As discussed in Note 3, a restructuring of the Companys 10%
debentures was completed on February 7, 2003, and as a result the remaining unamortized
deferred financing costs were recognized as interest expense in the first quarter of 2003.

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 436,807 shares of common stock at exercise prices ranging from $1.29 to $2.55 per share
have weighted average anti-dilution protection if the Company sells or issues securities at less than the warrant
exercise price.  Warrants to acquire 9,251,994 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.

70

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# ANTARES PHARMA, INC. NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued) December 31, 2004,
2003 and 2002

# 6.    Shareholders
Equity (Continued)

Stock
option and warrant activity is summarized as follows:

|                                 | Options | Warrants
|-------------------------------- | ------- | --------
|
|Outstanding at December 31, 2001 |         |         
|Granted/Issued                   |         |         
|Exercised                        |         |         
|Cancelled                        |         |         
|                                 |         |         
|Outstanding at December 31, 2002 |         |         
|Granted/Issued                   |         |         
|Exercised                        |         |         
|Cancelled                        |         |         
|                                 |         |         
|Outstanding at December 31, 2003 |         |         
|Granted/Issued                   |         |         
|Exercised                        |         |         
|Cancelled                        |         |         
|                                 |         |         
|Outstanding at December 31, 2004 |         |         
|                                 |         |         

The
following table summarizes information concerning currently outstanding and exercisable
options and warrants by price range at December 31, 2004:

|                            | Outstanding | Exercisable
|--------------------------- | ----------- | -----------
|
|Pursuant  to  Option Plans: |             |            
|$    0.70 to 0.96           |             |            
|1.01 to 1.56                |             |            
|1.77 to 2.29                |             |            
|4.56                        |             |            
|9.05 to 15.65               |             |            
|                            |             |            
|                            |             |            
|                            |             |            
|Warrants:                   |             |            
|$    0.55 to 1.10           |             |            
|1.25                        |             |            
|1.29 to 3.00                |             |            
|3.78                        |             |            
|4.00 to 7.03                |             |            
|                            |             |            
|                            |             |            
|                            |             |            
|Total Options & Warrants    |             |            
|                            |             |            

# 7.    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 year ended December
31, 2004, the Company elected to make contributions to the plan totaling $65,571. No
elective contributions were made for the years ended December 31, 2003 or 2002.

71

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# ANTARES PHARMA, INC. NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued) December 31, 2004,
2003 and 2002

# 8.    Supplemental
Disclosures of Cash Flow Information

Cash
paid for interest during the years ended December 31, 2004, 2003 and 2002 was $25,106,
$20,321 and $21,451, respectively.

As
discussed in Note 3, the Company completed a number of noncash financing transactions in
2003 and 2002 related to its convertible debentures.

As
discussed in Note 13, on September 12, 2003, the total of all Term Note agreements with
the Companys largest shareholder, which included principal of $2,300,000 and accrued
interest of $98,635, was converted into 2,398,635 shares of common stock.

On
June 10, 2002, the Companys largest shareholder, Dr. Jacques Gonella, converted
principal and interest of $2,036,550, loaned to the Company under a Term Note agreement,
into 509,137 shares of common stock at $4.00 per share, the market price of the
Companys stock on that date.

The
Company incurred capital lease obligations of $42,266 in the year ended December 31, 2002.

# 9.    License Agreements

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 2006.
The Company is recognizing the first $1,000,000 milestone payment over a period of 109
months, the $500,000 received in 2002 over 75 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.

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

72

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# ANTARES PHARMA, INC. NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued) December 31, 2004,
2003 and 2002

# 9.    License Agreements
(Continued)

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 a 84-month period. The Company received a $200,000 milestone
payment in January of 2003 and is recognizing revenue over a period of 67 months. All
other 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.

Ferring License Agreement

The
Company entered into a License Agreement, dated January 22, 2003, with Ferring BV, 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.

73

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# ANTARES PHARMA, INC. NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued) December 31, 2004,
2003 and 2002

# 9.    License Agreements
(Continued)

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.

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 6, 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 1. 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.

# 10.    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 will continue to have
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.

74

---

# ANTARES PHARMA, INC. NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued) December 31, 2004,
2003 and 2002

# 11.    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.

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,
|------------------------ | ------------
|
|Switzerland              |             
|United States of America |             
|                         |             
|                         |             
|                         |             

Revenues
by customer location are summarized as follows:

|                         | For the Years Ended December 31,
|------------------------ | --------------------------------
|
|United States of America |                                 
|Europe                   |                                 
|Other                    |                                 
|                         |                                 
|                         |                                 
|                         |                                 

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

|         | 2004 | 2003 | 2002
|-------- | ---- | ---- | ----
|Ferring  |      |      | $   
|BioSante |      |      |     
|Solvay   |      |      |     

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

|                      | 2004 | 2003 | 2002
|--------------------- | ---- | ---- | ----
|Proskelia S.A.S       |      |      | $   
|Solvay                |      |      |     
|Ferring               |      |      |     
|BioSante              |      |      |     
|Eli Lilly and Company |      |      |     
|SciGen, Ltd.          |      |      |     

75

---

# ANTARES PHARMA, INC. NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued) December 31, 2004,
2003 and 2002

# 12.    Quarterly Financial
Data (unaudited)

|                                         | First | Second | Third | Fourth    
|---------------------------------------- | ----- | ------ | ----- | ----------
|2004:                                    |       |        |       |           
|Total revenues                           |       |        | $     | 725,821   
|Net loss applicable to common shares (2) |       |        |       | (1,894,427
|Net loss per common share (2)            |       |        |       | (.07      
|Weighted average shares (1)              |       |        |       | 28,627,275
|                                         |       |       
|2003:                                    |       |       
|Total revenues                           |       |        | $     | 910,126   
|Net loss applicable to common shares (2) |       |        |       | (3,017,451
|Net loss per common share (2)            |       |        |       | (.26      
|Weighted average shares (1)              |       |        |       | 11,736,291

(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 each of the      second and fourth  quarters of 2004,  and $50,000  and
 $92,857 in the       second and fourth  quarters of 2003,  respectively. The fourth
quarters of 2004 and 2003 include patent rights impairment charges of $233,062 and
$973,769, respectively.

# 13.    Related Party Transactions

In
2001 the Company  entered into a consulting  agreement with JG Consulting AG, a company
owned by the Companys  largest shareholder  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 each of the  years  2003 and 2002 in  connection
 with this  agreement,  and had liabilities to JG Consulting AG at December 31, 2003 and
2002 of $162,595 and $46,500, respectively.

During
2003 and 2002 the Company  recognized  expense of $26,500  and  $100,612,  respectively,
 for  consulting  services provided by John Gogol,  one of the Companys  board members
until  September  2003.  The Company had a payable to Mr. Gogol at December 31, 2002 of
 $22,211.

During
2002 the Company  recognized  expense of $37,348 for legal services provided by
Rinderknecht Klein and Stadelhofer, and had a payable to this firm of $32,681 at December
31, 2002.  Dr. Thomas  Rinderknecht,  one of the Company's  board members during 2002
until his resignation on December 13, 2002, is a partner in the firm of Rinderknecht
Klein and Stadelhofer.

The
 Company  received  $1,000,000  on March  12,  2002 and  $1,000,000  on April  24,  2002
 from the  Companys  largest shareholder,  Dr. Jacques  Gonella,  under a Term Note
agreement  dated February 20, 2002. The Term Note agreement  allowed for total advances
to the Company of $2,000,000  and was interest  bearing at the  three-month  Euribor Rate
as of the date of each advance,  plus 5%. The principal of $2,000,000  and accrued
 interest of $36,550 was  converted  into 509,137  shares of common stock on June 10,
 2002 at $4.00 per share.  In  addition,  the  Company  borrowed  from Dr.  Gonella
 $300,000,  $200,000  and $200,000 in June, September and December of 2002,
 respectively,  to be repaid in July, September and December of 2003,  respectively,
 with interest at the three-month Euribor  Rate as of the  date  of the  advance,  plus
 5%.  These  amounts  were  included  in due to  related  parties  on the consolidated
 balance  sheet as of  December  31,  2002.  During  2003 the  Company  borrowed  from
Dr.  Gonella an  additional $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
 shareholder  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

76

---

# ANTARES PHARMA, INC. NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (Continued) December 31, 2004,
2003 and 2002

# 13.     Related Party
Transactions (Continued)

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 $2,300,000 and accrued  interest of $98,635,
 was converted into 2,398,635 shares of common stock.  In connection  with this
 conversion the shareholder 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  shareholder  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.

# 14.     Litigation

On
September 25, 2003,  Josephberg Grosz & Company (JGC) notified the Company that it
intends to commence an arbitration action  against the Company in New York State.  The
Company  and JGC  entered  into a letter  agreement  on April 8, 2002.  JGC claims that,
 pursuant to the letter  agreement the Company owes it seven percent of the proceeds
 received by the Company,  as well as ten percent of various shares and securities
 issued by the Company,  in connection  with up to $6 million in financing received by
the Company  since April 5, 2002.  The Company  disputes  that it owes any amounts to
JGC.  The Company  intends to vigorously defend this claim.

77

---

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 fiscal year to which this report  relates 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

78

---

# PART III

Item
10.        DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The
information  provided under the captions "Election of Directors" on pages 2-6 and
"Section 16(a) Beneficial  Ownership Reporting Compliance" on page 36 in the Proxy
Statement is incorporated herein by reference.

On
February  5, 2004,  the Board of  Directors  adopted a Code of Business  Conduct and
Ethics that is  applicable  to all employees and directors.  A copy of the Code of
Business Conduct and Ethics is filed as an exhibit to this report.

Item
11.         EXECUTIVE COMPENSATION

The
 information  provided  under  the  caption  "Executive  Compensation"  on  pages  12-14
 in the  Proxy  Statement  is incorporated herein by reference.

Item
12.        SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The
information  provided under the captions  "Security  Ownership of Certain  Beneficial
Owners and Management" on page 9 and "Equity Compensation Plan Information" on pages 15
and 16 in the Proxy Statement is incorporated herein by reference.

Item
13.        CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The
information  provided under the caption "Certain  Relationships  and Related
 Transactions" on pages 9-12 in the Proxy Statement is incorporated herein by reference.

Item
14.        PRINCIPAL ACCOUNTANT FEES AND SERVICES

The
 information  provided  under the  captions  "Audit  Fees,"  "Audit  Related  Fees,"
 "Tax Fees," "All Other Fees" and "Pre-Approval Policies and Procedures" on pages 33-34
in the Proxy Statement is incorporated herein by reference.

79

---

# 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 - see page 87                       Schedule  II          - Valuation and Qualifying Accounts
- see page 88

| | 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      | Second Amended and Restated Articles of   Incorporation as amended to date (a)                                       
|         |                                                                                                                      
|3.2      | Articles of Amendment Restating Articles of Incorporation (g)                                                        
|         |                                                                                                                      
|3.3      | Second Amended and Restated Bylaws (a)                                                                               
|         |                                                                                                                      
|3.4      | Third Amended and Restated Articles of Incorporation (l)                                                             
|         |                                                                                                                      
|3.5      | Certificate of Designations for Series A Convertible Preferred Stock (d)                                             
|         |                                                                                                                      
|3.6      | Certificate of Designations for Series B Convertible Preferred Stock (h)                                             
|         |                                                                                                                      
|3.7      | Certificate of Designations for Series C Convertible Preferred Stock (g)                                             
|         |                                                                                                                      
|3.8      | Articles of Amendment to Third Amended and Restated Articles of Incorporation (o)                                    
|         |                                                                                                                      
|3.9      | Certificate of Designations for Series D Convertible Preferred Stock (s)                                             
|         |                                                                                                                      
|4.1      | Form of Certificate for Common Stock (a)                                                                             
|         |                                                                                                                      
|4.2      | Stock Warrant, dated January 25, 1996, issued to Becton Dickinson and Company (a)                                    
|         |                                                                                                                      
|4.3      | Stock Option, dated January 25, 1996, issued to Becton Dickinson and Company (a)                                     
|         |                                                                                                                      
|4.6      | Preferred Stock, Option and Warrant Purchase Agreement, dated January 25, 1996, with Becton Dickinson and Company (a)
|         |                                                                                                                      
|4.7      | Warrant issued to Elan International Services, Ltd. on November 10, 1998 (d)                                         

80

---

|4.8    | Warrant issued to Plexus Ventures, Ltd. on September 12, 2000 (g)                                                                                                                                                                                                                                                                     
|------ | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|       |                                                                                                                                                                                                                                                                                                                                       
|4.9    | Form of warrant issued to:
         Aventic Partners AG on February 5, 2001 for 85,324 shares
         Basellandschaftliche Kantonalbank on February 5, 2001 for 85,324 shares
         HCI Healthcare Investments Limited on February 5, 2001 for 127,986 shares
         Lombard Odier & Cie on March 5, 2001 for 127,986 shares (g)
|       |                                                                                                                                                                                                                                                                                                                                       
|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 (f)                                                                                                                                                            
|       |                                                                                                                                                                                                                                                                                                                                       
|10.1   | Third Amendment to Stock Purchase Agreement, dated January 31, 2001 (g)                                                                                                                                                                                                                                                               
|       |                                                                                                                                                                                                                                                                                                                                       
|10.2   | Registration Rights Agreement with Permatec Holding AG dated January 31, 2001 (g)                                                                                                                                                                                                                                                     
|       |                                                                                                                                                                                                                                                                                                                                       
|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 (g)                                                                                                                       
|       |                                                                                                                                                                                                                                                                                                                                       
|10.4   | Office/Warehouse/Showroom Lease, dated January 2, 1995, including amendments thereto (a)                                                                                                                                                                                                                                              
|       |                                                                                                                                                                                                                                                                                                                                       
|10.5   | Exclusive  License & Supply Agreement with  Bio-Technology  General  Corporation,  dated December 22, 1999 (e)                                                                                                                                                                                                                        
|       |                                                                                                                                                                                                                                                                                                                                       
|10.6   | Preferred Stock Purchase Agreement with Bio-Technology  General  Corporation,  dated December 22, 1999 (e)                                                                                                                                                                                                                            
|       |                                                                                                                                                                                                                                                                                                                                       
|10.7   | Preferred  Stock,  Option and Warrant  Purchase  Agreement,  dated January 25, 1996,  with Becton Dickinson and Company (a)                                                                                                                                                                                                           
|       |                                                                                                                                                                                                                                                                                                                                       
|10.8*  | Employment Agreement, dated January 31, 2001, with Franklin Pass, M.D. (g)                                                                                                                                                                                                                                                            
|       |                                                                                                                                                                                                                                                                                                                                       
|10.9*  | Employment Agreement, dated March 12, 2001, with Roger Harrison, Ph.D. (g)                                                                                                                                                                                                                                                            
|       |                                                                                                                                                                                                                                                                                                                                       
|10.10* | Employment  Agreement  and Term and  Compensation  Addendum  for 2000,  dated May 1,  2000,  with Lawrence Christian (g)                                                                                                                                                                                                              
|       |                                                                                                                                                                                                                                                                                                                                       
|10.11* | Employment  Agreement  and Term and  Compensation  Addendum  for 2000,  dated May 1,  2000,  with Peter Sadowski (g)                                                                                                                                                                                                                  
|       |                                                                                                                                                                                                                                                                                                                                       
|10.12* | Employment Agreement, dated May 31, 2000 with Dr. Dario Carrara (h)                                                                                                                                                                                                                                                                   
|       |                                                                                                                                                                                                                                                                                                                                       
|10.13* | 1993 Stock Option Plan (a)                                                                                                                                                                                                                                                                                                            
|       |                                                                                                                                                                                                                                                                                                                                       
|10.14* | Form of incentive stock option agreement for use with 1993 Stock Option Plan (a)                                                                                                                                                                                                                                                      
|       |                                                                                                                                                                                                                                                                                                                                       
|10.15* | Form of non-qualified stock option agreement for use with 1993 Stock Option Plan (a)                                                                                                                                                                                                                                                  
|       |                                                                                                                                                                                                                                                                                                                                       
|10.16* | 1996 Stock Option Plan, with form of stock option agreement (a)                                                                                                                                                                                                                                                                       
|       |                                                                                                                                                                                                                                                                                                                                       
|10.18  | Office - Warehouse lease with Carlson Real Estate Company, dated February 11, 1997 (b)                                                                                                                                                                                                                                                

81

---

|10.19*  | 1998 Stock Option Plan for Non-Employee Directors (c)                                                                                                                                                                                                                              
|------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|        |                                                                                                                                                                                                                                                                                    
|10.20*  | Letter consulting agreement dated February 20, 1998 with Geoffrey W. Guy (c)                                                                                                                                                                                                       
|        |                                                                                                                                                                                                                                                                                    
|10.21#  | Agreement with Becton Dickinson dated January 1, 1999 (d)                                                                                                                                                                                                                          
|        |                                                                                                                                                                                                                                                                                    
|10.22   | Securities Purchase Agreement with Elan International Services, Ltd. dated November 10, 1998 (d)                                                                                                                                                                                   
|        |                                                                                                                                                                                                                                                                                    
|10.23#  | License & Development Agreement with Elan Corporation, plc, dated November 10, 1998 (d)                                                                                                                                                                                            
|        |                                                                                                                                                                                                                                                                                    
|10.24   | Amended and Restated 2001 Stock Option Plan for Non-Employee Directors and Consultants (p)                                                                                                                                                                                         
|        |                                                                                                                                                                                                                                                                                    
|10.25   | Amended and Restated 2001 Incentive Stock Option Plan for Employees (p)                                                                                                                                                                                                            
|        |                                                                                                                                                                                                                                                                                    
|10.26*  | Consulting Agreement with JG Consulting AG dated February 1, 2001 (h)                                                                                                                                                                                                              
|        |                                                                                                                                                                                                                                                                                    
|10.27   | Office lease  agreement with 707 Eagleview  Boulevard  Associates,  a  Pennsylvania  Partnership dated June 18, 2001 (h)                                                                                                                                                           
|        |                                                                                                                                                                                                                                                                                    
|10.28   | $2,000,000 Term Note with Dr. Jacques Gonella dated February 20, 2002 (i)                                                                                                                                                                                                          
|        |                                                                                                                                                                                                                                                                                    
|10.29   | 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 (j)
|        |                                                                                                                                                                                                                                                                                    
|10.30   | 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 (j)
|        |                                                                                                                                                                                                                                                                                    
|10.31   | Security  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 (j)                  
|        |                                                                                                                                                                                                                                                                                    
|10.32   | Form of Secured Convertible Debenture, dated July 12, 2002 (j)                                                                                                                                                                                                                     
|        |                                                                                                                                                                                                                                                                                    
|10.33** | License Agreement with Solvay Pharmaceuticals BV, dated June 9, 1999 (k)                                                                                                                                                                                                           
|        |                                                                                                                                                                                                                                                                                    
|10.34** | License Agreement with BioSante Pharmaceuticals, Inc., dated June 13, 2000 (k)                                                                                                                                                                                                     
|        |                                                                                                                                                                                                                                                                                    
|10.35** | Amendment No. 1 to License Agreement with BioSante Pharmaceuticals, Inc., dated May 20, 2001 (k)                                                                                                                                                                                   
|        |                                                                                                                                                                                                                                                                                    
|10.36** | Amendment No. 2 to License Agreement with BioSante Pharmaceuticals, Inc., dated July 5, 2001 (k)                                                                                                                                                                                   
|        |                                                                                                                                                                                                                                                                                    
|10.37** | Amendment No. 3 to License Agreement with BioSante  Pharmaceuticals,  Inc., dated August 28, 2001
(k)                                                                                                                                                                              

82

---

|10.38** | Amendment No. 4 to License  Agreement with BioSante  Pharmaceuticals,  Inc., dated August 8, 2002
(k)                                                                   
|------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|        |                                                                                                                                                                         
|10.39   | 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 (m)
|        |                                                                                                                                                                         
|10.40   | Debenture and Warrant  Purchase  Agreement,  dated January 31, 2003, by and among Antares Pharma,
Inc., XMark Fund, L.P. and XMark Fund, Ltd. (m)                       
|        |                                                                                                                                                                         
|10.41   | 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 (m)            
|        |                                                                                                                                                                         
|10.42   | Amended and Restated  Security  Agreement,  dated January 31, 2003, by and among Antares  Pharma,
Inc., XMark Fund, L.P., XMark Fund, Ltd. and SDS Merchant Fund, LP (m)
|        |                                                                                                                                                                         
|10.43   | Form of Warrant, dated January 31, 2003 (m)                                                                                                                             
|        |                                                                                                                                                                         
|10.44   | Form of 8% Senior Secured Convertible Debenture, dated January 31, 2003 (m)                                                                                             
|        |                                                                                                                                                                         
|10.45   | Form of Amended and Restated 8% Senior Secured Convertible Debenture, dated January 31, 2003 (m)                                                                        
|        |                                                                                                                                                                         
|10.46   | Form of Promissory Note (m)                                                                                                                                             
|        |                                                                                                                                                                         
|10.47** | License Agreement between Antares Pharma, Inc. and Ferring BV, dated January 21, 2003 (n)                                                                               
|        |                                                                                                                                                                         
|10.48   | Securities Purchase Agreement dated July 7, 2003 (q)                                                                                                                    
|        |                                                                                                                                                                         
|10.49   | Form of Registration Rights Agreement dated July 7, 2003 (q)                                                                                                            
|        |                                                                                                                                                                         
|10.50   | Voting Agreement, dated July 7, 2003, by and among Antares Pharma, Inc., XMark Fund, L.P. and XMark Fund, Ltd. (q)                                                      
|        |                                                                                                                                                                         
|10.51   | Form of Warrant, dated July 7, 2003 (q)                                                                                                                                 
|        |                                                                                                                                                                         
|10.52   | Form of Securities Purchase Agreement dated July 17, 2003 (r)                                                                                                           
|        |                                                                                                                                                                         
|10.53   | Form of Registration Rights Agreement dated July 17, 2003 (r)                                                                                                           
|        |                                                                                                                                                                         
|10.54   | Form of Warrant, dated July 17, 2003 (r)                                                                                                                                
|        |                                                                                                                                                                         
|10.55   | Form of Lock-Up Agreement dated July 17, 2003 (r)                                                                                                                       
|        |                                                                                                                                                                         
|10.56   | Investment Letter and Conversion Notice, dated September 12, 2003 (s)                                                                                                   
|        |                                                                                                                                                                         
|10.57   | Securities and Exchange Agreement, dated September 12, 2002 (s)                                                                                                         
|        |                                                                                                                                                                         
|10.58   | Form of Lien Release Letter, dated July 7, 2003 (s)                                                                                                                     
|        |                                                                                                                                                                         
|10.59** | Development and License Agreement, dated September 12, 2003, with Eli Lilly and Company (t)                                                                             

83

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|10.60 | Warrant Agreement with Eli Lilly and Company dated September 12, 2003 (t)                                                                                                                                                                                                     
|----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|      |                                                                                                                                                                                                                                                                               
|10.61 | Registration Rights Agreement with Eli Lilly and Company dated September 12, 2003 (t)                                                                                                                                                                                         
|      |                                                                                                                                                                                                                                                                               
|10.62 | Form of Securities Purchase Agreement dated February 10, 2004 (u)                                                                                                                                                                                                             
|      |                                                                                                                                                                                                                                                                               
|10.63 | Form of Registration Rights Agreement, dated February 10, 2004 (u)                                                                                                                                                                                                            
|      |                                                                                                                                                                                                                                                                               
|10.64 | Form of Warrant Agreement, dated February 10, 2004 (u)                                                                                                                                                                                                                        
|      |                                                                                                                                                                                                                                                                               
|10.65 | Office lease with The Trustees Under the Will and of the Estate of James Campbell,  Deceased,  dated February 19, 2004 (v)                                                                                                                                                    
|      |                                                                                                                                                                                                                                                                               
|10.66 | Form of Indemnification  Agreement,  dated January 2, 2004, between Antares Pharma, Inc. and each of its directors and executive officers (v)                                                                                                                                 
|      |                                                                                                                                                                                                                                                                               
|10.67 | Employment Agreement, dated July 22, 2004, with Jack E. Stover (w)                                                                                                                                                                                                            
|      |                                                                                                                                                                                                                                                                               
|10.68 | Employment Agreement, dated February 14, 2005, with James Hattersley (x)                                                                                                                                                                                                      
|      |                                                                                                                                                                                                                                                                               
|14.1  | Code of Business Conduct and Ethics (v)                                                                                                                                                                                                                                       
|      |                                                                                                                                                                                                                                                                               
|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                                                                                                                                                                                                                                                 
|      |                                                                                                                                                                                                                                                                               
|32.0  | 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, 1996.                                                                                                                                                                                                  
|(c)   | Incorporated by reference to Form 10-K for the year ended December 31, 1997.                                                                                                                                                                                                  
|(d)   | Incorporated by reference to Form 10-K for the year ended December 31, 1998.                                                                                                                                                                                                  
|(e)   | Incorporated by reference to Form 10-K for the year ended December 31, 1999.                                                                                                                                                                                                  
|(f)   | Incorporated by reference to the Proxy Statement filed December 28, 2000.                                                                                                                                                                                                     
|(g)   | Incorporated by reference to Form 10-K for the year ended December 31, 2000.                                                                                                                                                                                                  
|(h)   | Incorporated by reference to Form 10-K for the year ended December 31, 2001.                                                                                                                                                                                                  
|(i)   | Incorporated by reference to Form 10-Q for the quarter ended March 31, 2002.                                                                                                                                                                                                  
|(j)   | Incorporated by reference to Form 8-K filed with the SEC on July 17, 2002.                                                                                                                                                                                                    
|(k)   | Incorporated by reference to Form 10-K/A for the year ended December 31, 2001, filed on September 19,2002.                                                                                                                                                                    
|(l)   | Incorporated by reference to Form 10-Q for the quarter ended September 30, 2002.                                                                                                                                                                                              
|(m)   | Incorporated by reference to Form 8-K filed with the SEC on February 12, 2003.                                                                                                                                                                                                
|(n)   | Incorporated by reference to Form 8-K filed with the SEC on February 20, 2003.                                                                                                                                                                                                

84

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|(o) | Incorporated by reference to Form 10-Q for the quarter ended March 31, 2003.                                                                                                   
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(p) | 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.           
|(q) | Incorporated by reference to Form 8-K filed with the SEC on July 9, 2003.                                                                                                      
|(r) | Incorporated by reference to Form 8-K filed with the SEC on July 22, 2003.                                                                                                     
|(s) | Incorporated by reference to Form 8-K filed with the SEC on September 15, 2003.                                                                                                
|(t) | Incorporated by reference to Form 8-K filed with the SEC on September 18, 2003.                                                                                                
|(u) | Incorporated by reference to Form 8-K filed with the SEC on February 10, 2004.                                                                                                 
|(v) | 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.         
|(w) | 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.
|(x) | Previously  filed as an exhibit to our Form 8-K filed with the SEC on February 15, 2005,  and  incorporated  herein by reference.                                              

85

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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 Minneapolis, State of Minnesota, on March 17, 2005.

| | ANTARES PHARMA, INC.
/s/Jack E. Stover

Jack E. Stover
President 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 17,
2005.

|Signature                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          | Title                                                                                                                                                                                                                                                                                                                 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|/s/Jack E. Stover                                     
    
    Jack E. Stover                                        

                                                      
    /s/Lawrence M. Christian                              
    

    Lawrence M. Christian                                 

    /s/Dr. Jacques Gonella                                
    

    Dr. Jacques Gonella
    /s/Jim Clark                                          
    

    Jim Clark
    /s/Thomas J. Garrity                                  
    

    Thomas J. Garrity
    /s/Anton Gueth                                        
    

    Anton Gueth
    /s/Dr. Rajesh Shrotriya                               
    

    Dr. Rajesh Shrotriya
    /s/Dr. Paul Wotton                                    
    

    Dr. Paul Wotton | President,
    Chief Executive Officer and Director
    (principal executive officer)
    Vice President of Finance,
    Secretary and Chief Financial Officer

    (principal financial and accounting officer)

    Director, Chairman of the Board
    Director
    Director
    Director
    Director
    Director

86

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

The Board of Directors
and ShareholdersAntares Pharma, Inc.:

Under the date of March 16, 2005,
we reported on the consolidated balance sheets of Antares Pharma, Inc. and subsidiaries
(the Company) as of December 31, 2004 and 2003, and the related consolidated statements of
operations, shareholders equity and comprehensive loss, and cash flows for each of
the years in the three-year period ended December 31, 2004, as included in Antares Pharma,
Inc.s Annual Report on Form 10-K for the fiscal year ended December 31, 2004. 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 financial statement schedule is the responsibility of Antares
Pharma, Inc.s management. Our responsibility is to express an opinion on this
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, MinnesotaMarch
 16, 2005

87

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# Antares Pharma, Inc.

# Schedule II

# Valuation and
Qualifying Accounts For the Years Ended
December 31, 2004, 2003 and 2002

|Description                         | Balance at
Beginning of
Year | Charged to
Costs and
Expenses | Deductions | Balance at
End of
Year
|----------------------------------- | ---------------------------- | ----------------------------- | ---------- | ----------------------
|Year Ended December 31, 2004        |                              |                               |            |                       
|Allowance for doubtful accounts     |                              |                              
|(Deducted from accounts receivable) |                              |                               | $          | 21,500                
|                                    |                              |                              
|Year Ended December 31, 2003        |                              |                              
|Allowance for doubtful accounts     |                              |                              
|(Deducted from accounts receivable) |                              |                               | $          | 12,000                
|                                    |                              |                              
|Year Ended December 31, 2002        |                              |                              
|Allowance for doubtful accounts     |                              |                              
|(Deducted from accounts receivable) |                              |                               | $          | 18,000                

88