---

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

# FORM 10-Q

QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934.

# For the quarterly
period ended September 30, 2004

Commission File Number
0-20945

# ANTARES PHARMA, INC.

A Minnesota Corporation
                                     IRS Employer ID No. 41-1350192

707 Eagleview
Boulevard, Suite 414 Exton, Pennsylvania 19341

(610) 458-6200

_________________

Indicate by check mark whether the
Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period
that the Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ____

Indicate by check mark whether the
 registrant  is an  accelerated  filer (as defined in Rule 12b-2 of the Exchange Act).
 Yes  ____           No               X

The number of shares outstanding of
the Registrants Common Stock, $.01 par value, as of November 12, 2004, was
39,918,406.

_________________

1

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# ANTARES PHARMA, INC.

# INDEX

|                                                                                                                                                                                                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     | PAGE                        
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------
|PART I.         
                ITEM 1.
                
                
                
                
                
                

                ITEM 2.
                ITEM 3.
                ITEM 4.
PART II.        
                ITEM 2.
                ITEM 6. | FINANCIAL INFORMATION
Consolidated Financial Statements (Unaudited)Consolidated Balance Sheets, as of September 30, 2004 and December 31, 2003Consolidated Statements of Operations for the three months and nine months ended September 30, 2004 and 2003Consolidated Statements of Cash Flows for the nine months ended September 30, 2004 and 2003Notes to Consolidated Financial StatementsManagement's Discussion and Analysis of Financial Condition and Results of OperationsQuantitative and Qualitative Disclosures About Market RiskControls and ProceduresOTHER INFORMATIONUnregistered Sales of Equity Securities and Use of ProceedsExhibitsSIGNATURES | 3
4
5
6
17
22
23
25
25
25
26

2

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# ANTARES PHARMA, INC. CONSOLIDATED BALANCE SHEETS(UNAUDITED)

|                                                                             | September 30,
2004 | December 31,
2003
|---------------------------------------------------------------------------- | ------------------ | -----------------
|
|Assets                                                                       |                    |                  
|Current Assets:                                                              |                    |                  
|Cash and cash equivalents                                                    |                    |                  
|Short-term investments                                                       |                    |                  
|Accounts receivable, net of allowances of $21,400 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 - current                                                   |                    |                  
|                                                                             |                    |                  
|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 September 30, 2004 and     |                    |                  
|December 31, 2003, respectively                                              |                    |                  
|Series D Convertible Preferred Stock:  $0.01 par; authorized 245,000 shares; |                    |                  
|63,588 and 243,749  issued and outstanding at September 30, 2004 and         |                    |                  
|December 31, 2003, respectively                                              |                    |                  
|Common Stock:  $0.01 par; authorized 100,000,000 shares;                     |                    |                  
|39,913,406 and 19,831,296 issued and outstanding at                          |                    |                  
|September 30, 2004 and December 31, 2003, respectively                       |                    |                  
|Additional paid-in capital                                                   |                    |                  
|Accumulated deficit                                                          |                    |                  
|Prepaid license discount                                                     |                    |                  
|Deferred compensation                                                        |                    |                  
|Accumulated other comprehensive loss                                         |                    |                  
|                                                                             |                    |                  
|Total Shareholders' Equity                                                   |                    |                  
|                                                                             |                    |                  
|Total Liabilities and Shareholders' Equity                                   |                    |                  
|                                                                             |                    |                  

See
accompanying notes to consolidated financial statements.

3

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# ANTARES PHARMA, INC. CONSOLIDATED
STATEMENTS OF OPERATIONS (UNAUDITED)

|                                                             | For the Three Months Ended
September 30, | For the Nine Months Ended
September 30,
|------------------------------------------------------------ | ---------------------------------------- | ---------------------------------------
|
|Revenue:                                                     |                                          |                                        
|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 and marketing                                          |                                          |                                        
|General and administrative                                   |                                          |                                        
|                                                             |                                          |                                        
|                                                             |                                          |                                        
|                                                             |                                          |                                        
|Net operating loss                                           |                                          |                                        
|                                                             |                                          |                                        
|Other income (expense):                                      |                                          |                                        
|Loss on debt extinguishments                                 |                                          |                                        
|Loss on conversions of debt to equity                        |                                          |                                        
|Loss on common stock warrants                                |                                          |                                        
|Interest income                                              |                                          |                                        
|Interest expense                                             |                                          |                                        
|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.

4

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# ANTARES PHARMA, INC. CONSOLIDATED
STATEMENTS OF CASH FLOWS (UNAUDITED)

|                                                                            | For the Nine Months Ended
September 30,
|--------------------------------------------------------------------------- | ---------------------------------------
|
|Cash flows from operating activities:                                       |                                        
|Net loss                                                                    |                                        
|Adjustments to reconcile net loss to net cash used in operating activities: |                                        
|Depreciation and amortization                                               |                                        
|Loss on disposal and abandonment of assets                                  |                                        
|Stock-based compensation expense                                            |                                        
|Loss on conversions of debt to equity                                       |                                        
|Noncash interest expense                                                    |                                        
|Provision for doubtful accounts                                             |                                        
|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                                                  |                                        
|Deferred revenue                                                            |                                        
|Due to related parties                                                      |                                        
|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 sales of common stock                                         |                                        
|Proceeds from exercise of warrants                                          |                                        
|Proceeds from loans from shareholders                                       |                                        
|Proceeds from loans from debenture holder                                   |                                        
|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 period                                                         |                                        
|                                                                            |                                        
|End of period                                                               |                                        
|                                                                            |                                        
|Supplemental cash flow information:                                         |                                        
|Cash paid during the period for interest                                    |                                        

See
accompanying notes to consolidated financial statements.

5

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# ANTARES PHARMA, INC. NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED)September 30, 2004 and
2003

# 1.             Basis of Presentation
and Significant Accounting Policies

| | The
accompanying unaudited financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by accounting principles generally
accepted in the United States of America for complete financial statements. In the opinion
of management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. The accompanying financial
statements and notes should be read in conjunction with our Annual Report on Form 10-K for
the year ended December 31, 2003, as amended. Operating results for the three-month and
nine-month periods ended September 30, 2004, are not necessarily indicative of the results
that may be expected for the year ending December 31, 2004.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Critical Accounting Policies

| | The
Company has identified certain of its significant accounting policies that it considers
particularly important to the portrayal of the Companys results of operations and
financial position and which may require the application of a higher level of judgment by
the Companys management, and as a result are subject to an inherent level of
uncertainty. These are characterized as critical accounting policies and they
address revenue recognition, foreign currency translation, valuation of long-lived and
intangible assets and goodwill and accounting for debt and equity instruments, each more
fully described under Managements Discussion and Analysis of Financial
Condition and Results of Operations in the Companys Annual Report on Form 10-K
for the year ended December 31, 2003, as amended. To date, the Company has made no changes
to these policies during 2004.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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, no
compensation expense has been recognized for stock-based compensation plans. Had
compensation cost been determined based on the fair value at the grant date for stock
options under SFAS No. 123, Accounting and Disclosure of Stock-Based Compensation,
the net loss applicable to common shares and loss per common share would have increased to
the pro-forma amounts shown below:
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

6

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# ANTARES PHARMA, INC. NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED)September 30, 2004 and
2003

# 1.             Basis of Presentation
and Significant Accounting Policies (Continued)

|                                             | Three Months Ended
September 30, | Nine Months Ended
September 30,
|-------------------------------------------- | -------------------------------- | -------------------------------
|
|Net loss applicable to common shares:        |                                  |                                
|As reported                                  |                                  |                                
|Intrinsic value of stock options granted     |                                  |                                
|Fair-value method compensation expense       |                                  |                                
|                                             |                                  |                                
|Pro forma                                    |                                  |                                
|                                             |                                  |                                
|Basic and diluted net loss per common share: |                                  |                                
|As reported                                  |                                  |                                
|Intrinsic value of stock options granted     |                                  |                                
|Fair-value method compensation expense       |                                  |                                
|                                             |                                  |                                
|Pro forma                                    |                                  |                                
|                                             |                                  |                                

| | The
fair value of stock options granted was calculated using the Black-Scholes option pricing
model with the following assumptions:
| | -----------------------------------------------------------------------------------------------------------------------------------

|                               | Three and Nine Months
Ended September 30,
|------------------------------ | -----------------------------------------
|
|Risk-free interest rate        |                                          
|Annualized volatility          |                                          
|Weighted average expected life |                                          
|Expected dividend yield        |                                          

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.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# 2.             Short-Term Investments

| | All
short-term investments are commercial paper or 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 September 30, 2004 the securities have a fair value of
$9,957,145 and a carrying value of $9,964,935.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

7

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# ANTARES PHARMA, INC. NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED)(UNAUDITED)September 30, 2004 and
2003

# 3.             Inventories

Inventories
consist of the following:

|               | September 30,
2004 | December 31,
2003
|-------------- | ------------------ | -----------------
|Raw material   |                    |                  
|Finished goods |                    |                  
|               |                    |                  
|               |                    |                  
|               |                    |                  

# 4.             Product Warranty

| | The
Company provides a warranty on its 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
September 30
|---- | ---------------------------- | ------------------- | --------------- | -----------------------
|2004 |                              |                     | $               | 50,000                 
|2003 |                              |                     | $               | 179,000                

# 5.            Convertible Debentures

| | On
February 7, 2003, the Company completed a restructuring of its 10% debentures previously
sold to four investors. Specifically, as part of this restructuring, on January 24, 2003
and January 31, 2003, the Company borrowed an aggregate of $621,025 on a 30 day, 8%
unsecured promissory note 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
1,660,863 shares of common stock, and to pay a repurchase premium of $144,200 and accrued
interest of $12,825. As additional repurchase compensation, the Company issued 79,200
five-year non-callable warrants with an exercise price of $0.8351 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
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

8

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# ANTARES PHARMA, INC. NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) September 30, 2004 and
2003

# 5.             Convertible
Debentures (Continued)

| | loss of $885,770 in 2003 related to these
transactions. Thereafter, in exchange for the surrender and cancellation of the $621,025
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. After the exchange of the $621,025 promissory notes and the
$992,230 of outstanding principal and accrued interest of the original 10% debentures, the
resulting 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 rather than a variable conversion price and an interest
rate of 8% rather than 10% 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 at June 30, 2003 of $2,723,208. On August 12,
2003, the warrants were adjusted to their fair value of $4,437,269, 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 and thus eliminating the
need to record any further adjustments to the statement of operations. The Company
recognized losses on these common stock warrants in the three-month and nine-month periods
ended September 30, 2003 of $1,714,061 and $3,294,827, respectively.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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
transaction related to the remaining $1,143,742 was accounted for as a debt extinguishment
under EITF 96-19. The restructured debentures were
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

9

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# ANTARES PHARMA, INC. NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) September 30, 2004 and
2003

# 5.             Convertible
Debentures (Continued)

| | 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 discount and premium were written off on September 12, 2003, when the
debentures were exchanged for common and preferred 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 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.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# 6.             Shareholders
Equity

Common
Stock

| | 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, principal of promissory notes totaling $2,300,000 and accrued interest
of $98,635 due to the Companys largest shareholder and Chairman of the Board, Dr.
Jacques Gonella, was converted into 2,398,635 shares of common stock.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

10

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# ANTARES PHARMA, INC. NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) September 30, 2004 and
2003

# 6.             Shareholders
Equity (Continued)

| | In
January 2003, prior to the debenture restructuring discussed in Note 5, the Company issued
881,112 shares of common stock as a result of conversions of convertible debentures with
aggregate principal balances of $198,250.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | During
the three-month and nine-month periods ended September 30, 2004 the Company issued to
consultants and professional service organizations for services rendered 15,000 and 45,000
shares of common stock, respectively, and recognized expense of $14,750 and $48,300,
respectively. During the three-month and nine-month periods ended September 30, 2004 the
Company issued 20,000 and 35,000 shares of common stock, respectively, to directors,
recognizing
expense of $16,800 and $30,300, respectively. During the three-month and nine-month
periods ended September 30, 2003, the Company issued to consultants and professional
service organizations for services rendered 249,632 and 769,266 shares of common stock,
respectively, and recognized expense of $359,400 and $595,696, respectively.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Conversion
of Series D Convertible Preferred Stock to 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 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.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Private
Placements

| | During
the nine-month period ended September 30, 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 non-callable 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,
non-callable 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.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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 non-callable 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 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.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

11

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# ANTARES PHARMA, INC. NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) September 30, 2004 and
2003

# 6.             Shareholders
Equity (Continued)

| | 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.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Common
Stock Option and Warrant Grants

| | During
the first nine months of 2004 and 2003 the Company issued options and/or warrants to
purchase 558,250 and 800,000 shares, respectively, of the Companys common stock at
weighted average exercise prices of $1.14 and $1.15 per share, respectively, as
compensation to directors and non-employees. The Company recognized expense of $329,205
and $630,107 during the first nine months of 2004 and 2003, respectively, in connection
with the options and warrants issued to non-employees.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Warrant
Exercises

| | During
the nine-month period ended September 30, 2004 the Company received proceeds of $847,500
in connection with the issuance of 2,980,500 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.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Shareholder
Loan Warrant Grant

| | During
the nine-month period ended September 30, 2003 the Company issued warrants to Dr. Jacques
Gonella, its largest shareholder and Chairman of the Board, for the purchase of 2,400,000
shares of common stock at an exercise price of $.55 per share in connection with
promissory notes totaling $1,600,000.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 
| | 

12

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# ANTARES PHARMA, INC. NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) September 30, 2004 and
2003

# 6.             Shareholders
Equity (Continued)

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 vesting
over four years and 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 $5,833 was recognized in connection with
these shares during the nine-month period ended September 30, 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 appears likely that a triggering event will be reached.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Roger
G. Harrison, Ph.D., was appointed Chief Executive Officer of the Company 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 $85,248 and $23,688 was recognized in connection with these shares
during the nine-month periods ended September 30, 2003 and 2004, 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.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# 7.             Reconciliation of
Loss and Share Amounts Used in EPS Calculation

| | Basic
loss per common share is computed by dividing net loss applicable to common shareholders
by the weighted-average number of common shares outstanding for the period. Diluted loss
per common share reflects the potential dilution from the exercise or conversion of
securities into common stock. The following table discloses the basic and diluted loss per
share. In addition, as the Company is in a loss position, the table discloses the stock
options and warrants outstanding at the end of each period which were excluded from the
weighted average shares outstanding as their impact is anti-dilutive.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

13

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# ANTARES PHARMA, INC. NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) September 30, 2004 and
2003

7.            
          Reconciliation of Loss and Share Amounts Used in EPS Calculation (Continued)

|                                                         | Three Months Ended
September 30, | Nine Months Ended
September 30,
|-------------------------------------------------------- | -------------------------------- | -------------------------------
|
|Net loss applicable to common shares                     |                                  |                                
|Basic and diluted weighted avg common shares outstanding |                                  |                                
|                                                         |                                  |                                
|Basic and diluted net loss per common share              |                                  |                                
|                                                         |                                  |                                

| | Potentially
dilutive securities at September 30, 2004 and 2003, excluded from dilutive loss per share
as their effect is anti-dilutive, are as follows:
| | -------------------------------------------------------------------------------------------------------------------------------------------------------

|                           | Three and Nine Months
Ended September 30,
|-------------------------- | -----------------------------------------
|
|Stock options and warrants |                                          
|                           |                                          

| | At September 30, 2004 and 2003 the Company also had 63,588 and 243,749 shares, respectively, of Series D Convertible Preferred Stock
convertible into 635,880 and 2,437,490 shares, respectively, of the Company's common stock.
The
stock options and warrants outstanding at September 30, 2004 and 2003 had a weighted average
exercise price of $2.07 and $2.31, respectively.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# 8.             Industry Segment and
Operations by Geographic Areas

| | The
Company is primarily engaged in development and commercialization of transdermal and oral
drug delivery pharmaceutical products and drug delivery injection devices and supplies.
These operations are considered to be one segment. The geographic distributions of the
Companys identifiable assets and revenues are summarized in the following table:
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We
have operating assets located in two countries as follows:

|                         | September 30,
2004 | December 31,
2003
|------------------------ | ------------------ | -----------------
|Switzerland              |                    |                  
|United States of America |                    |                  
|                         |                    |                  
|                         |                    |                  
|                         |                    |                  

14

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# ANTARES PHARMA, INC. NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) September 30, 2004 and
2003

# 8.             Industry Segment and
Operations by Geographic Areas (Continued)

Revenues
by customer location are summarized as follows:

|                         | Three Months Ended
September 30, | Nine Months Ended
September 30,
|------------------------ | -------------------------------- | -------------------------------
|
|United States of America |                                  |                                
|Europe                   |                                  |                                
|Other                    |                                  |                                
|                         |                                  |                                
|                         |                                  |                                
|                         |                                  |                                

The
following tables summarize significant customers comprising 10% or more of total revenue:

|         | Three Months Ended
September 30, | Nine Months Ended
September 30,
|-------- | -------------------------------- | -------------------------------
|
|Ferring  |                                  |                                
|BioSante |                                  |                                
|Solvay   |                                  |                                

# 9.             Comprehensive Loss

|                                            | Three Months Ended
September 30, | Nine Months Ended
September 30,
|------------------------------------------- | -------------------------------- | -------------------------------
|
|Net loss                                    |                                  |                                
|Change in cumulative translation adjustment |                                  |                                
|                                            |                                  |                                
|Comprehensive loss                          |                                  |                                
|                                            |                                  |                                

# 10.           Related Party
Transactions

| | The
Company previously 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. In connection with this agreement, the Company
recognized expense of $46,500 and $93,000 in the three-month and nine-month periods of
2003, respectively. The Company owed $162,595 to JG Consulting AG at December 31, 2003,
which was paid in the first nine months of 2004.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | During
the nine months ended September 30, 2003 the Company recognized expense of $26,500 for
consulting services provided by John Gogol, a Company board member until September 2003.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

15

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# ANTARES PHARMA, INC. NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) September 30, 2004 and
2003

# 10.           Related Party
Transactions (Continued)

| | During
the first nine months of 2003 the Company borrowed $1,600,000 from its largest shareholder
and Chairman of the Board, Dr. Jacques Gonella, under various promissory note agreements.
This amount and $700,000 of previous borrowings from this shareholder, along with accrued
interest of $98,635, was converted into 2,398,635 shares of common stock on September 12,
2003. In connection with this conversion, the Company issued to Dr. Gonella a warrant
to purchase 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.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | At
September 30, 2004 the Company owed $20,900 to various officers and directors for travel
related and board meeting expenses.
| | -------------------------------------------------------------------------------------------------------------------------------

# 11.           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 and intends to
vigorously defend this claim. The Company has recorded no accrual in connection with this
claim.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

16

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ITEM 2.            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 needle-free and 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 needle-free and mini-needle injector systems and manufactures and markets
needle-free injection devices and disposables. These operations, including all
manufacturing and substantially all 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 and oral fast melt tablet products. The Swiss
operations, referred to as Antares/Switzerland, have historically focused on research and
development. 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 operates as a specialty
pharmaceutical company in the 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. The Company currently
views pharmaceutical and biotechnology companies as its 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 though distributors, and has licensed its needle-free technology in the diabetes and
obesity fields to Eli Lilly and Company on a worldwide basis.

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 non-callable warrants to
purchase an aggregate of 5,039,994 shares of common stock at an exercise price of $1.25
per share. During the first nine months of 2004 the Company has also received proceeds of
$847,500 in connection with the exercise of warrants for 2,980,500 shares of common stock.

The Company is reporting a net loss
of $5,804,198 for the first nine months of 2004 and expects to report a net loss for the
year ending December 31, 2004, 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 and the receipt of revenues from sales of
products.

17

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# Results of Operations

Critical Accounting
Policies

The Company has identified certain of
its significant accounting policies that it considers particularly important to the
portrayal of the Companys results of operations and financial position and which may
require the application of a higher level of judgment by the Companys management,
and as a result are subject to an inherent level of uncertainty. These are characterized
as critical accounting policies and address revenue recognition, foreign
currency translation, valuation of long-lived and intangible assets and goodwill and
accounting for debt and equity instruments, each more fully described under
Managements Discussion and Analysis of Financial Condition and Results of
Operations in the Companys Annual Report on Form 10-K for the year ended
December 31, 2003, as amended. To date, the Company has made no changes to these policies
during 2004.

Three and Nine Months
Ended September 30, 2004 and 2003

Revenues

Total revenues for the three and nine
months ended September 30, 2004 were $613,175 and $2,030,376, respectively, compared to
revenues for the same prior-year periods of $1,039,959 and $2,858,387, respectively. The
decrease in the third quarter of $426,784, or 41%, and the decrease in the first nine
months of 2004 of $828,011, or 29%, was primarily due to a decrease in product sales to
the Companys major customer, Ferring, who during the first nine months of 2003 was
planning for the launch of the Medi-Ject Vision device into new markets and in
anticipation of a temporary supply interruption as the Company outsourced its assembly
operations during the second quarter of 2003.

Development revenue decreased by
$79,322 or 69% in the third quarter of 2004 compared to 2003 and increased $15,340 or 9%
for the nine months ended September 30, 2004 as compared to the prior-year period.
Projects generating development revenue in the third quarter of 2003 reached a stage
requiring less or no involvement from the Company by the third quarter of 2004, and no new
projects were initiated that significantly impacted the third quarter of 2004, resulting
in reduced development revenue in the 2004 period compared to the same period of 2003. The
increase in the nine-month period was due mainly to one project originating in 2004 that
generated enough development revenue to cause the total development revenue to exceed that
of the prior year.

Licensing fees decreased by
approximately $49,000 in both the three-month and nine-month periods of 2004 compared to
2003. Licensing fees of approximately $49,000 and $147,000, respectively, for the three
and nine-month periods ended September 30, 2004 were offset by prepaid license discount
amortization. The prepaid license discount, a contra equity account, was recorded at the
fair value of the warrants issued to Eli Lilly and Company in the third quarter of 2003 in
connection with its license agreement and is being amortized against revenue on a straight
line basis over the life of the agreement. Excluding the prepaid license discount
amortization; the licensing fees in the third quarter of 2004 were nearly unchanged from
the third quarter of 2003, while the nine-month period showed an increase of approximately
$98,000. Most of the licensing fee revenue is due to recognition of previously deferred
amounts.

Royalty revenue is generated from the
sale of needle-free injection devices to Ferring under the License Agreement dated January
22, 2003. Royalty revenue decreased by $23,869 to $24,316 for the third quarter of 2004
compared to $48,185 in the third quarter of 2003 and decreased by $49,886 to $61,034

18

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for
the nine-month period of 2004 compared to $110,920 in the same period of 2003. Sales of
devices to Ferring in 2003 were higher than in 2004 because in 2003 Ferring was
planning for the launch of the device into new markets.

Cost of Sales

The cost of product sales is related
to injection devices and disposable products. Cost of product sales as a percentage of
product sales decreased to 61% in the third quarter of 2004 from 78% for the third quarter
of 2003, and decreased to 72% for the first nine months of 2004 from 77% for the first
nine months of 2003. The decreases in the third quarter and first nine months of 2004 as
compared to 2003 is primarily due to decreases in overhead expenses as a result of the
outsourcing of the assembly operations, which exceeded the increase in external production
costs. The decrease in the first nine months was partially offset by a write-down of
$45,000 in the second quarter of 2004 for excess inventory related to disposable
components used with older injector device models.

The cost of development revenue
consists of labor costs and an allocation of certain research and development expenses.
Cost of development revenue as a percentage of development revenue was 27% and 30%,
respectively, for the three and nine-month periods ended September 30, 2004, and for the
same periods of the prior year were 1% and 8%, respectively. The increase in the third
quarter of 2004 as compared to 2003 was primarily due to lower expense allocations made to
the cost of development revenue in the 2003 periods as compared to 2004.

Research and Development

Research and development expenses
totaled $879,297 and $2,147,260 in the three and nine-month periods ended September 30,
2004, respectively, compared to $666,210 and $2,068,325 in the same prior-year periods.
The increases in the third quarter and first nine months of 2004 compared to the same
periods of 2003 were primarily due to increases in prototyping and tooling expenses in
connection with device development projects, as well as an increase 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 due to utilization of a higher amount of payroll and other
expenses in connection with revenue generating development programs.

Sales and Marketing

Sales and marketing expenses totaled
$216,469 and $450,802 in the three and nine-month periods ended September 30, 2004,
respectively, compared to $137,677 and $340,586 in the same prior-year periods. The
increases in the current year three and nine-month periods as compared to the prior-year
periods of $78,792 or 57%, and $110,216 or 32%, respectively, are 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 MJ7 insulin market in
the third quarter of 2004.

General and Administrative

General and administrative expenses
totaled $1,477,672 and $4,180,110 in the three and nine-month periods ended September 30,
2004, respectively, compared to $2,026,421 and $4,844,016 in the same periods of the prior
year. The decrease of $548,749, or 27%, in the third quarter of 2004 and the decrease of
$663,906, or 14%, in the first nine months of 2004 as compared to the same periods in 2003
were due primarily to decreases in payroll and investor relations expenses, partially
offset by increases in

19

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travel and insurance expenses. A portion of the professional
services and investor relations expenses were non-cash expenses as a result of issuing
common stock, warrants and options in exchange for services. Non-cash general and administrative expenses in the
third quarter of 2004 and 2003 were approximately $90,000 and $800,000, respectively, and
in the first nine months of 2004 and 2003 were approximately $380,000 and $1,200,000,
respectively.

Other Income (Expense)

Net other income (expense) changed
from $21,012,746 of net expense in the third quarter of 2003 to income of $6,751 in the
third quarter of 2004, and decreased from net expense of $24,024,010 for the first nine
months of 2003 to $42,446 in 2004. The change in the third quarter is primarily due to the
fact that the third quarter of 2003 included losses on conversions of debt to equity of
$16,283,677 and losses on common stock warrants of $4,379,686, while there were none in
2004, and the 2003 third quarter included interest expense of $356,834, primarily from the
convertible debentures, while there was only $21,875 of interest expense in 2004. In
addition, the third quarter of 2004 includes $34,739 of interest income compared to $4,481
in the same period of 2003, due to a significant increase in cash and short-term
investments in 2004 from proceeds of the private placement in the first quarter of 2004.
In the first nine months of 2004 compared to 2003 net other expense decreased $23,981,564.
The first nine months of 2003 included 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, compared to none in 2004, and the first nine months of 2003
included interest expense of $894,139 compared to $100,959 in the first nine months of
2004. Interest expense in the first nine months of 2003 was due primarily to both
amortization of discounts and interest accruals related to the convertible debentures and
the promissory notes with the Companys largest shareholder. Interest expense in the
first nine months of 2004 was mainly due to expense of $75,388 recognized in connection
with warrants originally issued to convertible debenture holders that were exercised at a
discounted exercise price. The increase in interest income of $66,203 in the first nine
months of 2004 compared to 2003 was due to the increase in cash and short-term investments
in 2004 compared to 2003.

Net Loss Per Common Share

The net loss per common share for the
three and nine-month periods ended September 30, 2004 of $0.06 and $0.17, respectively,
were less than the net loss per common share of $1.40 and $2.23, respectively, for the
same prior-year periods. The decreases were partially due to smaller losses in 2004 than
in 2003, which resulted primarily from significant non-cash expenses in 2003 related
mainly to losses on conversions of debt to equity and losses on common stock warrants. The
decreases were also due to an increase in the number of weighted average shares
outstanding in the 2004 periods as a result of the private placements in the third quarter
of 2003 and the first quarter of 2004.

# Cash Flows

Operating Activities

Net cash used in operating activities
increased to $5,167,732 for the first nine months of 2004 from $3,390,322 for the first
nine months of 2003, a change of $1,777,410. This increase in cash used was due to an
increase in cash used for operating assets and liabilities of $1,238,633 in 2004 compared
to 2003 and an increase in net loss net of noncash expenses of $538,777 in 2004 compared
to 2003.

20

---

Noncash expenses decreased by
$24,766,579 to $1,273,540 in the first nine months of 2004 compared to $26,040,119 in the
first nine months of 2003. The decrease was mainly due to losses on conversions of debt to
equity, losses on common stock warrants and losses on debt extinguishments of $16,283,677,
$5,960,453 and $741,570, respectively, that occurred in 2003 but not in 2004. The noncash
expenses in the first nine months of 2004 were mainly due to stock based compensation
expense of $599,727, depreciation and amortization of $445,538, amortization of prepaid
license discount of $147,186 and noncash interest expense of $75,388. The remaining
noncash expenses in the first nine months of 2003 were mainly due to stock based
compensation expense of $1,517,645, noncash interest expense of $862,308 and depreciation
and amortization of $634,261.

The change in operating assets and
liabilities in the first nine months of 2004 resulted in a net decrease to cash of
$637,074, comprised of increases in other receivables and prepaid expenses of $116,460 and
$112,985, respectively, and decreases in accrued expenses, deferred revenue, due to
related parties and other of $205,027, $526,792, $141,765 and $206,973, respectively,
partially offset by decreases in accounts receivable and inventory of $317,901 and
$66,370, respectively, and an increase in accounts payable of $288,657. The decrease in
deferred revenue of $526,792 is due to amortization of previously deferred amounts that
exceeded new amounts received and deferred under license or development agreements. The
decrease in related parties was due mainly to the payment of amounts due to a consulting
company owned by the Companys largest shareholder for services rendered in 2003. The
decrease in accounts receivable resulted primarily from fewer shipments and less billable
development activity in September 2004 than in December 2003. 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
same level of finished goods inventory did not exist at September 30, 2004.

The change in operating assets and
liabilities in the first nine months of 2003 resulted in a net increase to cash of
$601,559, comprised mainly of decreased inventory of $445,491 and increases in deferred
revenue and due to related parties of $970,792 and $69,108, respectively, partially offset
by increases in accounts receivable, other receivables and prepaid expenses and other
assets of $252,246, $20,094 and $68,924, respectively, and decreases in accounts payable,
accrued expenses and other of $343,888, $196,087 and $2,593, respectively. The decrease in
inventory in 2003 was primarily due to the outsourcing of assembly operations during the
second quarter of 2003 to a third-party supplier that carried a large portion of the
inventory previously carried by the Company. The increase in deferred revenue in 2003 is
mainly due to the receipt of $1,073,449 from Ferring in connection with the License
Agreement dated January 22, 2003. The increase in accounts receivable in 2003 was due to a
temporary increase in sales to the Companys largest customer, Ferring, who during the first nine months of 2003 was
planning for the launch of the Medi-Ject Vision
device into new markets and in anticipation of a possible supply interruption as the
Company outsourced its assembly operations during the second quarter of 2003. The decrease
in accounts payable and accrued expenses was mainly due to the payment of various older
liabilities with proceeds from the private placement in July 2003 and due to a lower level
of inventory purchases after the outsourcing of the assembly operations.

Investing Activities

Net cash used in investing activities
increased to $10,176,809 in the first nine months of 2004 from $114,013 in the first nine
months of 2003. Purchases of equipment, furniture and fixtures in the first nine months of
2004 and 2003 totaled $123,981 and $1,160, respectively, and expenditures for patent
acquisition and development totaled $133,638 and $112,853, respectively. The increase in
purchases of

21

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equipment, furniture and fixtures in 2004 compared to 2003 is primarily due
to office equipment and leasehold improvement expenditures related to the Minnesota
operations move to a new facility in April of 2004 and to the acquisition of production
tooling. After receiving proceeds from the private placement of common stock in the first
quarter of 2004 the Company began investing in short-term securities. In 2004 the Company
purchased $15,919,190 of short-term debt securities consisting of commercial paper and
U.S. government agency discount notes, some of which matured during the year resulting in
proceeds of $6,000,000.

Financing Activities

Net cash provided by financing
activities increased to $14,547,254 in the first nine months of 2004 from $5,614,870 in
the first nine months of 2003, due primarily to net proceeds of $13,753,400 related to
private placements of common stock in the first quarter of 2004. Cash was also generated
in the first nine months of 2004 from proceeds from exercise of warrants of $847,500 and
was reduced by principal payments on capital lease obligations of $32,217 and payment of
preferred stock dividends of $21,429. In the first nine months of 2003 cash increased due
to net proceeds of $2,357,663 from private placements of common stock, exercise of
warrants of $1,588,586 and loans from shareholders and debenture holders of $1,600,000 and
$621,025, respectively. Cash decreased in 2003 due to principal payments on convertible
debentures of $464,000 and principal payments on capital lease obligations of $88,404.

During the first nine months of 2003
the Company borrowed $1,600,000 from its largest shareholder under various promissory note
agreements. The notes accrued interest at the three-month Euribor Rate as of the dates of
the notes, plus 5%. In connection with the notes, the Company also issued to its largest
shareholder warrants to purchase 2,400,000 shares of the Companys common stock at an
exercise price of $0.55 per share. On September 12, 2003, principal of $2,300,000 and
accrued interest of $98,635 on these notes was converted into 2,398,635 shares of common
stock. In connection with this conversion, the Company issued to the shareholder a warrant
to purchase 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.

ITEM 3.             QUANTITATIVE AND
QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Companys primary market
risk exposure is foreign exchange rate fluctuations of the Swiss Franc to the U.S. dollar
as the financial position and operating results of the Companys subsidiaries in
Switzerland are translated into U.S. dollars for consolidation. The Companys
exposure to foreign exchange rate fluctuations also arises from transferring funds to its
Swiss subsidiaries in Swiss Francs. Additionally, the Company has exposure to exchange rate fluctuations
 between the Euro and the U.S. dollar.  The licensing agreement entered into in January
2003 with Ferring establishes pricing in Euros for products sold under the existing supply agreement
and for all royalties.  The effect of foreign exchange rate fluctuations
on the Companys financial results for the three and nine-month periods ended
September 30, 2004 and 2003 was not material. 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.

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ITEM 4.              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 quarter 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.

Cautionary  Statement for Purposes
of the "Safe Harbor" Provisions of the Private Securities  Litigation Reform Act of 1995

Certain statements in this Quarterly
Report on Form 10-Q are forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. When used in this Quarterly Report on
Form 10-Q, the words may, should, expects,
plans, anticipates, believes, estimates,
predicts, intends, potential or continue
and similar expressions are generally intended to identify forward-looking statements.
Because these forward-looking statements involve risks and uncertainties, actual results
could differ materially from those expressed or implied by these forward-looking
statements. These statements are only predictions. Although the Company believes that the
expectations reflected in the forward-looking statements are reasonable, it cannot
guarantee future results, levels of activity, performance and/or achievements.

Forward-looking statements represent
the Companys expectations or beliefs concerning future events, including statements
regarding the Companys current cash situation, need for additional capital, ability
to continue operations, whether the Company will be successful in entering into new
strategic relationships, the Companys ability to attract and retain customers, the
Companys ability to adapt to changing technologies, the impact of competition and
pricing pressures from actual and potential competitors with greater financial resources,
the Companys ability to hire and retain competent employees, the Companys
ability to protect and reuse its intellectual property, changes in general

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economic
conditions, and other factors identified in the Companys filings with the Securities
and Exchange Commission. The Company disclaims any intention or obligation to update or
revise any forward-looking statements, whether as a result of new information, future
events or otherwise.

# Risk Factors

There are a number of risks related
to the Company, which are described under Risk Factors in the Companys
Annual Report on Form 10-K for the year ended December 31, 2003, as amended.

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# PART II  OTHER
INFORMATION

Item 2.     Unregistered
Sales of Equity Securities and Use of Proceeds

| | On
each of July 15, 2004, August 15, 2004 and September 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 pursuant to Section 4(2) of the Securities Act of 1933.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On
July 22, 2004, the Company issued 100,000 shares of its common stock to Jack E. Stover as
compensation in connection with his joining the Company as President and Chief Operating
Officer. The issuance of the shares was exempt from registration pursuant to Section 4(2)
of the Securities Act of 1933.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On
August 16, 2004, the Company issued 20,000 shares of its common stock to Paul Wotton as
compensation for joining the Companys board of directors. The issuance of the shares
was exempt from registration pursuant to Section 4(2) of the Securities Act of 1933.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On
August 20 and 27, 2004, the Company issued 1,801,610 shares of its common stock in
connection with the conversion of 180,161 shares of its Series D Convertible Preferred
Stock. The issuance of the shares was exempt from registration pursuant to Section 4(2) of
the Securities Act of 1933.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In so much as the investors in the above transactions were sophisticated, used access to financial and other relevant information and
could bear the economic risk of the investment, the transactions were exempt from the registration provision of the Securities Act of
1933 under Section 4(2) of the Act.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Item 6.    Exhibits

(a)           Exhibits

|Exhibit No. | Description                                                   
|----------- | --------------------------------------------------------------
|10.67       | Employment Agreement, dated July 22, 2004, with Jack E. Stover
|31.1        | Section 302 CEO Certification                                 
|31.2        | Section 302 CFO Certification                                 
|32.0        | Section 906 CEO and CFO Certification                         

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SIGNATURES

Pursuant to the requirements 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

|                  | ANTARES PHARMA, INC.                                                                 
|----------------- | -------------------------------------------------------------------------------------
|November 15, 2004 | /s/ Jack E. Stover                                                                   
|                  | Jack E. Stover
Chief Executive Officer and President                                 
|November 15, 2004 | /s/ Lawrence M. Christian                                                            
|                  | Lawrence M. Christian
Chief Financial Officer, Vice President - Finance
and Secretary

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