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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

For the quarterly period ended February 26, 2005

OR

For the transition period from              to             

Commission file number 1-50761

AngioDynamics, Inc.

(Exact name of registrant as specified in its charter)

(518) 798-1215

Registrant’s telephone number, including area code

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

As of April 7, 2005, there were 11,848,231 shares of the issuer’s common stock outstanding.

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AngioDynamics, Inc. and Subsidiary

INDEX

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AngioDynamics, Inc. and Subsidiary

CONSOLIDATED BALANCE SHEETS

(in thousands)

The accompanying notes are an integral part of these statements.

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AngioDynamics, Inc. and Subsidiary

CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

The accompanying notes are an integral part of these statements.

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AngioDynamics, Inc. and Subsidiary

CONSOLIDATED STATEMENTS OF EARNINGS

(unaudited)

(in thousands, except per share data)

The accompanying notes are an integral part of these statements.

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AngioDynamics, Inc. and Subsidiary

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY AND COMPREHENSIVE INCOME

Thirty-nine weeks ended February 26, 2005

(unaudited)

(in thousands, except share data)

The accompanying notes are an integral part of these statements.

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AngioDynamics, Inc. and Subsidiary

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(in thousands)

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AngioDynamics, Inc. and Subsidiary

CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

(unaudited)

(in thousands)

The accompanying notes are an integral part of these statements.

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AngioDynamics, Inc. and Subsidiary

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

February 26, 2005 and February 28, 2004

(unaudited)

NOTE A - CONSOLIDATED FINANCIAL STATEMENTS

The consolidated balance sheet as of February 26, 2005, the consolidated statement of stockholders’ equity and comprehensive income for the thirty-nine weeks ended February 26, 2005, and the consolidated statements of earnings and cash flows for the periods ended February 26, 2005 and February 28, 2004, have been prepared by the Company without audit. The consolidated balance sheet as of May 29, 2004 was derived from audited consolidated financial statements. In the opinion of management, all adjustments (which include only normally recurring adjustments) necessary to present fairly the financial position, changes in stockholders’ equity and comprehensive income, results of operations and cash flows at February 26, 2005 (and for all periods presented) have been made.

Certain information and footnote disclosures, normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America, have been condensed or omitted. It is suggested that these consolidated financial statements be read in conjunction with the financial statements and notes thereto included in the Annual Report on Form 10-K for the fiscal year ended May 29, 2004, filed by the Company on August 27, 2004. The results of operations for the periods ended February 26, 2005 and February 28, 2004 are not necessarily indicative of the operating results for the respective full years.

The consolidated financial statements include the accounts of AngioDynamics, Inc. and its wholly-owned subsidiary, Leocor, Inc. (“Leocor”) (collectively, the “Company”). All significant intercompany balances and transactions have been eliminated.

Through May 26, 2004, the Company was a wholly-owned subsidiary of E-Z-EM, Inc. (“E-Z-EM” or the “Former Parent”). On May 27, 2004, the Company completed an initial public offering (“IPO”), selling 1,950,000 shares of common stock at $11.00 per share. Proceeds from the IPO, net of certain financing costs totaling $1,501,500, amounted to $19,948,500 and were received by the Company on June 2, 2004. At May 29, 2004, the net proceeds of the IPO credited to common stock and additional paid-in capital aggregated $18,670,000, after financing costs of $2,779,500. On June 15, 2004, the underwriters exercised the over-allotment option and acquired 292,500 shares at $11.00 per share, less underwriting discounts and commissions, and on June 18, 2004, the Company received proceeds of $2,992,275, net of financing costs of $225,225. At June 15, 2004, the Former Parent’s ownership decreased to 80.4%. During the thirty-nine weeks ended February 26, 2005, the Company incurred additional financing costs related to the IPO of $226,000, which were also charged to additional paid-in capital and netted against the proceeds of the exercise of the over-allotment option.

On August 17, 2004, the E-Z-EM Board of Directors approved the separation of the Company from E-Z-EM by means of a tax-free dividend of E-Z-EM’s remaining ownership of the Company. EZEM had received a favorable ruling from the IRS that the distribution by E-Z-EM of its shares of the Company’s stock would be tax-free to E-Z-EM and to E-Z-EM’s shareholders for U.S. federal income tax purposes. The distribution of E-Z-EM’s 9,200,000 shares of the Company occurred at the close of business on October 30, 2004, to E-Z-EM stockholders of record as of October 11, 2004.

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AngioDynamics, Inc. and Subsidiary

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

February 26, 2005 and February 28, 2004

(unaudited)

NOTE B - STOCK-BASED COMPENSATION

At February 26, 2005, the Company has two stock-based compensation plans, exclusive of the stock option plans related to the distribution (see Note N). The Company accounts for these plans under the recognition and measurement principles of APB Opinion No. 25, “Accounting for Stock Issued to Employees”, SFAS No. 123 for non-employees, and related interpretations. Accordingly, no compensation expense has been recognized under these plans concerning options granted to key employees and to members of the Board of Directors, as all such options granted had an exercise price equal to or greater than the market value of the underlying common stock on the date of grant. During the thirteen weeks ended February 26, 2005 and February 28, 2004, compensation expense of $19,000 and $1,000, respectively, was recognized under these plans for options granted to consultants. During the thirty-nine weeks ended February 26, 2005 and February 28, 2004, compensation expense of $52,000 and $4,000, respectively, was recognized under these plans for options granted to consultants. If the Company had elected to recognize compensation expense based upon the fair value at the grant date for options granted under these plans to key employees and to members of the Board of Directors, consistent with the methodology prescribed by SFAS No. 123, the Company’s pro forma net earnings and earnings per common share would be as follows:

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AngioDynamics, Inc. and Subsidiary

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

February 26, 2005 and February 28, 2004

(unaudited)

NOTE C - EARNINGS PER COMMON SHARE

Basic earnings per share are based on the weighted average number of common shares outstanding without consideration of potential common stock. Diluted earnings per share are based on the weighted average number of common and potential common shares outstanding. The calculation takes into account the shares that may be issued upon exercise of stock options, reduced by the shares that may be repurchased with the funds received from the exercise, based on the average price during the period.

The following table sets forth the reconciliation of the weighted-average number of common shares:

NOTE D - EFFECTS OF RECENTLY ISSUED PRONOUNCEMENTS

In November 2004, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 151, “Inventory Costs” (“SFAS 151”). SFAS 151 amends the guidance in Chapter 4 of Accounting Research Bulletin No. 43, “Inventory Pricing,” to clarify the accounting for amounts of idle facility expense, freight, handling costs and wasted material. SFAS 151 requires that these types of items be recognized as current period charges as they occur. The provisions of SFAS 151 are effective for inventory costs incurred during fiscal years beginning after June 15, 2005. The adoption of this new accounting pronouncement is not expected to have a material impact on the financial statements of the Company.

In December 2004, the FASB issued SFAS No. 123(R), “Accounting for Stock-Based Compensation”. SFAS 123(R) establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services. This Statement focuses primarily on accounting for transactions in which an entity obtains employee services in share-based payment transactions. SFAS 123(R) requires that the fair value of such equity instruments be recognized as expense in the historical financial statements as

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AngioDynamics, Inc. and Subsidiary

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

February 26, 2005 and February 28, 2004

(unaudited)

NOTE D - EFFECTS OF RECENTLY ISSUED PRONOUNCEMENTS (continued)

services are performed. Prior to SFAS 123(R), only certain pro-forma disclosures of fair value were required. SFAS 123(R) will be effective for the Company as of the beginning of the first interim reporting period that begins after June 15, 2005. The adoption of this new accounting pronouncement is expected to have a material impact on the financial statements of the Company commencing with the second quarter of the year ending June 3, 2006. Based on the current stock options outstanding, the Company expects the fiscal 2006 expense to be approximately $608,000.

In March 2004, the FASB issued Emerging Issues Task Force Issues No. 03-1, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments” (“EITF No. 03-1”), which provides guidance for assessing impairment losses on debt and equity investments. Additionally, EITF No. 03-1 includes new disclosure requirements for investments that are deemed to be temporarily impaired. In September 2004, the FASB delayed the accounting provisions of EITF No. 03-1; however, the disclosure requirements remain effective and have been adopted by the Company. The Company does not expect the effect of implementing EITF No. 03-1, when final guidance is released, to have a material impact on its financial statements.

NOTE E - COMPREHENSIVE INCOME

The components of comprehensive income, net of related tax, are as follows:

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AngioDynamics, Inc. and Subsidiary

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

February 26, 2005 and February 28, 2004

(unaudited)

NOTE E - COMPREHENSIVE INCOME (continued)

The components of accumulated comprehensive loss, net of related tax, are as follows:

NOTE F - MARKETABLE SECURITIES

Marketable securities at February 26, 2005 consist of the following:

As of May 29, 2004, the Company held municipal bond securities with a fair value of $737,000, which approximated amortized cost.

The amortized cost and fair value of marketable securities at February 26, 2005, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

For the thirteen weeks ended February 26, 2005, gross unrealized gains and losses on U.S. government corporation obligations and corporate bond securities totaled $28,000 and $25,000, respectively. For the thirty-nine weeks ended February 26, 2005, gross unrealized gains and losses on U.S. government corporation obligations and corporate bond securities totaled $29,000 and $60,000, respectively.

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AngioDynamics, Inc. and Subsidiary

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

February 26, 2005 and February 28, 2004

(unaudited)

NOTE G - INVESTMENT AT COST

During the thirteen weeks ended February 26, 2005, the Company reduced the carrying value of its investment in Surgica Corporation to $0, due to the uncertainty of Surgica’s ability to operate as a going concern. Surgica’s projected negative cash flows, poor liquidity and recent failed attempts by Surgica’s management to either raise additional capital or sell the entity were primary factors that caused this uncertainty. Previously negotiated registration rights and distribution agreements remain in force and the Company continues to purchase and sell products related to Surgica’s operations. Sales of such products for the thirteen and thirty-nine weeks ended February 26, 2005, were $20,000 and $54,000, respectively. The amount of the impairment loss, $300,000, has been included in other expense for the thirteen and thirty-nine weeks ended February 26, 2005.

NOTE H - INVENTORIES

Inventories consist of the following:

NOTE I - DISTRIBUTION AGREEMENT

In June 2004, the Company signed a Distribution Agreement (the “Agreement”) granting to the Company worldwide exclusive rights to market, sell, and distribute products for use in image-guided procedures. The Agreement is effective for an initial term of ten years and will automatically renew for an additional five-year period if certain minimum purchase requirements are met. In consideration for these rights, the Company will pay up to $1,000,000 in five installments, each contingent upon the achievement of specified product development and approval milestone events, as defined. For the thirteen and thirty-nine weeks ended February 26, 2005, the Company made installment payments of $50,000 and $400,000, respectively, which have been recorded as a component of research and development expenses.

The Agreement contains an option for the Company to purchase 100% of the capital stock or substantially all assets of the entity that owns the products for the sum of $15,000,000, payable in four equal installments of $3,750,000 over a two-year period from the closing date of the purchase option. The purchase option is exercisable within 90 days of the completion of the third milestone, as defined.

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AngioDynamics, Inc. and Subsidiary

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

February 26, 2005 and February 28, 2004

(unaudited)

NOTE J - NOTES PAYABLE - FORMER PARENT

At May 29, 2004, the Company had an outstanding unsecured note payable (the “Note”) of $3,000,000 with the Former Parent. In June 2004, the Company paid the outstanding balance of the Note in full. Effective June 1, 2002, the Former Parent agreed to suspend interest charges on the then outstanding balance of the Notes in the principal amount of $16.1 million. For the thirteen and thirty-nine weeks ended February 28, 2004, the Company recorded imputed interest charges of $113,000 and $534,000, respectively, for the suspended interest and corresponding credits to “Additional paid-in capital.”

NOTE K - ACCRUED LIABILITIES

Accrued liabilities consist of the following:

NOTE L - LONG-TERM DEBT

In September 2002, the Company closed on the financing for the expansion of its headquarters and manufacturing facility in Queensbury, New York. The expansion was financed principally with Industrial Revenue Bonds (the “Bonds”) issued by the Warren and Washington Counties Industrial Development Agency (the “Agency”) aggregating $3,500,000. The Bonds were issued under a Trust Agreement by and between the Agency and a bank, as trustee (the “Trustee”). The proceeds of the Bonds were advanced, as construction occurred, pursuant to a Building Loan Agreement by and among the Agency, the Trustee, a second bank (the “Bank”) and the Company. The Bonds reprice every seven days and are resold by a Remarketing Agent. The Bonds bear interest based on the market rate on the date the Bonds are repriced (2.01% per annum at February 26, 2005) and require quarterly interest payments and quarterly principal payments ranging from $25,000 to $65,000 through May 2022. In connection with the issuance of the Bonds, the Company entered into a Letter of Credit and Reimbursement Agreement with the Bank which requires the maintenance of a letter of credit for an initial amount of $3,575,000 ($3,207,000 at February 26, 2005) to support principal and certain interest payments of the Bonds and requires payment of an annual fee on the outstanding balance ranging from 1% to 1.9%, depending on financial results achieved. The Company also entered into a Remarketing Agreement, pursuant to which the Remarketing Agent is required to use its best efforts to arrange for sales of such bonds in the secondary market. The Remarketing Agreement provides for the payment of an annual fee of .1% of the remaining balance.

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AngioDynamics, Inc. and Subsidiary

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

February 26, 2005 and February 28, 2004

(unaudited)

NOTE L - LONG-TERM DEBT (continued)

The Reimbursement Agreement contains certain financial covenants, relating to fixed charge coverage and interest coverage, as defined. Amounts borrowed under the Agreement are secured by the aforementioned letter of credit and a first mortgage on the land, building and equipment relating to the facility with a net carrying value of $7,773,000 and $7,343,000 at February 26, 2005 and May 29, 2004, respectively.

The Company entered into an interest rate swap agreement (the “Swap Agreement”) with the Bank, effective September 2002, with an initial notional amount of $3,500,000 to limit the effect of variability due to interest rates on its rollover of the Bonds. The Swap Agreement, which qualifies as a hedge under SFAS No. 133, is a contract to exchange floating interest rate payments for fixed interest payments periodically over the life of the agreement without the exchange of the underlying notional amounts. The Swap Agreement requires the Company to pay a fixed rate of 4.45% and receive payments based on 30-day LIBOR repriced every seven days through May 2022. At February 26, 2005 and May 29, 2004, since the Swap Agreement is classified as a cash flow hedge, the fair value of $236,000 and $188,000, respectively, has been recorded as a component of accrued liabilities, and accumulated other comprehensive loss is $149,000 and $118,000, respectively, net of tax benefit.

Amounts to be paid or received under the Swap Agreement are accrued as interest rates change and are recognized over the life of the Swap Agreement as an adjustment to interest expense.

NOTE M - RELATED PARTY TRANSACTIONS

Certain identifiable, allocable costs incurred by the Former Parent on behalf of the Company with respect to commissions, foreign selling expenses and administrative expenses were proportionately charged to the Company through December 31, 2004, in connection with the Master Separation and Distribution Agreement with the Former Parent.

In addition to the allocations, the Former Parent provided insurance coverage to the Company through October 30, 2004. The amount payable by the Company for such coverage was the actual cost of such insurance as allocated by the insurance carrier providing such coverage, and if such allocation was not provided by the insurance carrier, the amount payable by the Company was determined by the Former Parent based upon the respective total revenues of the Former Parent and the Company and such other factors as the Former Parent reasonably determined to be appropriate.

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AngioDynamics, Inc. and Subsidiary

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

February 26, 2005 and February 28, 2004

(unaudited)

NOTE M - RELATED PARTY TRANSACTIONS (continued)

These costs are included in the respective statements of earnings as follows:

Details of amounts due (to)/from former parent are as follows:

NOTE N - COMMON STOCK

Stock Option Plans

During the thirty-nine weeks ended February 26, 2005, options for a total of 266,823 shares of common stock were granted to employees under the 2004 Stock and Incentive Award Plan (the “2004 Plan”). During the thirteen and thirty-nine weeks ended February 26, 2005, options for a total of 25,920 shares of common stock were granted to employees and consultants under the 1997 Stock Option Plan (the “1997 Plan”). All options were granted at exercise prices equal to the quoted market price of the Company’s common stock at the date of the grants. Options under these grants vest 25% per year over four years and expire on the tenth anniversary of the grant date. At February 26, 2005, the options for all 292,743 shares were unvested and, accordingly, unexercisable.

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AngioDynamics, Inc. and Subsidiary

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

February 26, 2005 and February 28, 2004

(unaudited)

NOTE N - COMMON STOCK (continued)

Options for a total of 159,577 shares of common stock were exercised under the 1997 Plan during the thirteen and thirty-nine weeks ended February 26, 2005, at prices ranging from $4.35 to $6.52 per share.

During the thirteen and thirty-nine weeks ended February 26, 2005, options for 17,000 and 17,850 shares, respectively, at $13.18 per share were forfeited under the 2004 Plan. During the thirteen and thirty-nine weeks ended February 26, 2005, options for 523 and 1,046 shares, respectively, at $4.35 per share were forfeited under the 1997 Stock Option Plan.

In connection with the completion of the separation and spin-off (see Note A), as of October 29, 2004, all outstanding E-Z-EM options (“E-Z-EM Pre-spin Options”) were adjusted and Company options (the “Mirror Options”) were issued to E-Z-EM option holders. The E-Z-EM Pre-spin Options and the Mirror Options are collectively referred to herein as the “Replacement Options”.

The exercise price and the number of shares subject to each of the Replacement Options was established pursuant to a formula designed to ensure that: (1) the aggregate “intrinsic value” (i.e., the difference between the exercise price of the option and the market price of the common stock underlying the option) of the Replacement Option did not exceed the aggregate intrinsic value of the outstanding E-Z-EM Pre-spin Option which is replaced by such Replacement Option immediately prior to the spin-off, and (2) the ratio of the exercise price of each option to the market value of the underlying stock immediately before and after the spin-off was preserved.

Substantially all of the other terms and conditions of each Replacement Option, including the time or times when, and the manner in which, each option is exercisable, the permitted method of exercise, settlement and payment, the rules that apply in the event of the termination of employment of the employee, the events, if any, that may give rise to an employee’s right to accelerate the vesting or the time or exercise thereof and the vesting provisions, are the same as those of the replaced E-Z-EM Pre-spin Option, except for the duration of the exercise periods of the Mirror Options, all of which will expire no later than May 2008. In addition, option holders who are employed by one company are permitted to exercise, and are subject to all of the terms and provisions of, options to acquire shares in the other company as if such holder was an employee of such other company.

As a result of the spin-off, on October 29, 2004, 421,926 Mirror Options, with a weighted average exercise price of $4.22, were issued to E-Z-EM officers, directors, employees and consultants.

Mirror Options for a total of 146,778 and 170,298 shares of common stock were exercised during the thirteen and thirty-nine weeks ended February 26, 2005, respectively, at prices ranging from $1.92 to $6.54 per share.

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AngioDynamics, Inc. and Subsidiary

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

February 26, 2005 and February 28, 2004

(unaudited)

NOTE N - COMMON STOCK (continued)

Employee Stock Purchase Plan

In July 2004, the Company adopted the AngioDynamics, Inc. Employee Stock Purchase Plan (the “Stock Purchase Plan”), which was approved by stockholders on October 18, 2004. The Stock Purchase Plan provides a means by which employees of the Company (the “participants”) may be given an opportunity to purchase common stock of the Company through payroll deductions. The maximum number of shares to be offered under the Stock Purchase Plan will be 200,000 shares of the Company’s common stock, subject to any increase authorized by the board of directors. Shares will be offered through two overlapping offering periods, each with a duration of approximately 12 months, commencing on the first business day on or after the end of the second and fourth fiscal quarters. A participant may not participate in more than one offering period at a time. An employee is eligible to participate in an offering period if, on the first day of an offering period, he or she has been employed in a full-time capacity for at least six months, with a customary working schedule of 20 or more hours per week and more than five months in a calendar year. Employees who own stock possessing 5% or more of the total combined voting power or value of all classes of the Company’s stock are not eligible to participate in the Stock Purchase Plan. The purchase price of the shares of common stock acquired on each purchase date will be the lower of (i) 85% of the fair market value of a share of common stock on the first day of the offering period or (ii) 85% of the fair market value of a share of common stock on the last day of the purchase period, subject to adjustments made by the board of directors, as defined. The Stock Purchase Plan is intended to qualify as an “employee stock purchase plan” within the meaning of Section 423 of the Internal Revenue Code. For the thirteen and thirty-nine weeks ended February 26, 2005, 4,688 shares were issued at a price of $13.88 per share, under the Stock Purchase Plan.

NOTE O - LITIGATION

On January 6, 2004, Diomed filed an action against the Company entitled Diomed, Inc. v. AngioDynamics, Inc., civil action no. 04 10019 RGS in the U.S. District Court for the District of Massachusetts. Diomed’s complaint alleges that the Company infringed on Diomed’s U.S. patent no. 6,398,777 by selling a kit for the treatment of varicose veins (now called the “VenaCure Procedure Kit”) and two diode laser systems: the Precision 980 Laser and the Precision 810 Laser, and by conducting a training program for physicians in the use of the Company’s VenaCure Procedure Kit. The complaint alleges the Company’s actions have caused, and continue to cause, Diomed to suffer substantial damages. The complaint seeks to prohibit the Company from continuing to market and sell these products, as well as conducting the training program, and seeks compensatory and treble money damages, reasonable attorneys’ fees, costs and pre-judgment interest. The Company believes that the Company’s product does not infringe the Diomed patent. The Company purchases the lasers and laser fibers for its laser systems from biolitec,

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AngioDynamics, Inc. and Subsidiary

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

February 26, 2005 and February 28, 2004

(unaudited)

NOTE O - LITIGATION (continued)

Inc. under a supply and distribution agreement. biolitec has engaged counsel on the Company’s behalf to defend this action.

The Company has been named as a defendant in an action entitled Duhon, et. al v. Brezoria Kidney Center, Inc., case no. 27084 filed in the District Court of Brezoria County, Texas, 239th Judicial District on December 29, 2003. The complaint alleges that the Company and its co-defendants, E-Z-EM and Medical Components, Inc., or Medcomp, designed, manufactured, sold, distributed and marketed a defective catheter that was used in the treatment of, and caused the death of, a hemodialysis patient, as well as committing other negligent acts. The complaint seeks compensatory and other monetary damages in unspecified amounts. Under the Company’s distribution agreement with Medcomp, Medcomp is required to indemnify the Company against all the Company’s costs and expenses, as well as losses, liabilities and expenses (including reasonable attorneys’ fees) that relate in any way to products covered by the agreement. The Company has tendered the defense of the Duhon action to Medcomp, and Medcomp has accepted defense of the action. Based upon the Company’s prior experience with Medcomp, the Company expects Medcomp to honor its indemnification obligation if it is unsuccessful in defending this action.

In accordance with the Master Separation and Distribution Agreement between the Company and the Former Parent, the Company has agreed to indemnify the Former Parent from any claims which arise out of the business operations of the Company prior to its spin-off (see Note A) in which the Former Parent is a named defendant solely because the Former Parent was the sole stockholder of the Company.

The Company is party to other legal actions that arise in the ordinary course of business. The Company believes that any liability resulting from any currently pending litigation will not, individually or in the aggregate, have a material adverse effect on the Company’s business, financial position or results of operations.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following information should be read together with the consolidated financial statements and the notes thereto and other information included elsewhere in this Quarterly Report on Form 10-Q.

Forward-Looking Statements

This Quarterly Report on Form 10-Q, including the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which are intended to be covered by the safe harbors created thereby. In some cases, forward-looking statements may be identified by terminology such as “may”, “will”, “should”, “expects”, “intends”, “anticipates”, “plans”, “believes”, “seeks”, “estimates”, “predicts”, “potential”, “continue” or variations of such terms or similar expressions. These statements relate to future events or AngioDynamics’ future financial performance and involve known and unknown risks, uncertainties and other factors that may cause AngioDynamics or its industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by the forward-looking statements. These risks, uncertainties and other factors include, among other things, our ability to develop new products and enhance existing products, our ability to protect our intellectual property, pending and potential intellectual property infringement claims by third parties, our dependence on single source suppliers, our relationships with interventional physicians, the difficulty in predicting our sales and planning our manufacturing requirements, the performing by cardiologists of more interventional procedures, possible undetected defects in our products, pending and potential product liability claims by customers or patients, the volatility of our operating results, the effect on our operations of healthcare reform measures, potential declines in reimbursements by government or other third-party payors for procedures using our products, failure to obtain regulatory approvals for our products, a disaster or other disruption at our manufacturing facility or the facilities of our suppliers, and our likely need for additional financing to fund any acquisitions. We discuss certain of these matters more fully in other of our filings with the SEC, including our Annual Report on Form 10-K for our 2004 fiscal year, which was filed with the SEC on August 27, 2004. This Quarterly Report should be read in conjunction with that Annual Report on Form 10-K, and all our other filings, including Current Reports on Form 8-K, made with the SEC through the date of this report. We urge you to consider all of these risks, uncertainties and other factors carefully in evaluating the forward-looking statements contained in this Quarterly Report. As a result of these matters, including changes in facts or other factors, the actual circumstances relating to the subject matter of any forward-looking statement in this Quarterly Report may differ materially from the anticipated results expressed or implied in that forward-looking statement. The forward-looking statements included in this Quarterly Report are made only as of the date of this report and we undertake no obligation to update these forward-looking statements to reflect subsequent events or circumstances.

Overview

AngioDynamics is a provider of innovative medical devices used in minimally invasive, image-guided procedures to treat peripheral vascular disease, or PVD. We design, develop, manufacture and market a broad line of therapeutic and diagnostic devices that enable interventional physicians (interventional radiologists, vascular surgeons and others) to treat PVD and other non-coronary diseases. We believe that we are the only company whose primary focus is to offer a comprehensive product line for the interventional treatment of these diseases.

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We sell our broad line of quality devices in the United States through a direct sales force which, as of February 26, 2005, was comprised of 39 sales persons, six regional managers and a vice president of sales. In an effort to generate increased sales, we intend to expand our domestic sales force to 70 direct sales representatives within the next three years. Outside the United States, we sell our products indirectly through a network of distributors in 33 markets. Historically, less than 5% of our net sales have been in non-U.S. markets.

Our growth depends in large part on the continuous introduction of new and innovative products, together with ongoing enhancements to our existing products, through internal product development, technology licensing, and strategic alliances. In this regard, our strategic plan calls for an annual investment of 8% of sales for research and development activities.

In addition, with the completion of our initial public offering and the spin-off of our company by E-Z-EM, Inc., we now intend to seek to grow through selective acquisitions of complementary products, technologies or businesses. Our cash resources are limited and, except to the extent we can use our equity securities as acquisition capital, we will require additional equity or debt financing to fund any significant acquisitions. We cannot assure you that we will be able to successfully identify or consummate any such acquisitions or that any required financing will be available on terms satisfactory to us or at all.

Our ability to further increase our profitability will depend in large part on improving gross profit margins. As discussed below, our gross margins have improved significantly in recent periods, primarily due to increased sales of higher margin products. We expect this trend to continue, as we increase our efforts in expanding sales of such higher margin products as our Morpheus CT PICC, and developing and introducing additional higher margin products. We also plan to take advantage of our expanded production facility to manufacture more of the products we sell. However, we cannot assure you that our efforts will result in continued improvement in our gross margins and profitability. Revenue growth and gross margin improvements are expected to be offset somewhat by increases in selling expenses from the addition of direct sales personnel as discussed above, but also from additional expenses incurred as a result of operating as an independent public company.

As an important part of our focus on the peripheral vascular disease market, we are committed to the treatment of varicose veins. It is a large and growing market, with an estimated one-half of all Americans over the age of 60 suffering from varicose veins. We believe that Sotradecyl, a schlerosing drug which was recently approved by the FDA, combined with our currently available precision drug delivery catheter technology, such as Uni*Fuse, will become an important method of treating varicose veins. Sotradecyl has been shown to be an effective treatment of small, uncomplicated varicose veins of the lower extremities, in addition to ablation of the greater saphenous vein. Catheter-directed schlerotherapy has the advantages of requiring no investment in capital equipment and requires no tumescent anesthesia because it is virtually pain free. We believe that laser-based treatment systems will continue to be an important part of the vein treatment market for some time to come, but that lasers may eventually be eclipsed by catheter-directed schlerotherapy, as has been seen in Europe. This approach to treating varicose veins has the potential for greater IP protection and higher gross margins than our laser-based VenaCure products, and most importantly, can be incorporated with some of our existing patented products.

Our fiscal nine months ended February 26, 2005 and February 28, 2004 both represent thirty-nine weeks. The thirty-nine weeks ended February 26, 2005 are referred to as the “fiscal 2005 period” and the thirty-nine weeks ended February 28, 2004 are referred to as the “fiscal 2004 period”. Our fiscal quarters ended February 26, 2005 and February 28, 2004 both represent thirteen weeks. The thirteen weeks ended February 26, 2005 are referred to as the “2005 quarter” and the thirteen weeks ended February 28, 2004 are referred to as the “2004 quarter”.

For the fiscal 2005 period, we reported net income of $2.9 million, or $0.25 and $0.24 per common share on a basic and diluted basis, respectively, on revenues of $43.0 million. For the fiscal 2004 period, we reported net income of $1.6 million, or $0.17 and $0.16 per common share on a basic and diluted basis, respectively, on revenues of $34.9 million. Gross margins improved to 55.0% for the fiscal 2005 period from 52.3% for the fiscal 2004 period. Cash flow from operations was $3.0 million, an increase of $1.9 million from the fiscal 2004 period.

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Results of Operations

The following table sets forth certain operational data as a percentage of sales for the thirteen weeks ended February 26, 2005 and February 28, 2004.

Thirteen weeks ended February 26, 2005 and February 28, 2004

Net Sales. Net sales for the 2005 quarter increased by 24.0%, or $3.0 million, to $15.5 million, compared to the 2004 quarter. The increase in sales was primarily due to the continued growth from new products released in, or subsequent to, the second quarter of the prior year as well as the continuing market share gains of our existing product lines. Faster growing products included our Vascular Access line, for which sales increased 147.6% or $1.2 million; hemodialysis products, for which sales increased by 16.7%, or $594,000; angiographic products, for which sales increased 16.1%, or $637,000; and VenaCure^™ products; for which sales increased by 16.8%, or $247,000. Our sales increased during the 2005 quarter notwithstanding that the markets for many of our products experienced slight pricing declines. Substantially all of the increase in our sales was due to increased unit sales, with only 1.3% of the increase attributable to price increases.

Gross Profit. For the 2005 quarter, our gross profit as a percentage of sales increased to 55.4% from 53.4% for the 2004 quarter. The increase in gross margin percentage was due to a favorable product mix resulting from increased sales of higher margin products (hemodialysis products, VenaCure procedure kits, and vascular access products), lower material costs resulting from purchase volume discounts with a major supplier, and modest price increases implemented earlier in the year.

Selling and marketing expenses. Selling and marketing expenses were 26.8% of net sales for the 2005 quarter, compared to 29.8% for the 2004 quarter. For the 2005 quarter, expenses increased 11.8%, or $439,000, compared to the 2004 quarter. Selling expenses increased 23.5%, or $563,000, due to the increased number of territories and commissions on higher sales. Marketing expenses decreased 9.4%, or $124,000, as the 2004 quarter included a significant amount of market research, advertising, and promotional costs for a number of new products launched in fiscal 2004.

General and administrative expenses. General and administrative expenses were 8.1% of net sales for the 2005 quarter, compared to 7.2% for the 2004 quarter. For the 2005 quarter, these expenses increased 39.4%, or $351,000, due to increased consulting fees, legal fees, and directors’ fees, staffing increases and increased business insurance costs primarily associated with the cost of operating as a public company.

Research and development expenses. Research and development (R&D) expenses were 6.6% of net sales for the 2005 quarter, compared to 7.8% for the 2004 quarter. R&D expenses increased by 5.0%, or $50,000, due primarily to an installment payment under a research and distribution agreement.

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Other Income (Expenses). Interest income for the 2005 quarter increased by $73,000 from the 2004 quarter due to interest earned from the investment of the proceeds from our initial public offering. Interest expense decreased by $94,000 due to a decrease in imputed interest expense resulting primarily from the capitalization of $13.2 million and repayment of $3.0 million of debt to our former parent, E-Z-EM, in May and June 2004, respectively. Also included in other expense is a one-time impairment loss on our investment in Surgica, Corporation, of $300,000. Other income for the 2005 quarter includes realized gains on the sale of debt securities for $16,000.

Income Taxes. Our effective tax rate for the 2005 quarter was 43.0% compared to 28.0% for the 2004 quarter. The increase in the effective tax rate was primarily due our former parent company’s use, under our tax sharing arrangement, of our capital loss carry-forwards to offset capital gains that it had incurred in the fiscal 2004 period. Additionally, we are unable to recognize an immediate income tax benefit on the investment impairment; without this charge, our effective tax rate for the 2005 quarter would be 37.1%.

Net Earnings. For the 2005 quarter, we reported net earnings of $1.1 million, an increase of 58.9%, or $402,000, over net earnings for the 2004 quarter. The increase in net earnings was attributable primarily to increased sales, higher margins, and reduced interest expense, partially offset by higher operating expenses and a one-time investment impairment loss, as discussed above.

The following table sets forth certain operational data as a percentage of sales for the thirty-nine weeks ended February 26, 2005 and February 28, 2004.

Thirty-nine weeks ended February 26, 2005 and February 28, 2004

Net Sales. Net sales for the fiscal 2005 period totaled $43.0 million, an increase of 23.0%, or $8.0 million, compared to the fiscal 2004 period. The increase in sales was primarily due to the continued growth from new products released in, or subsequent to, the fiscal 2004 period as well as the continuing market share gains of our existing product lines. Faster growing products included our Vascular Access line, for which sales increased 89.0% or $2.1 million; VenaCure^™ products; for which sales increased by 38.3%, or $1.4 million; hemodialysis products, for which sales increased by 20.6%, or $2.0 million; and angiographic products, for which sales increased 14.6%, or $1.6 million. Our sales increased for the 2005 fiscal period notwithstanding that the markets for many of our products experienced slight pricing declines. Most of the increase in our sales was due to increased unit sales, with 3.8% of the increase attributable to price increases.

Gross Profit. For the fiscal 2005 period, gross profit as a percentage of sales increased to 55.0% from 52.3% for the fiscal 2004 period. The increase in gross margin percentage was due to a favorable product mix resulting from increased

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sales of higher margin products (hemodialysis products, VenaCure procedure kit sales, and vascular access products), lower material costs resulting from purchase volume discounts with a major supplier, and modest price increases implemented earlier in the year.

Selling and marketing expenses. Selling and marketing expenses were 26.5% of net sales for the fiscal 2005 period, compared to 28.5% for the fiscal 2004 period. For the fiscal 2005 period, selling and marketing expenses increased 14.4%, or $1.4 million, compared to the fiscal 2004 period. Selling expenses increased 15.8%, or $1.1 million, due to the increased number of territories and commissions on higher sales. Marketing expenses increased 11.3%, or $334,000, due to staffing increases and higher salaries, and convention expenses.

General and administrative expenses. General and administrative expenses were 8.8% of net sales for the fiscal 2005 period, compared to 7.2% for the fiscal 2004 period. For the fiscal 2005 period, these expenses increased 48.4%, or $1.2 million, due to increased consulting fees, legal fees, and directors’ fees, staffing increases and increased business insurance costs primarily associated with the cost of operating as a public company.

Research and development expenses. Research and development (R&D) expenses were 7.6% of net sales for the fiscal 2005 period, compared to 7.4% for the fiscal 2004 period. R&D expenses increased by 26.1%, or $679,000, due to R&D staffing increases, payments under a research and distribution agreement, and legal fees.

Other Income (Expenses). Interest income for the fiscal 2005 period increased by $179,000 from the fiscal 2004 period due to interest earned from the investment of the proceeds from our initial public offering. Interest expense decreased by $519,000 primarily due to a decrease in imputed interest expense resulting from the capitalization of $13.2 million and repayment of $3.0 million of debt to our former parent, E-Z-EM, in May and June 2004, respectively. Also included in other expense is the impairment loss on our investment in Surgica, Inc., for $300,000. Other income for the 2005 quarter includes realized gains on the sale of debt securities for $16,000.

Income Taxes. Our effective tax rate for the fiscal 2005 period was 42.4%, compared to 38.2% for the fiscal 2004 period. The increase in the effective tax rate was primarily due to inability to recognize a tax benefit on an impairment loss on an investment and our former parent company’s use, under our tax allocation arrangement, of our capital loss carry-forwards to offset capital gains that it had incurred in the fiscal 2004 period. This was partially offset by the decrease, in the fiscal 2005 period, of non-deductible imputed interest expense recorded, due to the capitalization by E-Z-EM in May 2004 of $13.2 million of our debt to E-Z-EM in connection with our public offering and the subsequent repayment of the remaining $3 million of debt to E-Z-EM in June 2004.

Net Earnings. For the fiscal 2005 period we reported net earnings of $2.9 million, an increase of 80.5%, or $1.3 million, over the fiscal 2004 period. The increase in net earnings was attributable primarily to increased sales, higher margins and reduced interest expense, offset somewhat by increased operating expenses, as discussed above.

Liquidity and Capital Resources

In June 2004, we received net proceeds of $22.9 million from our initial public offering, or IPO. Cash flows from financing activities for the fiscal 2005 period were $20.3 million after payment of the offering expenses and repayment of $3.0 million in debt to E-Z-EM.

For the fiscal 2005 period, our investing activities used net cash of $9.7 million, due primarily to our net investment of $8.9 million of the IPO proceeds into U.S. Government obligations and corporate securities. Additionally, we made equipment purchases and building improvements totaling $894,000 during the fiscal 2005 period.

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There have been no material changes with respect to our contractual obligations and their effect on liquidity and cash flows previously disclosed in our Annual Report on 10-K for our fiscal year ended May 29, 2004. We have no variable interest entities or other off-balance sheet obligations.

For the fiscal 2005 period, we funded capital expenditures and our working capital requirements (exclusive of costs incurred for our initial public offering, the repayment of debt to E-Z-EM, and three installment payments totaling $400,000 under a distribution agreement) with cash from operations. Our current policy is to fund operations and capital requirements without incurring significant debt. In fiscal 2003, we financed our facility expansion with long-term industrial revenue bonds. At February 26, 2005, debt (current maturities of long-term debt and long-term debt) was $3.1 million, as compared to $3.3 million at May 29, 2004. On November 22, 2004, we renewed our $3.0 million bank line of credit with KeyBank National Association, which extended the line of credit to November 30, 2005. Advances under the line of credit will bear interest at the bank’s prime rate plus 0.50%. Accrued interest is payable monthly, and all outstanding principal amounts are payable at maturity, subject to a requirement to pay the outstanding principal balance and maintain a zero outstanding balance for at least one 30-day period during the term of the line of credit. All outstanding amounts under the line of credit are immediately due and payable upon any payment default or other default under the security agreement with the bank. No amounts were outstanding under the line of credit at February 26, 2005.

At February 26, 2005, approximately $25.0 million, or 46.4%, of our assets consisted of cash and cash equivalents and short-term debt securities. The current ratio was 7.9 to 1, with working capital of $38.8 million, at February 26, 2005, compared to a current ratio of 4.3 to 1, with working capital of $31.0 million, at May 29, 2004.

We are also restricted in our ability to obtain equity financing due to the distribution by E-Z-EM of our stock to its stockholders, which was completed on October 30, 2004. We are limited in the amount of equity securities or convertible debt we can issue in the two years following the stock distribution by E-Z-EM in order to preserve the tax-free treatment of the distribution and avoid tax liabilities to E-Z-EM and its stockholders and corresponding liabilities to us. Specifically, we plan to issue no more than approximately 5.5 million shares of our common stock in capital raising transactions over this period. These factors could limit our sources of capital in the future.

We believe that the our current cash and investment balances, which include the net proceeds from our initial public offering, together with cash generated from operations and existing line of credit will provide sufficient liquidity to meet our anticipated needs for capital for at least the next 12 months. If, as discussed above, we seek to make significant acquisitions of other businesses, technologies or products, we will, in all likelihood, require additional financing. We cannot assure you that such financing will be available on commercially reasonable terms, if at all.

Critical Accounting Policies

Our significant accounting policies are summarized in Note A to our consolidated financial statements included in our Annual Report on Form 10-K for our 2004 fiscal year. While all these significant accounting policies affect the reporting of our financial condition and results of operations, we view certain of these policies as critical. Policies determined to be critical are those policies that have the most significant impact on our financial statements and require us to