##### 



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 FOR THE QUARTERLY PERIOD ENDED March 31, 2006
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 FOR
THE TRANSITION PERIOD FROM ___ TO ___
 COMMISSION FILE NUMBER: 0-13976
 AKORN, INC.
 (Exact Name of Registrant as Specified in its Charter)
 LOUISIANA
    
    72-0717400(State or Other Jurisdiction of Incorporation or Organization)
    
    (I.R.S. Employer Identification No.)2500 MILLBROOK DRIVEBUFFALO GROVE, ILLINOIS
    
    60089(Address of Principal Executive Offices)
    
    (Zip Code)
 (847) 279-6100
 (Registrants telephone number)
  Yes þ No o
  Large accelerated filero
    
    Accelerated filero
    
    Non-accelerated filerþ
  Yes o No þ




---



##### 



PagePART I. FINANCIAL INFORMATIONITEM 1. Financial StatementsCondensed Consolidated Balance Sheets-March 31, 2006 and December 31, 2005
    
    3Condensed Consolidated Statements of Operations-Three months ended March 31, 2006 and 2005
    
    4Condensed Consolidated Statement of Shareholders Equity-Three months ended March 31, 2006 and 2005
    
    5Condensed Consolidated Statements of Cash Flows-Three months ended March 31, 2006 and 2005
    
    6Notes to Condensed Consolidated Financial Statements
    
    7ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    15ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
    
    17ITEM 4. Controls and Procedures
    
    17PART II. OTHER INFORMATIONITEM 1. Legal Proceedings
    
    18ITEM 1A. Risk Factors
    
    18ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    18ITEM 3. Defaults Upon Senior Securities
    
    18ITEM 4. Submission of Matters to a Vote of Security Holders
    
    18ITEM 5. Other Information
    
    18ITEM 6. Exhibits
    
    19
 2




---



##### 



AKORN, INC.
 CONDENSED CONSOLIDATED BALANCE SHEETS
IN THOUSANDS
 MARCH 31,
    
    
    DECEMBER 31,2006
    
    
    2005(UNAUDITED)
    
    
    (AUDITED)ASSETSCURRENT ASSETSCash and cash equivalents
    
    $
    24,558
    
    
    $
    791Trade accounts receivable (less
allowance for doubtful accounts of $3
and $13 respectively)
    
    
    2,031
    
    
    
    3,222Inventories
    
    
    10,966
    
    
    
    10,279Prepaid expenses and other current assets
    
    
    1,593
    
    
    
    1,402TOTAL CURRENT ASSETS
    
    
    39,148
    
    
    
    15,694PROPERTY, PLANT AND EQUIPMENT, NET
    
    
    31,322
    
    
    
    31,071OTHER LONG-TERM ASSETSIntangibles, net
    
    
    9,859
    
    
    
    10,210Other
    
    
    113
    
    
    
    120TOTAL OTHER LONG-TERM ASSETS
    
    
    9,972
    
    
    
    10,330TOTAL ASSETS
    
    $
    80,442
    
    
    $
    57,095LIABILITIES AND SHAREHOLDERS EQUITYCURRENT LIABILITIESCurrent installments of debt
    
    $
    373
    
    
    $
    7,044Trade accounts payable
    
    
    2,745
    
    
    
    3,046Accrued compensation
    
    
    1,063
    
    
    
    1,519Customer accrued liabilities
    
    
    3,115
    
    
    
    135Accrued interest payable
    
    
    
    
    
    
    2,514Accrued expenses and other liabilities
    
    
    1,180
    
    
    
    1,202TOTAL CURRENT LIABILITIES
    
    
    8,476
    
    
    
    15,460LONG-TERM LIABILITIESLong-term debt, less current installments
    
    
    506
    
    
    
    602Product warranty
    
    
    1,159
    
    
    
    TOTAL LONG-TERM LIABILITIES
    
    
    1,665
    
    
    
    602TOTAL LIABILITIES
    
    
    10,141
    
    
    
    16,062SHAREHOLDERS EQUITYCommon stock, no par value  150,000,000
shares authorized; 74,281,973 and
27,618,745 shares issued and outstanding
at March 31, 2006 and December 31, 2005,
respectively
    
    
    122,312
    
    
    
    67,339Series A Preferred Stock, $1.00 par
value, 257,172 shares authorized and
issued, 241,122 shares outstanding at
December 31, 2005
    
    
    
    
    
    
    27,232Series B Preferred Stock, $1.00 par
value, 170,000 shares authorized,
141,000 shares issued, 85,400
outstanding at March 31, 2006 and
106,600 outstanding at December 31, 2005
    
    
    8,757
    
    
    
    10,758Warrants to acquire common stock
    
    
    14,424
    
    
    
    13,696Accumulated deficit
    
    
    (75,192
    )
    
    
    (77,992
    )TOTAL SHAREHOLDERS EQUITY
    
    
    70,301
    
    
    
    41,033TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
    
    $
    80,442
    
    
    $
    57,095
  3




---



##### 



AKORN, INC.
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
IN THOUSANDS, EXCEPT PER SHARE DATA
(UNAUDITED)
 THREE MONTHS ENDEDMARCH 31,2006
    
    
    2005Revenues
    
    $
    29,730
    
    
    $
    10,181Cost of sales
    
    
    17,997
    
    
    
    6,838GROSS PROFIT
    
    
    11,733
    
    
    
    3,343Selling, general and administrative expenses
    
    
    4,484
    
    
    
    3,368Amortization and write-down of intangibles
    
    
    351
    
    
    
    379Research and development expenses
    
    
    2,045
    
    
    
    1,342TOTAL OPERATING EXPENSES
    
    
    6,880
    
    
    
    5,089OPERATING INCOME (LOSS)
    
    
    4,853
    
    
    
    (1,746
    )Interest expense
    
    
    (1,319
    )
    
    
    (526
    )Debt Retirement Expense
    
    
    (391
    )
    
    
    Other Income (Expense)
    
    
    (17
    )
    
    
    INCOME (LOSS) BEFORE INCOME TAXES
    
    
    3,126
    
    
    
    (2,272
    )Income tax provision
    
    
    
    
    
    
    15NET INCOME (LOSS)
    
    
    3,126
    
    
    
    (2,287
    )Preferred stock dividends and adjustments
    
    
    (326
    )
    
    
    (1,061
    )NET INCOME (LOSS) AVAILABLE TO COMMON STOCKHOLDERS
    
    $
    2,800
    
    
    $
    (3,348
    )NET INCOME (LOSS) PER SHARE:BASIC
    
    $
    0.05
    
    
    $
    (0.13
    )DILUTED
    
    $
    0.04
    
    
    $
    (0.13
    )SHARES USED IN COMPUTING NET INCOME (LOSS) PER SHARE:BASIC
    
    
    61,715
    
    
    
    25,237DILUTED
    
    
    74,980
    
    
    
    25,237
  4




---



##### 



AKORN, INC.
 CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 2006 AND 2005
IN THOUSANDS
(UNAUDITED)
 Warrants
    
    
    RetainedSeries A
    
    
    Series B
    
    
    to acquire
    
    
    EarningsThree Months Ended March 31, 2006
    
    Common Stock
    
    
    Preferred
    
    
    Preferred
    
    
    Common
    
    
    (AccumulatedShares
    
    
    Amount
    
    
    Stock
    
    
    Stock
    
    
    Stock
    
    
    Deficit)
    
    
    TotalBALANCES AT DECEMBER 31, 2005
    
    
    27,619
    
    
    $
    67,339
    
    
    $
    27,232
    
    
    $
    10,758
    
    
    $
    13,696
    
    
    $
    (77,992
    )
    
    $
    41,033Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,126
    
    
    
    3,126Preferred stock dividends earned
    
    
    
    
    
    
    
    
    
    
    55
    
    
    
    164
    
    
    
    
    
    
    
    (219
    )
    
    
    Intrinsic value of beneficial
conversion features in convertible
preferred stock
    
    
    
    
    
    
    107
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (107
    )
    
    
    Conversion of preferred stock into
common stock
    
    
    37,658
    
    
    
    29,452
    
    
    
    (27,287
    )
    
    
    (2,165
    )
    
    
    
    
    
    
    
    
    
    
    Exercise of warrants into common stock
    
    
    788
    
    
    
    1,188
    
    
    
    
    
    
    
    
    
    
    
    (1,093
    )
    
    
    
    
    
    
    95Conversion of convertible notes into
common stock
    
    
    3,540
    
    
    
    7,298
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,298Net proceeds from issuance of common
stock and warrants
    
    
    4,312
    
    
    
    16,257
    
    
    
    
    
    
    
    
    
    
    
    1,821
    
    
    
    
    
    
    
    18,078Exercise of stock options
    
    
    356
    
    
    
    297
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    297Employee stock purchase plan issuances
    
    
    9
    
    
    
    41
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    41Amortization of deferred compensation
related to restricted stock awards
    
    
    
    
    
    
    130
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    130FAS123R share based payment expense
    
    
    
    
    
    
    203
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    203BALANCES AT MARCH 31, 2006
    
    
    74,282
    
    
    $
    122,312
    
    
    $
    
    
    
    $
    8,757
    
    
    $
    14,424
    
    
    $
    (75,192
    )
    
    $
    70,301
 Warrants
    
    
    RetainedSeries A
    
    
    Series B
    
    
    to acquire
    
    
    EarningsThree Months Ended March 31, 2005
    
    Common Stock
    
    
    Preferred
    
    
    Preferred
    
    
    Common
    
    
    (AccumulatedShares
    
    
    Amount
    
    
    Stock
    
    
    Stock
    
    
    Stock
    
    
    Deficit)
    
    
    TotalBALANCES AT DECEMBER 31, 2004
    
    
    25,133
    
    
    $
    59,571
    
    
    $
    25,787
    
    
    $
    13,109
    
    
    $
    14,160
    
    
    $
    (65,301
    )
    
    $
    47,326Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,287
    )
    
    
    (2,287
    )Preferred stock dividends earned
    
    
    
    
    
    
    
    
    
    
    391
    
    
    
    213
    
    
    
    
    
    
    
    (604
    )
    
    
    Intrinsic value of beneficial
conversion features in convertible
preferred stock
    
    
    
    
    
    
    458
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (458
    )
    
    
    Intrinsic value of beneficial
conversion features in convertible
interest
    
    
    
    
    
    
    98
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    98Exercise of warrants into common stock
    
    
    50
    
    
    
    102
    
    
    
    
    
    
    
    
    
    
    
    (64
    )
    
    
    
    
    
    
    38Exercise of stock options
    
    
    161
    
    
    
    386
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    386Employee stock purchase plan issuances
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    BALANCES AT MARCH 31, 2005
    
    
    25,344
    
    
    $
    60,615
    
    
    $
    26,178
    
    
    $
    13,322
    
    
    $
    14,096
    
    
    $
    (68,650
    )
    
    $
    45,561
  5




---



##### 



AKORN, INC.
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
IN THOUSANDS
(UNAUDITED)
 THREE MONTHSENDED MARCH 312006
    
    
    2005OPERATING ACTIVITIESNet income (loss)
    
    $
    3,126
    
    
    $
    (2,287
    )Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:Depreciation and amortization
    
    
    818
    
    
    
    1,751Amortization of debt discounts
    
    
    1,059
    
    
    
    253Advances to Strides Arcolab Limited
    
    
    
    
    
    
    (1,500
    )Non-cash stock compensation expense
    
    
    333
    
    
    
    Changes in operating assets and liabilities:Trade accounts receivable
    
    
    1,191
    
    
    
    3,228Inventories
    
    
    (687
    )
    
    
    (272
    )Prepaid expenses and other current assets
    
    
    (184
    )
    
    
    272Trade accounts payable
    
    
    (301
    )
    
    
    (2,625
    )Product warranty
    
    
    1,159
    
    
    
    Accrued customer liability
    
    
    2,980
    
    
    
    Accrued expenses and other liabilities
    
    
    (694
    )
    
    
    105NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
    
    
    8,800
    
    
    
    (1,075
    )INVESTING ACTIVITIESPurchases of property, plant and equipment
    
    
    (718
    )
    
    
    (83
    )Purchase of intangible asset
    
    
    
    
    
    
    (75
    )NET CASH USED IN INVESTING ACTIVITIES
    
    
    (718
    )
    
    
    (158
    )FINANCING ACTIVITIES (See Note 1 below)Repayment of long-term debt
    
    
    (2,826
    )
    
    
    (83
    )Proceeds from common stock and warrants offering
    
    
    18,078
    
    
    
    Proceeds from warrants exercised
    
    
    95
    
    
    
    37Proceeds under stock option and stock purchase plans
    
    
    338
    
    
    
    388NET CASH PROVIDED BY FINANCING ACTIVITIES
    
    
    15,685
    
    
    
    342INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
    
    
    23,767
    
    
    
    (891
    )Cash and cash equivalents at beginning of period
    
    
    791
    
    
    
    4,110CASH AND CASH EQUIVALENTS AT END OF PERIOD
    
    $
    24,558
    
    
    $
    3,219Amount paid for interest
    
    $
    542
    
    
    $
    25Amount paid for income taxes
    
    
    2
    
    
    
    72
  Note 1:
    
    In March 2006, $7,298 in principal and interest related to convertible notes was retired
by conversion to the common stock of Akorn, Inc. (See Note H)
 6




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##### 



AKORN, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 NOTE A  BUSINESS AND BASIS OF PRESENTATION
 Business:
 Basis of Presentation
 NOTE B  USE OF ESTIMATES
  NOTE C  STOCK BASED COMPENSATION
    7




---



##### 



Three MonthsEndedMarch 31, 2005Net income (loss) as reported
    
    
    ($2,287
    )Add: stock-based employee compensation expense included in reported net income
    
    
    Deduct: total stock-based employee compensation expense determined under
fair-value-based method for all awards
    
    
    (287
    )Pro forma net income (loss)
    
    
    (2,574
    )Deduct: preferred stock dividends and adjustments
    
    
    (1,061
    )Pro forma net loss available for common stockholders
    
    
    ($3,635
    )Basic and diluted loss per share of common stockAs reported
    
    
    ($0.13
    )Pro forma
    
    
    ($0.14
    )
  Three Months
    
    
    Three MonthsEnded
    
    
    EndedMarch 31, 2006
    
    
    March 31, 2005(SFAS 123(R))
    
    
    (SFAS 123 Pro Forma)Expected Volatility
    
    
    62
    %
    
    
    83
    %Expected Life (in years)
    
    
    3.6
    
    
    
    5.0Risk-free interest rate
    
    
    4.6
    %
    
    
    3.9
    %Dividend yield
    
    
    
    
    
    
    Fair value per stock option
    
    $
    2.20
    
    
    $
    2.41
  Weighted AverageWeighted
    
    
    RemainingNumber of
    
    
    Average
    
    
    Contractual Term
    
    
    AggregateShares
    
    
    Exercise Price
    
    
    (Years)
    
    
    Intrinsic ValueOutstanding at January 1, 2006
    
    
    3,706
    
    
    $
    2.54Granted
    
    
    53
    
    
    
    4.50Exercised
    
    
    (600
    )
    
    
    2.34Forfeited
    
    
    (115
    )
    
    
    4.95Outstanding at March 31, 2006
    
    
    3,044
    
    
    $
    2.41
    
    
    
    2.80
    
    
    $
    7,449Exercisable at March 31, 2006
    
    
    2,259
    
    
    $
    2.15
    
    
    
    2.80
    
    
    $
    6,126
 8




---



##### 



WeightedAverageNumber of
    
    
    Grant DateShares
    
    
    Fair ValueNonvested at December 31, 2005
    
    
    842
    
    
    $
    1.94Granted
    
    
    52
    
    
    $
    2.20Vested
    
    
    (75
    )
    
    $
    1.01Canceled
    
    
    (22
    )
    
    $
    1.87Nonvested at March 31, 2006
    
    
    797
    
    
    $
    2.05
    NOTE D  REVENUE RECOGNITION
    NOTE E  ACCOUNTS RECEIVABLE ALLOWANCES & CUSTOMER ACCRUED LIABILITIES
   9




---



##### 



MARCH 31,
    
    
    DECEMBER 31,2006
    
    
    2005Gross Accounts Receivable
    
    $
    2,376
    
    
    $
    12,642Less:Allowance for Doubtful Accounts
    
    
    (3
    )
    
    
    (13
    )Returns Reserve
    
    
    (308
    )
    
    
    (1,529
    )Discount and Allowances Reserve
    
    
    
    
    
    
    (244
    )Chargeback and Rebates Reserves
    
    
    (34
    )
    
    
    (7,634
    )Net Trade Accounts Receivable
    
    $
    2,031
    
    
    $
    3,222
  MARCH 31,
    
    
    DECEMBER 31,2006
    
    
    2005Gross Amount Due From Customers
    
    $
    3,558
    
    
    $
    Less:Allowance for Doubtful Accounts
    
    
    
    
    
    
    Customer advance payments and net refunds liability
    
    
    (181
    )
    
    
    (135
    )Returns Reserve
    
    
    (1,232
    )
    
    
    Discount and Allowances Reserve
    
    
    (144
    )
    
    
    Chargeback and Rebates Reserves
    
    
    (5,116
    )
    
    
    Customer Accrued Liability
    
    $
    (3,115
    )
    
    $
    (135
    )
     NOTE F  INVENTORIES
  MARCH 31,
    
    
    DECEMBER 31,2006
    
    
    2005Finished goods
    
    $
    3,788
    
    
    $
    4,914Work in process
    
    
    2,631
    
    
    
    1,702Raw materials and supplies
    
    
    4,547
    
    
    
    3,663$
    10,966
    
    
    $
    10,279
  10




---



##### 



NOTE G  PROPERTY, PLANT AND EQUIPMENT
  MARCH 31,
    
    
    DECEMBER 31,2006
    
    
    2005Land
    
    $
    396
    
    
    $
    396Buildings and leasehold improvements
    
    
    9,415
    
    
    
    9,393Furniture and equipment
    
    
    28,129
    
    
    
    27,866Automobiles
    
    
    55
    
    
    
    55Sub-total
    
    
    37,995
    
    
    
    37,710Accumulated depreciation
    
    
    (27,346
    )
    
    
    (26,879
    )10,649
    
    
    
    10,831Construction in progress
    
    
    20,673
    
    
    
    20,240Property, Plant, & Equipment, net
    
    $
    31,322
    
    
    $
    31,071
  NOTE H  FINANCING ARRANGEMENTS
  March 31,
    
    
    December 31,2006
    
    
    20052003 Subordinated Notes
    
    $
    
    
    
    $
    2,767Convertible subordinated debentures
    
    
    
    
    
    
    5,000Mortgages payable
    
    
    879
    
    
    
    938879
    
    
    
    8,705Less unamortized discount on debt
    
    
    
    
    
    
    (1,059
    )Less current installments of debt
    
    
    (373
    )
    
    
    (7,044
    )Long-term debt
    
    $
    506
    
    
    $
    602
    11




---



##### 



NOTE I  COMMON STOCK ISSUANCE
   NOTE J  EARNINGS PER COMMON SHARE
  March 31,
    
    
    March 31,Fully Diluted Earnings Per Share Data
    
    2006
    
    
    2005Net income (loss) available to common stockholders  basic
    
    $
    2,800
    
    
    $
    (3,348
    )Preferred stock dividends adjustment
    
    
    55
    
    
    
    Adjusted earnings  fully diluted basis
    
    
    2,855
    
    
    
    (3,348
    )Basic Shares
    
    
    61,715
    
    
    
    25,237Preferred Stock
    
    
    4,897
    
    
    
    Warrants
    
    
    6,750
    
    
    
    Options
    
    
    1,618
    
    
    
    Fully Diluted Shares
    
    
    74,980
    
    
    
    25,237
 12




---



##### 



NOTE K  INDUSTRY SEGMENT INFORMATION
  THREE MONTHS ENDED MARCH 31,2006
    
    
    2005REVENUESOphthalmic
    
    $
    3,807
    
    
    $
    5,096Injectable
    
    
    23,897
    
    
    
    2,901Contract Services
    
    
    2,026
    
    
    
    2,184Total revenues
    
    $
    29,730
    
    
    $
    10,181GROSS PROFITOphthalmic
    
    $
    998
    
    
    $
    1,802Injectable
    
    
    10,177
    
    
    
    1,224Contract Services
    
    
    558
    
    
    
    317Total gross profit
    
    
    11,733
    
    
    
    3,343Operating expenses
    
    
    6,880
    
    
    
    5,089Operating income (loss)
    
    
    4,853
    
    
    
    (1,746
    )Interest & Other income (expense)
    
    
    (1,727
    )
    
    
    (526
    )Income (Loss) before income taxes
    
    $
    3,126
    
    
    $
    (2,272
    )
  NOTE L  COMMITMENTS AND CONTINGENCIES
      13




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NOTE M  CUSTOMER AND SUPPLIER CONCENTRATION
     14




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Item 2.
 AKORN, INC.
 MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
 FORWARD-LOOKING STATEMENTS AND FACTORS AFFECTING FUTURE RESULTS
  
    
    Our ability to comply with all of the requirements of the FDA, including current Good
Manufacturing Practices regulations;
    
    Our ability to obtain regulatory approvals of, commence operations at and obtain business
for our new lyophilization facility;
    
    Our ability to avoid defaults under debt covenants;
    
    Our ability to generate cash from operations sufficient to meet our working capital requirements;
    
    The effects of federal, state and other governmental regulation on our business;
    
    Our success in developing, manufacturing, acquiring and marketing new products;
    
    The success of our strategic partnerships for the development and marketing of new products;
    
    Our ability to bring new products to market and the effects of sales of such products on our financial results;
    
    The effects of competition from generic pharmaceuticals and from other pharmaceutical companies;
    
    Availability of raw materials needed to produce our products; and
    
    Other factors referred to in this Form 10-Q, our Form 10-K and our other Securities and
Exchange Commission (SEC) filings.
 RESULTS OF OPERATIONS
 THREE MONTHS ENDED MARCH 31, 2006 COMPARED TO 2005
  THREE MONTHS ENDEDMARCH 31,2006
    
    
    2005Ophthalmic segment
    
    $
    3,807
    
    
    $
    5,096Injectable segment
    
    
    23,897
    
    
    
    2,901Contract Services segment
    
    
    2,026
    
    
    
    2,184Total revenues
    
    $
    29,730
    
    
    $
    10,181
 15




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FINANCIAL CONDITION AND LIQUIDITY
 Overview
    Facility Expansion
  16




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CRITICAL ACCOUNTING POLICIES
  ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  ITEM 4. CONTROLS AND PROCEDURES
   17




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PART II. OTHER INFORMATION
 ITEM 1. LEGAL PROCEEDINGS
  ITEM 1A. RISK FACTORS
 None
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
   ITEM 3. DEFAULT UPON SENIOR SECURITIES
 None
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 None
 ITEM 5. OTHER INFORMATION
 None
 18




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ITEM 6. EXHIBITS
  Exhibit No.
    
    Description(3.1)
    
    Restated Articles of Incorporation of Akorn, Inc. dated September 16, 2004, incorporated by reference to
Exhibit 3.1 to Akorn Inc.s Registration Statement on Form S-1 filed on September 21, 2004.(3.2)
    
    Amendment and Restated By-laws of Akorn, Inc. incorporated by reference to Exhibit 3.2 to Akorn, Inc.s
Registration Statement on Form S-1 filed on June 14, 2005.(3.3)
    
    Amended to By-laws of Akorn, Inc. incorporated by reference to Exhibit 3.1 to the Akorn, Inc.s report on
Form 8-K filed on March 31, 2006.(4.1)
    
    First Amendment dated October 7, 2003 to Registration Rights Agreement dated July 12, 2001 between Akorn,
Inc. and The John N. Kapoor Trust dated 9/20/89, incorporated by reference to Exhibit 4.1 to Akorn, Inc.s
report on Form 8-K filed on October 24, 2003.(4.2)
    
    Form of Warrant Certificate, incorporated by reference to Exhibit 4.2 to Akorn, Inc.s report on Form 8-K
filed on October 24, 2003.(4.3)
    
    Form of Warrant Agreement dated October 7, 2003 between Akorn, Inc. and certain investors, incorporated by
reference to Exhibit 4.3 to Akorn, Inc.s report on Form 8-K filed on October 24, 2003.(4.4)
    
    Warrant Agreement dated October 7, 2003 between Akorn, Inc. and The John N. Kapoor Trust dated 9/20/89
issued with respect to New Credit Facility guaranty, incorporated by reference to Exhibit 4.4 to Akorn,
Inc.s report on Form 8-K filed on October 24, 2003.(4.5)
    
    Warrant Agreement dated October 7, 2003 between Akorn, Inc. and Arjun C. Waney issued with respect to New
Credit Facility guaranty, incorporated by reference to Exhibit 4.5 to Akorn, Inc.s report on Form 8-K filed
on October 24, 2003.(4.6)
    
    Warrant Agreement dated October 7, 2003 between Akorn, Inc. and The John N. Kapoor Trust dated 9/20/89
issued with respect to the Notes, incorporated by reference to Exhibit 4.6 to Akorn, Inc.s report on Form
8-K filed on October 24, 2003.(4.7)
    
    Warrant Agreement dated October 7, 2003 between Akorn, Inc. and Arjun C. Waney issued with respect to the
Notes, incorporated by reference to Exhibit 4.7 to the Akorn, Inc.s report on Form 8-K filed on October 24,
2003.(4.8)
    
    Warrant Agreement dated October 7, 2003 between Akorn, Inc. and Argent Fund Management Ltd. issued with
respect to the Notes, incorporated by reference to Exhibit 4.8 to Akorn, Inc.s report on Form 8-K filed on
October 24, 2003.(4.9)
    
    Registration Rights Agreement dated October 7, 2003 among Akorn, Inc. and certain investors, incorporated by
reference to Exhibit 4.9 to Akorn, Inc.s report on Form 8-K filed on October 24, 2003.(4.10)
    
    Form of Subscription Agreement between Akorn, Inc. and certain investors, incorporated by reference to
Exhibit 4.1 to Akorn, Inc.s report on Form 8-K filed on August 24, 2004.(4.11)
    
    Form of Common Stock Purchase Warrant between Akorn, Inc. and certain investors, incorporated by reference
to Exhibit 4.2 to Akorn, Inc.s report on Form 8-K filed on August 24, 2004.(4.12)
    
    Warrant Purchase and Registration Agreement dated June 18, 2003 between Akorn Inc. and AEG Partners LLC,
incorporated by reference to Exhibit 4.1 to Akorn, Inc.s report on Form 8-K filed on August 27, 2004.(4.13)
    
    Stock Registration Rights Agreement dated November 15, 1990 between Akorn, Inc. and The John N. Kapoor Trust
dated 9/20/89, incorporated by reference to Exhibit 4.12 to Akorn, Inc.s Registration Statement on Form S-1
filed on September 21, 2004.
 19




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Exhibit No.
    
    Description(4.14)
    
    Stock Purchase Agreement dated November 15, 1990 between Akorn, Inc. and The John N. Kapoor Trust dated
9/20/89, incorporated by reference to Exhibit 4.13 to Akorn, Inc.s Registration Statement on Form S-1 filed
on September 21, 2004.(4.15)
    
    Form of Securities Purchase Agreement dated March 1, 2006 between Akorn, Inc. and certain investors,
incorporated by reference to Exhibit 4.1 to Akorn Inc.s report on Form 8-K filed March 7, 2006.(4.16)
    
    Form of Warrant issued in connection with the Securities Purchase Agreement dated March 1, 2006,
incorporated by reference to Exhibit 4.2 to Akorn, Inc.s report on Form 8-K filed on March 7, 2006. (All
warrants are dated March 8, 2006. Please see Exhibit 99.1 of Akorn, Inc.s report on Form 8-K filed March
14, 2006, which is hereby incorporated by reference, for a schedule setting forth the other material details
for each of the warrants.)(10.1)
    
    Amendment, Waiver and Consent to Credit Agreement dated March 1, 2006, among LaSalle Bank, the lenders,
Akorn, Inc. and Akorn (New Jersey) Inc. incorporated by reference to Exhibit 10.1 to Akorn, Inc.s report on
Form 8-K filed March 7, 2006.(10.2)
    
    Waiver and Consent to Credit Agreement dated March 20, 2006, among Akorn, Inc., LaSalle Bank, the financial
institutions party thereto and Akorn (New Jersey), Inc., incorporated by reference to Exhibit 10.1 to Akorn,
Inc.s report on Form 8-K filed March 24, 2006.(10.3)
    
    Waiver and Consent to Credit Agreement dated March 31, 2006, between Akorn Inc., LaSalle Bank, the financial
institutions party thereto and Akorn (New Jersey), Inc., incorporated by reference to Exhibit 10.1 to Akorn,
Inc.s report on Form 8-K filed March 31, 2006.(10.4)
    
    Executive Employment Agreement dated April 24, 2006, between Akorn, Inc. and Arthur S. Przybyl incorporated
by reference to Exhibit 10.1 to Akorn, Inc.s report on Form 8-K filed April 24, 2006.(10.5)
    
    Executive Bonus Agreement dated April 27, 2006, between Akorn, Inc. and Arthur S. Przybyl incorporated by
reference to Exhibit 10.2 to Akorn, Inc.s report on Form 8-K filed April 24, 2006.(10.6)
    
    Executive Bonus Agreement dated April 27, 2006, between Akorn, Inc. and Jeffrey A. Whitnell incorporated by
reference to Exhibit 10.3 to Akorn, Inc.s report on Form 8-K filed April 24, 2006.(31.1)*
    
    Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934(31.2)*
    
    Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934(32.1)*
    
    Certification of Chief Executive Officer pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of
the Sarbanes-Oxley Act of 2002(32.2)*
    
    Certification of Chief Financial Officer pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of
the Sarbanes-Oxley Act of 2002
 20




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SIGNATURES
  AKORN, INC./s/ JEFFREY A. WHITNELLJeffrey A. WhitnellSr. Vice President, Chief Financial Officer
   (Duly Authorized and Principal Financial Officer)  21