##### 



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 June 30, 2005
 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
    
    (I.R.S. EmployerIncorporation or Organization)
    
    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
  Yes o No þ




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##### 



PagePART I. FINANCIAL INFORMATIONITEM 1. Financial Statements (Unaudited)Condensed Consolidated Balance Sheets-June 30, 2005 and December 31, 2004
    
    3Condensed Consolidated Statements of Operations-Three and six months ended June 30, 2005 and 2004
    
    4Condensed Consolidated Statement of Shareholders Equity-Six months ended June 30, 2005
    
    5Condensed Consolidated Statements of Cash Flows-Six months ended June 30, 2005 and 2004
    
    6Notes to Condensed Consolidated Financial Statements
    
    7ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    18ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
    
    28ITEM 4. Controls and Procedures
    
    28PART II. OTHER INFORMATION
    
    28ITEM 1. Legal Proceedings
    
    28ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    28ITEM 3. Defaults Upon Senior Securities
    
    29ITEM 4. Submission of Matters to a Vote of Security Holders
    
    29ITEM 5. Other Information
    
    29ITEM 6. Exhibits
    
    29
 2




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##### 



AKORN, INC.
 CONDENSED CONSOLIDATED BALANCE SHEETS
IN THOUSANDS
(UNAUDITED)
 JUNE 30,
    
    DECEMBER 31,2005
    
    2004ASSETSCURRENT ASSETSCash and cash equivalents
    
    $
    37
    
    
    $
    4,110Trade accounts receivable (less allowance for doubtful accounts of $14 and $435 respectively)
    
    
    5,733
    
    
    
    6,582Inventories
    
    
    10,648
    
    
    
    10,421Prepaid expenses and other current assets
    
    
    2,040
    
    
    
    1,280TOTAL CURRENT ASSETS
    
    
    18,458
    
    
    
    22,393PROPERTY, PLANT AND EQUIPMENT, NET
    
    
    30,940
    
    
    
    31,893OTHER LONG-TERM ASSETSIntangibles, net
    
    
    10,914
    
    
    
    11,618Other
    
    
    69
    
    
    
    1,018TOTAL OTHER LONG-TERM ASSETS
    
    
    10,983
    
    
    
    12,636TOTAL ASSETS
    
    $
    60,381
    
    
    $
    66,922LIABILITIES AND SHAREHOLDERS EQUITYCURRENT LIABILITIESCurrent installments of debt and debt in default
    
    $
    3,370
    
    
    $
    3,590Trade accounts payable
    
    
    3,015
    
    
    
    5,397Accrued compensation
    
    
    423
    
    
    
    499Accrued expenses and other liabilities
    
    
    1,444
    
    
    
    1,674TOTAL CURRENT LIABILITIES
    
    
    8,252
    
    
    
    11,160LONG-TERM LIABILITIESLong-term debt, less current installments
    
    
    4,675
    
    
    
    6,790Other
    
    
    1,717
    
    
    
    1,646TOTAL LONG-TERM LIABILITIES
    
    
    6,392
    
    
    
    8,436TOTAL LIABILITIES
    
    
    14,644
    
    
    
    19,596SHAREHOLDERS EQUITYCommon stock, no par value  150,000,000 shares authorized; 26,008,912 and 25,132,684 shares
issued and outstanding at June 30, 2005 and December 31, 2004, respectively
    
    
    62,662
    
    
    
    59,571Series A Preferred Stock, $1.00 par value, 257,172 shares authorized and issued, 242,172
shares outstanding at June 30, 2005 and December 31, 2004
    
    
    26,539
    
    
    
    25,787Series B Preferred Stock, $1.00 par value, 170,000 shares authorized, 141,000 shares
issued,123,500 outstanding at June 30, 2005 and 138,500 outstanding at December 31, 2004
    
    
    12,071
    
    
    
    13,109Warrants to acquire common stock
    
    
    14,096
    
    
    
    14,160Accumulated deficit
    
    
    (69,631
    )
    
    
    (65,301
    )TOTAL SHAREHOLDERS EQUITY
    
    
    45,737
    
    
    
    47,326TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
    
    $
    60,381
    
    
    $
    66,922
  3




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##### 



AKORN, INC.
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
IN THOUSANDS, EXCEPT PER SHARE DATA
(UNAUDITED)
 THREE MONTHS ENDED
    
    SIX MONTHS ENDEDJUNE 30,
    
    JUNE 30,2005
    
    2004
    
    2005
    
    2004Revenues
    
    $
    12,578
    
    
    $
    11,076
    
    
    $
    22,759
    
    
    $
    22,736Cost of sales
    
    
    7,726
    
    
    
    7,757
    
    
    
    14,564
    
    
    
    15,398GROSS PROFIT
    
    
    4,852
    
    
    
    3,319
    
    
    
    8,195
    
    
    
    7,338Selling, general and administrative expenses
    
    
    3,699
    
    
    
    3,254
    
    
    
    7,067
    
    
    
    6,150Amortization and write-down of intangibles
    
    
    425
    
    
    
    1,877
    
    
    
    804
    
    
    
    2,560Research and development expenses
    
    
    1,423
    

    
    
    383
    
    
    
    2,765
    
    
    
    712TOTAL OPERATING EXPENSES
    
    
    5,547
    
    
    
    5,514
    
    
    
    10,636
    
    
    
    9,422OPERATING INCOME (LOSS)
    
    
    (695
    )
    
    
    (2,195
    )
    
    
    (2,441
    )
    
    
    (2,084
    )Interest expense
    
    
    (584
    )
    
    
    (1,386
    )
    
    
    (1,110
    )
    
    
    (2,713
    )Gain on Retirement of Debt
    
    
    1,212
    
    
    
    
    
    
    
    1,212
    
    
    
    LOSS BEFORE INCOME TAXES
    
    
    (67
    )
    
    
    (3,581
    )
    
    
    (2,339
    )
    
    
    (4,797
    )Income tax provision
    
    
    
    
    
    
    2
    
    
    
    15
    
    
    
    2NET LOSS
    
    
    (67
    )
    
    
    (3,583
    )
    
    
    (2,354
    )
    
    
    (4,799
    )Preferred stock dividends and adjustments
    
    
    (915
    )
    
    
    
    
    
    
    (1,976
    )
    
    
    NET LOSS AVAILABLE TO COMMON STOCKHOLDERS
    
    $
    (982
    )
    
    $
    (3,583
    )
    
    $
    (4,330
    )
    
    $
    (4,799
    )NET LOSS PER SHARE:BASIC AND DILUTED
    
    $
    (0.04
    )
    
    $
    (0.18
    )
    
    $
    (0.17
    )
    
    $
    (0.24
    )SHARES USED IN COMPUTING NET LOSS PER SHARE:BASIC AND DILUTED
    
    
    25,961
    
    
    
    20,190
    
    
    
    25,601
    
    
    
    20,038
  4




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##### 



AKORN, INC.
 CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 2005
(In Thousands)
 Warrants
    
    RetainedSeries A
    
    Series B
    
    to acquire
    
    EarningsCommon 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
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,354
    )
    
    
    (2,354
    )Preferred stock dividends earned
    
    
    
    
    
    
    
    
    
    
    752
    
    
    
    405
    
    
    
    
    
    
    
    (1,157
    )
    
    
    Intrinsic value of beneficial conversion
features in convertible preferred stock.
    
    
    
    
    
    
    819
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (819
    )
    
    
    Conversion of preferred stock into common stock
    
    
    576
    
    
    
    1,443
    
    
    
    
    
    
    
    (1,443
    )
    
    
    
    
    
    
    
    
    
    
    Exercise of warrants into common stock
    
    
    50
    
    
    
    101
    
    
    
    
    
    
    
    
    
    
    
    (64
    )
    
    
    
    
    
    
    37Intrinsic value of beneficial conversion
features in convertible interest
    
    
    
    
    
    
    134
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    134Exercise of stock options
    
    
    235
    
    
    
    423
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    423Employee stock purchase plan issuances
    
    
    15
    
    
    
    21
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    21Amortization of Deferred Compensation related
to Restricted Stock Awards
    
    
    
    
    
    
    150
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    150BALANCES AT JUNE 30, 2005
    
    
    26,009
    
    
    $
    62,662
    
    
    $
    26,539
    
    
    $
    12,071
    
    
    $
    14,096
    
    
    $
    (69,631
    )
    
    $
    45,737
  5




---



##### 



AKORN, INC.
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
IN THOUSANDS
(UNAUDITED)
 SIX MONTHSENDED JUNE 302005
    
    2004OPERATING ACTIVITIESNet loss
    
    $
    (2,354
    )
    
    $
    (4,799
    )Adjustments to reconcile net loss to net cash used in operating activities:Depreciation and amortization
    
    
    3,413
    
    
    
    2,768Amortization of debt discounts
    
    
    553
    
    
    
    478Write-down of long lived assets
    
    
    
    
    
    
    1,849Advances to Strides Arcolab Limited
    
    
    (1,500
    )
    
    
    Gain on Retirement of Debt
    
    
    (1,212
    )
    
    
    Non-cash expenses related to preferred stock
    
    
    
    
    
    
    1,049Non-cash stock compensation expense
    
    
    150
    
    
    
    Changes in operating assets and liabilities:Trade accounts receivable
    
    
    849
    
    
    
    (2,863
    )Inventories
    
    
    (227
    )
    
    
    (996
    )Prepaid expenses and other current assets
    
    
    365
    
    
    
    141Trade accounts payable
    
    
    (2,382
    )
    
    
    868Accrued expenses and other liabilities
    
    
    227
    
    
    
    304NET CASH USED IN OPERATING ACTIVITIES
    
    
    (2,118
    )
    
    
    (1,201
    )INVESTING ACTIVITIESPurchases of property, plant and equipment
    
    
    (357
    )
    
    
    (441
    )Purchase of intangible assets
    
    
    (75
    )
    
    
    (60
    )NET CASH USED IN INVESTING ACTIVITIES
    
    
    (432
    )
    
    
    (501
    )FINANCING ACTIVITIESRepayment of long-term debt
    
    
    (167
    )
    
    
    (1,335
    )Repayment of NeoPharm Debt
    
    
    (2,500
    )
    
    
    Net borrowings under lines of credit
    
    
    663
    
    
    
    2,127Proceeds from Warrants
    
    
    37
    
    
    
    Proceeds under stock option and stock purchase plans
    
    
    444
    
    
    
    692NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
    
    
    (1,523
    )
    
    
    1,484INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
    
    
    (4,073
    )
    
    
    (218
    )Cash and cash equivalents at beginning of period
    
    
    4,110
    
    
    
    218CASH AND CASH EQUIVALENTS AT END OF PERIOD
    
    $
    37
    
    
    $
    (0
    )Amount paid for interest (net of capitalized interest)
    
    $
    365
    
    
    $
    308Amount paid/(refunded) for income taxes
    
    
    72
    
    
    
    (38
    )
  6




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##### 



NOTE A
 BUSINESS AND BASIS OF PRESENTATION
 Business:
 Basis of Presentation:
  Consolidation:
 Adjustments
 NOTE B  USE OF ESTIMATES
  NOTE C  STOCK BASED COMPENSATION
   7




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##### 



Three Months ended June 30
    
    Six Months ended June 302005
    
    2004
    
    2005
    
    2004Net income (loss) as reported
    
    
    (67
    )
    
    
    (3,583
    )
    
    
    (2,354
    )
    
    
    (4,799
    )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
    
    
    (373
    )
    
    
    (54
    )
    
    
    (660
    )
    
    
    (517
    )Pro forma net income (loss)
    
    
    (440
    )
    
    
    (3,637
    )
    
    
    (3,014
    )
    
    
    (5,316
    )Add preferred stock dividends and adjustments
    
    
    (915
    )
    
    
    
    
    
    
    (1,976
    )
    
    
    Pro forma net loss available for common stockholders
    
    $
    (1,355
    )
    
    $
    (3,637
    )
    
    $
    (4,990
    )
    
    $
    (5,316
    )Basic and diluted loss per share of common stock
Shares used in Computing Net Loss Per Share
    
    
    25,961
    
    
    
    20,190
    
    
    
    25,601
    
    
    
    20,038As reported
    
    $
    (0.04
    )
    
    $
    (0.18
    )
    
    $
    (0.17
    )
    
    $
    (0.24
    )Pro forma
    
    $
    (0.05
    )
    
    $
    (0.18
    )
    
    $
    (0.19
    )
    
    $
    (0.26
    )
 NOTE D  REVENUE RECOGNITION
    NOTE E  ACCOUNTS RECEIVABLE ALLOWANCES
   Chargebacks and Rebates
  8




---



##### 



Product Returns
  Doubtful Accounts
  
    
    Identified the relevant factors that might affect the accounting estimate for allowance
for doubtful accounts, including: (a) historical experience with collections and write-offs;
(b) credit quality of customers; (c) the interaction of credits being taken for discounts,
rebates, allowances and other adjustments; (d) balances of outstanding receivables, and
partially paid receivables; and (e) economic and other exogenous factors that might affect
collectibility (e.g., bankruptcies of customers, factors that affect particular distribution
channels).
    
    Accumulated data on which to base the estimate for allowance for doubtful accounts,
including: (a) collections and write-offs data; (b) information regarding current credit
quality of customers; and (c) other information such as buying patterns and payment
patterns, particularly with respect to major customers.
 9




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##### 




    
    Developed assumptions reflecting managements judgments as to the most likely
circumstances and outcomes, regarding, among other matters: (a) collectibility of
outstanding balances relating to partial payments; (b) the ability to collect items in
dispute (or subject to reconciliation) with customers; and (c) economic factors that might
affect collectibility of outstanding balances  based upon information available at the time.
  Discounts
  NOTE F
 INVENTORIES
  JUNE 30,
    
    DECEMBER 31,2005
    
    2004Finished goods
    
    $
    5,219
    
    
    $
    5,194Work in process
    
    
    1,547
    
    
    
    1,380Raw materials and supplies
    
    
    3,882
    
    
    
    3,847$
    10,648
    
    
    $
    10,421
  NOTE G  PROPERTY, PLANT AND EQUIPMENT
  JUNE 30,
    
    DECEMBER 31,2005
    
    2004Land
    
    $
    396
    
    
    $
    396Buildings and leasehold improvements
    
    
    9,338
    
    
    
    9,325Furniture and equipment
    
    
    27,625
    
    
    
    27,571Sub-total
    
    
    37,359
    
    
    
    37,292Accumulated depreciation
    
    
    (25,624
    )
    
    
    (24,337
    )11,735
    
    
    
    12,955Construction in progress
    
    
    19,205
    
    
    
    18,938Property, Plant, & Equipment, net
    
    $
    30,940
    
    
    $
    31,893
  10




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##### 



NOTE H  FINANCING ARRANGEMENTS
  June 30,
    
    December 31,2005
    
    2004Credit Agreement with LaSalle Bank
    
    $
    663
    
    
    $
    Convertible subordinated debentures
    
    
    5,000
    
    
    
    5,000Mortgages payable
    
    
    1,141
    
    
    
    1,307Promissory note to NeoPharm, Inc.
    
    
    
    
    
    
    3,2502003 Subordinated Notes
    
    
    2,767
    
    
    
    2,7679,571
    
    
    
    12,324Less unamortized discount on debt
    
    
    (1,526
    )
    
    
    (1,944
    )Less current installments, debt in default
    
    
    (3,370
    )
    
    
    (3,590
    )Long-term debt
    
    $
    4,675
    
    
    $
    6,790
      11




---



##### 



12




---



##### 



NOTE I  PREFERRED STOCK
  13




---



##### 



NOTE J  EARNINGS PER COMMON SHARE
 14




---



##### 



NOTE K  INDUSTRY SEGMENT INFORMATION
  THREE MONTHS ENDED JUNE 30,
    
    SIX MONTHS ENDED JUNE 30,2005
    
    2004
    
    2005
    
    2004REVENUESOphthalmic
    
    $
    6,227
    
    
    $
    6,371
    
    
    $
    11,323
    
    
    $
    13,806Injectable
    
    
    4,362
    
    
    
    1,986
    
    
    
    7,263
    
    
    
    4,305Contract Services
    
    
    1,989
    
    
    
    2,719
    
    
    
    4,173
    
    
    
    4,625Total revenues
    
    $
    12,578
    
    
    $
    11,076
    
    
    $
    22,759
    
    
    $
    22,736GROSS PROFITOphthalmic
    
    $
    2,390
    
    
    $
    2,888
    
    
    $
    4,192
    
    
    $
    6,344Injectable
    
    
    2,151
    
    
    
    298
    
    
    
    3,375
    
    
    
    705Contract Services
    
    
    311
    
    
    
    133
    
    
    
    628
    
    
    
    289Total gross profit
    
    
    4,852
    
    
    
    3,319
    
    
    
    8,195
    
    
    
    7,338Operating expenses
    
    
    5,547
    
    
    
    5,514
    
    
    
    10,636
    
    
    
    9,422Operating income (loss)
    
    
    (695
    )
    
    
    (2,195
    )
    
    
    (2,441
    )
    
    
    (2,084
    )Interest expense
    
    
    (584
    )
    
    
    (1,386
    )
    
    
    (1,110
    )
    
    
    (2,713
    )Gain on Retirement of Debt
    
    
    1,212
    
    
    
    
    
    
    
    1,212
    
    
    
    Loss before income taxes
    
    $
    (67
    )
    
    $
    (3,581
    )
    
    $
    (2,339
    )
    
    $
    (4,797
    )
  NOTE L
 COMMITMENTS AND CONTINGENCIES
   15




---



##### 



16




---



##### 



NOTE M  CUSTOMER AND SUPPLIER CONCENTRATION
     17




---



##### 



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 resolve our FDA compliance issues at our Decatur, Illinois manufacturing facility;
    
    Our ability to avoid defaults under debt covenants;
    
    Our ability to generate cash from operations sufficient to meet our working capital requirements;
    
    Our ability to obtain additional funding to operate and grow our business;
    
    The effects of federal, state and other governmental regulation of our business;
    
    Our success in developing, manufacturing and acquiring new products;
    
    Our success in developing, manufacturing and distributing new products through our joint
venture and licensing agreements;
    
    Our ability to complete and validate our lyophilization facility and receive FDA approval on a timely basis;
    
    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 SEC filings.
 RESULTS OF OPERATIONS
 THREE MONTHS ENDED JUNE 30, 2005 COMPARED TO 2004
  THREE MONTHS ENDED JUNE 30,2005
    
    2004Ophthalmic segment
    
    $
    6,227
    
    
    $
    6,371Injectable segment
    
    
    4,362
    
    
    
    1,986Contract Services segment
    
    
    1,989
    
    
    
    2,719Total revenues
    
    $
    12,578
    
    
    $
    11,076
  18




---



##### 



SIX MONTHS ENDED JUNE 30, 2005 COMPARED TO 2004
  SIX MONTHS ENDED JUNE 30,2005
    
    2004Ophthalmic segment
    
    $
    11,323
    
    
    $
    13,806Injectable segment
    
    
    7,263
    
    
    
    4,305Contract Services segment
    
    
    4,173
    
    
    
    4,625Total revenues
    
    $
    22,759
    
    
    $
    22,736
  19




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FINANCIAL CONDITION AND LIQUIDITY
 Overview
   20




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
    
    The then-existing default on our senior bank debt with Northern Trust was eliminated, as the associated debt was retired;
    
    The then-existing defaults on our subordinated loans from NeoPharm, Inc. and the Kapoor Trust were waived;
    
    The total amount of our senior bank debt was reduced from $37,731,000 as of September 30,
2003 to $7,000,000 as of the closing of those transactions;
    
    The interest rate on our senior bank debt was reduced from prime plus 3.0% to prime plus
1.75% for the new term loans and prime plus 1.50% for the new revolving line of credit;
    
    We obtained a revolving line of credit of up to $5,000,000 under the New Credit Facility
to meet working capital needs and fund future operations;
    
    We issued additional subordinated debt with an aggregate principal amount of
approximately $2,767,000, which accrues interest at a rate of prime plus 1.75% per annum;
    
    We issued Series A Preferred Stock with an aggregate initial stated value of $25,717,200,
which accrues dividends at a rate of 6.0% per annum; and
    
    The Investors acquired the Series A Preferred Stock and Series A Warrants that, as of the
closing, had the right to acquire approximately 44,000,000 shares of our common stock, or
more than 220% of the outstanding shares of common stock prior to the closing.
  21




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FDA Compliance Matters
  Facility Expansion
   New Credit Facility
  22




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Subordinated Debt
   23




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Other Indebtedness
   Preferred Stock and Warrants
 Series A Preferred Stock
    24




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Series B Preferred Stock
    Warrants
    CRITICAL ACCOUNTING POLICIES
 Revenue Recognition
  25




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Allowance for Chargebacks and Rebates
      Allowance for Product Returns
  26




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Allowance for Doubtful Accounts
  
    
    Identified the relevant factors that might affect the accounting estimate for allowance
for doubtful accounts, including: (a) historical experience with collections and write-offs;
(b) credit quality of customers; (c) the interaction of credits being taken for discounts,
rebates, allowances and other adjustments; (d) balances of outstanding receivables, and
partially paid receivables; and (e) economic and other exogenous factors that might affect
collectibility (e.g., bankruptcies of customers, factors that affect particular distribution
channels).
    
    Accumulated data on which to base the estimate for allowance for doubtful accounts,
including: (a) collections and write-offs data; (b) information regarding current credit
quality of customers; and (c) other information such as buying patterns and payment
patterns, particularly with respect to major customers.
    
    Developed assumptions reflecting managements judgments as to the most likely
circumstances and outcomes, regarding, among other matters: (a) collectibility of
outstanding balances relating to partial payments; (b) the ability to collect items in
dispute (or subject to reconciliation) with customers; and (c) economic factors that might
affect collectibility of outstanding balances  based upon information available at the
time.
  Allowance for Discounts
  Allowance for Slow-Moving Inventory
  Income Taxes
  27




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Intangibles
  ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
     ITEM 4. CONTROLS AND PROCEDURES
   PART II. OTHER INFORMATION
 ITEM 1. LEGAL PROCEEDINGS
  ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  28




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ITEM 3. DEFAULT UPON SENIOR SECURITIES
 None
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
   Nominee
    
    Votes For
    
    Votes WithheldJohn N. Kapoor, Ph.D.
    
    
    46,655,331
    
    
    
    845,935Arthur S. Przybyl
    
    
    46,663,961
    
    
    
    837,305Jerry N. Ellis
    
    
    46,948,986
    
    
    
    552,280Ronald M. Johnson
    
    
    46,651,937
    
    
    
    849,329Jerry I. Treppel
    
    
    46,955,994
    
    
    
    545,272
   ITEM 5. OTHER INFORMATION
 None
 ITEM 6. EXHIBITS
  Exhibit No.
    
    Description(3.1)
    
    Restated Articles of Incorporation of the Company dated September 16, 2004, incorporated by reference to
Exhibit 3.1 to the Companys Registration Statement on Form S-1 filed on September 21, 2004.
 29




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Exhibit No.
    
    Description(3.2)
    
    Amended and Restated By-laws of the Company, incorporated by reference to Exhibit 3.2 to the Companys
report on Form 8-K filed on October 24, 2003 and to Exhibit 3.1 to the Companys report on Form 8-K filed on
April 19, 2005.(10.1)
    
    Amended and Restated Akorn, Inc. 2003 Stock Option Plan, incorporated by reference to Exhibit 10.59 to the
Companys report on Form 10-K for the fiscal year ended December 31, 2004, filed on March 31, 2005.(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
 30




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SIGNATURES
  AKORN, INC./s/ JEFFREY A. WHITNELLJeffrey A. WhitnellSr. Vice President, Chief Financial Officer(Duly Authorized and Principal Financial Officer)  31