##### 



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 September 30, 2007
 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
  Large accelerated
filer o Accelerated filer þ Non-accelerated filer o
  Yes o No þ




---



##### 



PagePART I. FINANCIAL INFORMATIONITEM 1. Financial Statements.Condensed Consolidated Balance Sheets-September 30, 2007 and December 31, 2006
    
    
    3Condensed Consolidated Statements of Operations-Three and nine months ended September 30, 2007 and 2006
    
    
    4Condensed Consolidated Statement of Shareholders Equity- Nine months ended September 30, 2007 and 2006
    
    
    5Condensed Consolidated Statements of Cash Flows- Nine months ended September 30, 2007 and 2006
    
    
    6Notes to Condensed Consolidated Financial Statements.
    
    
    7ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
    
    
    17ITEM 3. Quantitative and Qualitative Disclosures About Market Risk.
    
    
    21ITEM 4. Controls and Procedures.
    
    
    21PART II. OTHER INFORMATIONITEM 1. Legal Proceedings.
    
    
    22ITEM 1A. Risk Factors.
    
    
    22ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds.
    
    
    22ITEM 3. Defaults Upon Senior Securities.
    
    
    23ITEM 4. Submission of Matters to a Vote of Security Holders.
    
    
    23ITEM 5. Other Information.
    
    
    23ITEM 6. Exhibits.
    
    
    24
  2




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##### 



PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements.
 AKORN, INC.
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 IN THOUSANDS, EXCEPT SHARE DATA
 SEPTEMBER 30,
    
    
    DECEMBER 31,2007
    
    
    2006(UNAUDITED)
    
    
    (AUDITED)ASSETSCURRENT ASSETSCash and cash equivalents
    
    $
    10,260
    
    
    $
    21,818Trade accounts receivable (less allowance for doubtful accounts of $3 and $3,
respectively)
    
    
    5,645
    
    
    
    4,781Inventories
    
    
    19,749
    
    
    
    11,734Prepaid expenses and other current assets
    
    
    721
    
    
    
    1,321TOTAL CURRENT ASSETS
    
    
    36,375
    
    
    
    39,654PROPERTY, PLANT AND EQUIPMENT, NET
    
    
    32,648
    
    
    
    33,486OTHER LONG-TERM ASSETSIntangibles, net
    
    
    7,860
    
    
    
    8,825Other
    
    
    993
    
    
    
    118TOTAL OTHER LONG-TERM ASSETS
    
    
    8,853
    
    
    
    8,943TOTAL ASSETS
    
    $
    77,876
    
    
    $
    82,083LIABILITIES AND SHAREHOLDERS EQUITYCURRENT LIABILITIESCurrent installments of debt
    
    $
    309
    
    
    $
    394Trade accounts payable
    
    
    12,038
    
    
    
    4,719Accrued compensation
    
    
    944
    
    
    
    1,849Customer accrued liabilities
    
    
    235
    
    
    
    391Accrued expenses and other liabilities
    
    
    1,362
    
    
    
    2,900TOTAL CURRENT LIABILITIES
    
    
    14,888
    
    
    
    10,253LONG-TERM LIABILITIESLong-term debt, less current installments
    
    
    
    
    
    
    208Product warranty liability
    
    
    1,308
    
    
    
    1,308TOTAL LONG-TERM LIABILITIES
    
    
    1,308
    
    
    
    1,516TOTAL LIABILITIES
    
    
    16,196
    
    
    
    11,769SHAREHOLDERS EQUITYCommon stock, no par value  150,000,000 shares authorized;
87,730,355 and 85,990,964 shares issued and outstanding
at September 30, 2007 and December 31, 2006, respectively
    
    
    157,887
    
    
    
    150,250Warrants to acquire common stock
    
    
    2,795
    
    
    
    4,862Accumulated deficit
    
    
    (99,002
    )
    
    
    (84,798
    )TOTAL SHAREHOLDERS EQUITY
    
    
    61,680
    
    
    
    70,314TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
    
    $
    77,876
    
    
    $
    82,083
  3




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##### 



AKORN, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 IN THOUSANDS, EXCEPT PER SHARE DATA
 (UNAUDITED)
 THREE MONTHS ENDED
    
    
    NINE MONTHS ENDEDSEPTEMBER 30,
    
    
    SEPTEMBER 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Revenues
    
    $
    15,814
    
    
    $
    14,490
    
    
    $
    39,187
    
    
    $
    56,695Cost of sales
    
    
    12,846
    
    
    
    8,539
    
    
    
    30,844
    
    
    
    34,056GROSS PROFIT
    
    
    2,968
    
    
    
    5,951
    
    
    
    8,343
    
    
    
    22,639Selling, general and administrative expenses
    
    
    5,362
    
    
    
    4,226
    
    
    
    15,793
    
    
    
    13,379Amortization and write-down of intangibles
    
    
    338
    
    
    
    345
    
    
    
    1,015
    
    
    
    1,046Research and development expenses
    
    
    2,135
    
    
    
    2,649
    
    
    
    6,307
    
    
    
    6,815TOTAL OPERATING EXPENSES
    
    
    7,835
    
    
    
    7,220
    
    
    
    23,115
    
    
    
    21,240OPERATING (LOSS) INCOME
    
    
    (4,867
    )
    
    
    (1,269
    )
    
    
    (14,772
    )
    
    
    1,399Interest
income/(expense) - net
    
    
    140
    
    
    
    230
    
    
    
    568
    
    
    
    (855
    )Debt Retirement Expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (391
    )Other income/(expense)
    
    
    
    
    
    
    (28
    )
    
    
    1
    
    
    
    (57
    )(LOSS)/INCOME BEFORE INCOME TAXES
    
    
    (4,727
    )
    
    
    (1,067
    )
    
    
    (14,203
    )
    
    
    96Income tax provision
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    NET (LOSS)/INCOME
    
    
    (4,727
    )
    
    
    (1,067
    )
    
    
    (14,204
    )
    
    
    96Preferred stock dividends and adjustments
    
    
    
    
    
    
    (182
    )
    
    
    
    
    
    
    (742
    )NET LOSS AVAILABLE TO COMMON STOCKHOLDERS
    
    $
    (4,727
    )
    
    $
    (1,249
    )
    
    $
    (14,204
    )
    
    $
    (646
    )NET LOSS PER SHARE:BASIC
    
    $
    (0.05
    )
    
    $
    (0.02
    )
    
    $
    (0.16
    )
    
    $
    (0.01
    )DILUTED
    
    $
    (0.05
    )
    
    $
    (0.02
    )
    
    $
    (0.16
    )
    
    $
    (0.01
    )SHARES USED IN COMPUTING NET LOSS PER SHARE:BASIC
    
    
    87,651
    
    
    
    76,420
    
    
    
    86,971
    
    
    
    71,050DILUTED
    
    
    87,651
    
    
    
    76,420
    
    
    
    86,971
    
    
    
    71,050
  4




---



##### 



AKORN, INC.
 
 CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY
 FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006
 UNAUDITED
 (In Thousands)
 Nine Months Ended September 30, 2007
 Warrants to
    
    
    RetainedSeries A
    
    
    Series B
    
    
    acquire
    
    
    EarningsCommon Stock
    
    
    Preferred
    
    
    Preferred
    
    
    Common
    
    
    (AccumulatedShares
    
    
    Amount
    
    
    Stock
    
    
    Stock
    
    
    Stock
    
    
    Deficit)
    
    
    TotalBALANCES AT DECEMBER 31, 2006
    
    
    85,991
    
    
    $
    150,250
    
    
    $
    
    
    
    $
    
    
    
    $
    4,862
    
    
    $
    (84,798
    )
    
    $
    70,314Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (14,204
    )
    
    
    (14,204
    )Exercise of warrants into common stock
    
    
    1,305
    
    
    
    4,574
    
    
    
    
    
    
    
    
    
    
    
    (2,067
    )
    
    
    
    
    
    
    2,507Exercise of stock options
    
    
    293
    
    
    
    853
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    853Employee stock purchase plan issuances
    
    
    26
    
    
    
    171
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    171Amortization of deferred compensation
related to restricted stock awards
    
    
    
    
    
    
    479
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    479Restricted Stock Awards withheld for
payment of employee tax liability
    
    
    115
    
    
    
    (445
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (445
    )FAS123R share based payment expense
    
    
    
    
    
    
    2,005
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,005BALANCES AT SEPTEMBER 30, 2007
    
    
    87,730
    
    
    $
    157,887
    
    
    $
    
    
    
    $
    
    
    
    $
    2,795
    
    
    $
    (99,002
    )
    
    $
    61,680
 Nine Months Ended September 30, 2006
 Warrants to
    
    
    RetainedSeries A
    
    
    Series B
    
    
    acquire
    
    
    EarningsCommon 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
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    96
    
    
    
    96Preferred stock dividends earned
    
    
    
    
    
    
    
    
    
    
    55
    
    
    
    435
    
    
    
    
    
    
    
    (490
    )
    
    
    Intrinsic value of beneficial conversion
features in convertible preferred stock
    
    
    
    
    
    
    252
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (252
    )
    
    
    Conversion of preferred stock into
common stock
    
    
    38,123
    
    
    
    30,626
    
    
    
    (27,287
    )
    
    
    (3,339
    )
    
    
    
    
    
    
    
    
    
    
    Exercise of warrants into common stock
    
    
    5,682
    
    
    
    9,418
    
    
    
    
    
    
    
    
    
    
    
    (8,205
    )
    
    
    
    
    
    
    1,213Conversion of convertible notes into
common stock
    
    
    3,540
    
    
    
    7,298
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,298Net proceeds from issuance of common
stock and warrants
    
    
    5,312
    
    
    
    19,800
    
    
    
    
    
    
    
    
    
    
    
    1,821
    
    
    
    
    
    
    
    21,621Stock issuance under stock option and
stock purchase plans
    
    
    724
    
    
    
    606
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    606Amortization of deferred compensation
related to restricted stock awards
    
    
    
    
    
    
    498
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    498FAS123R share based payment expense
    
    
    
    
    
    
    1,026
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,026BALANCES AT SEPTEMBER 30, 2006
    
    
    81,000
    
    
    $
    136,863
    
    
    $
    
    
    
    $
    7,854
    
    
    $
    7,312
    
    
    $
    (78,638
    )
    
    $
    73,391
 5




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##### 



AKORN, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 IN THOUSANDS (UNAUDITED)
  NINE MONTHSENDED SEPTEMBER 302007
    
    
    2006OPERATING ACTIVITIESNet (loss)/income
    
    $
    (14,204
    )
    
    $
    96Adjustments to reconcile net (loss)/income to net cash (used in)/provided by operating activities:Depreciation and amortization
    
    
    3,273
    
    
    
    2,444Amortization of debt discounts
    
    
    
    
    
    
    1,059Non-cash stock compensation expense
    
    
    2,484
    
    
    
    1,524Changes in operating assets and liabilities:Trade accounts receivable
    
    
    (864
    )
    
    
    (3,717
    )Inventories
    
    
    (8,015
    )
    
    
    (142
    )Prepaid expenses and other current assets
    
    
    (275
    )
    
    
    218Trade accounts payable
    
    
    7,319
    
    
    
    (1,007
    )Product warranty liability
    
    
    
    
    
    
    1,131Accrued customer liability
    
    
    (156
    )
    
    
    403Accrued expenses and other liabilities
    
    
    (2,443
    )
    
    
    (137
    )NET CASH (USED IN)/PROVIDED BY OPERATING ACTIVITIES
    
    
    (12,881
    )
    
    
    1,872INVESTING ACTIVITIESPurchases of property, plant and equipment
    
    
    (1,420
    )
    
    
    (3,571
    )Purchase of intangible assets
    
    
    (50
    )
    
    
    NET CASH USED IN INVESTING ACTIVITIES
    
    
    (1,470
    )
    
    
    (3,571
    )FINANCING ACTIVITIESRepayment of long-term debt
    
    
    (293
    )
    
    
    (3,009
    )Proceeds from common stock and warrant offering
    
    
    
    
    
    
    21,621Proceeds from warrants exercised
    
    
    2,507
    
    
    
    1,213Proceeds under stock option and stock purchase plans
    
    
    579
    
    
    
    606NET CASH PROVIDED BY FINANCING ACTIVITIES
    
    
    2,793
    
    
    
    20,431(DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS
    
    
    (11,558
    )
    
    
    18,732Cash and cash equivalents at beginning of period
    
    
    21,818
    
    
    
    791CASH AND CASH EQUIVALENTS AT END OF PERIOD
    
    $
    10,260
    
    
    $
    19,523Amount paid for interest
    
    $
    43
    
    
    $
    577Amount paid for income taxes
    
    $
    3
    
    
    $
    2
 
 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
 Financing Arrangements) 6




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##### 



NOTE A  BUSINESS AND BASIS OF PRESENTATION
 Business:
 Basis of Presentation
 NOTE B  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Use of Estimates:
 Chargebacks:
  7




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##### 



Sales Returns:
  NOTE C  STOCK BASED COMPENSATION
      THREE MONTHS
    
    THREE MONTHSENDED
    
    ENDEDSEPTEMBER 30, 2007
    
    SEPTEMBER 30, 2006(SFAS 123(R))
    
    (SFAS 123 (R))Expected Volatility
    
    
    43
    %
    
    
    52
    %Expected Life (in years)
    
    
    4.0
    
    
    
    3.5Risk-free interest rate
    
    
    4.4
    %
    
    
    4.8
    %Dividend yield
    
    
    
    
    
    
    Fair value per stock option
    
    $
    2.76
    
    
    $
    1.60Forfeiture Rate
    
    
    10
    %
    
    
    10
    %
 8




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##### 



Weighted AverageNumber of
    
    Weighted
    
    RemainingShares
    
    Average
    
    Contractual Term
    
    Aggregate(in thousands)
    
    Exercise Price
    
    (Years)
    
    Intrinsic ValueOutstanding at January 1, 2007
    
    
    3,155
    
    
    $
    3.22Granted
    
    
    2,249
    
    
    $
    6.34Exercised
    
    
    (293
    )
    
    $
    2.91Forfeited
    
    
    (123
    )
    
    $
    5.36Outstanding at September 30, 2007
    
    
    4,988
    
    
    $
    4.59
    
    
    
    3.1
    
    
    $
    14,445Exercisable at September 30, 2007
    
    
    2,480
    
    
    $
    3.25
    
    
    
    2.1
    
    
    $
    10,515
    Number of Shares
    
    Weighted Average(in thousands)
    
    Grant Date Fair ValueNonvested at December 31, 2006
    
    
    350
    
    
    $
    5.05Granted
    
    
    
    
    
    
    Vested
    
    
    (175
    )
    
    $
    5.05Canceled
    
    
    
    
    
    
    Nonvested at September 30, 2007
    
    
    175
    
    
    $
    5.05
 NOTE D  REVENUE RECOGNITION
   9




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##### 



NOTE E  ACCOUNTS RECEIVABLE ALLOWANCES
    SEPTEMBER 30,
    
    
    DECEMBER 31,2007
    
    
    2006Gross Accounts Receivable
    
    $
    18,976
    
    
    $
    15,827Less:Allowance for Doubtful Accounts
    
    
    (3
    )
    
    
    (3
    )Returns Reserve
    
    
    (1,271
    )
    
    
    (2,437
    )Discount and Allowances Reserve
    
    
    (340
    )
    
    
    (236
    )Chargeback and Rebates Reserves
    
    
    (11,717
    )
    
    
    (8,370
    )Net Trade Accounts Receivable
    
    $
    5,645
    
    
    $
    4,781
     10




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##### 



NOTE F  INVENTORIES
  SEPTEMBER 30,
    
    
    DECEMBER 31,2007
    
    
    2006Finished goods
    
    $
    7,610
    
    
    $
    2,923Work in process
    
    
    2,285
    
    
    
    1,293Raw materials and supplies
    
    
    9,854
    
    
    
    7,518$
    19,749
    
    
    $
    11,734
  NOTE G  PROPERTY, PLANT AND EQUIPMENT
  SEPTEMBER 30,
    
    
    DECEMBER 31,2007
    
    
    2006Land
    
    $
    396
    
    
    $
    396Buildings and leasehold improvements
    
    
    18,089
    
    
    
    18,071Furniture and equipment
    
    
    38,448
    
    
    
    37,826Automobiles
    
    
    55
    
    
    
    55Sub-total
    
    
    56,988
    
    
    
    56,348Accumulated depreciation
    
    
    (30,895
    )
    
    
    (28,637
    )26,093
    
    
    
    27,711Construction in progress
    
    
    6,555
    
    
    
    5,775Property, Plant, & Equipment, net
    
    $
    32,648
    
    
    $
    33,486
  NOTE H  FINANCING ARRANGEMENTS
  SEPTEMBER 30,
    
    
    DECEMBER 31,2007
    
    
    2006Mortgages payable
    
    $
    309
    
    
    $
    602Less current installments of debt
    
    
    (309
    )
    
    
    (394
    )Long-term debt
    
    $
    
    
    
    $
    208
 11




---



##### 



NOTE I  COMMON STOCK ISSUANCE
  12




---



##### 



NOTE J  EARNINGS PER COMMON SHARE
   NOTE K  INDUSTRY SEGMENT INFORMATION
  THREE MONTHS ENDED
    
    
    NINE MONTHS ENDEDSEPTEMBER 30,
    
    
    SEPTEMBER 30,2007
    
    
    2006
    
    
    2007
    
    
    2006REVENUESOphthalmic
    
    $
    5,001
    
    
    $
    6,139
    
    
    $
    13,111
    
    
    $
    15,649Hospital Drugs & Injectables
    
    
    9,360
    
    
    
    6,028
    
    
    
    19,981
    
    
    
    35,029Contract Services
    
    
    1,453
    
    
    
    2,323
    
    
    
    6,095
    
    
    
    6,017Total revenues
    
    $
    15,814
    
    
    $
    14,490
    
    
    $
    39,187
    
    
    $
    56,695GROSS PROFITOphthalmic
    
    $
    1,123
    
    
    $
    2,198
    
    
    $
    2,445
    
    
    $
    5,483Hospital Drugs & Injectables
    
    
    1,425
    
    
    
    3,070
    
    
    
    4,411
    
    
    
    15,437Contract Services
    
    
    420
    
    
    
    683
    
    
    
    1,487
    
    
    
    1,719Total gross profit
    
    
    2,968
    
    
    
    5,951
    
    
    
    8,343
    
    
    
    22,639Operating expenses
    
    
    7,835
    
    
    
    7,220
    
    
    
    23,115
    
    
    
    21,240Operating (loss)/income
    
    
    (4,867
    )
    
    
    (1,269
    )
    
    
    (14,772
    )
    
    
    1,399Interest & Other income (expense)
    
    
    140
    
    
    
    202
    
    
    
    569
    
    
    
    (912
    )Debt Retirement expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (391
    )(Loss)/Income before income taxes
    
    $
    (4,727
    )
    
    $
    (1,067
    )
    
    $
    (14,203
    )
    
    $
    96
  NOTE L  COMMITMENTS AND CONTINGENCIES
  13




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For the three months ended 12/31/07
    
    $
    285For the year ended 12/31/08
    
    $
    3,806For the year ended 12/31/09
    
    $
    1,915For the year ended 12/31/10
    
    $
    1,279For the year ended 12/31/11
    
    $
    For the year ended 12/31/12
    
    $
    1,000
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NOTE M  CUSTOMER AND SUPPLIER CONCENTRATION
     NOTE N  RECENT ACCOUNTING PRONOUNCEMENTS
   15




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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 resolve our Food and Drug Administration compliance issues at our Decatur,
Illinois facilities;
    
    Our ability to obtain regulatory approvals of, commence operations at and obtain business
for our new lyophilization facility;
    
    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 SEPTEMBER 30, 2007 COMPARED TO 2006
  THREE MONTHS ENDEDSEPTEMBER 30,2007
    
    
    2006Ophthalmic segment
    
    $
    5,001
    
    
    $
    6,139Hospital Drugs & Injectables segment
    
    
    9,360
    
    
    
    6,028Contract Services segment
    
    
    1,453
    
    
    
    2,323Total revenues
    
    $
    15,814
    
    
    $
    14,490
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NINE MONTHS ENDED SEPTEMBER 30, 2007 COMPARED TO 2006
  NINE MONTHS ENDED SEPTEMBER 30,2007
    
    
    2006Ophthalmic segment
    
    $
    13,111
    
    
    $
    15,649Hospital Drugs & Injectables segment
    
    
    19,981
    
    
    
    35,029Contract Services segment
    
    
    6,095
    
    
    
    6,017Total revenues
    
    $
    39,187
    
    
    $
    56,695
  18




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FINANCIAL CONDITION AND LIQUIDITY
 Overview
     19




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Facility Expansion
    CRITICAL ACCOUNTING POLICIES
  RECENT ACCOUNTING PRONOUNCEMENTS
  20




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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  
 ITEM 4. CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
  21




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Changes in Internal Control Over Financial Reporting
  
 PART II. OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  
 ITEM 1A. RISK FACTORS
   
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
   22




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ITEM 3. DEFAULTS UPON SENIOR SECURITIES
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  
 ITEM 5. OTHER INFORMATION
  23




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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)
    
    Amended 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)
    
    Amendment 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.(3.4)
    
    Amendment to Bylaws of Akorn, Inc., incorporated by reference to Exhibit 3.1 to Akorn, Inc.s report on Form 8-K filed on December 14, 2006.(3.5)
    
    Amendment to Bylaws of Akorn, Inc., incorporated by reference to Exhibit 3.1 to Akorn, Inc.s report on Form 8-K filed on April 16, 2007.(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.
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Exhibit No.
    
    Description(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.(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.)(4.17)
    
    Securities Purchase Agreement dated September 13, 2006, between Akorn, Inc. and Serum Institute of India, incorporated by reference to Exhibit 4.1 to Akorn Inc.s report on Form 8-K filed September 14, 2006.(10.1)
    
    Amendment to Credit Agreement dated August 8, 2007 between Akorn, Inc., LaSalle Bank, the financial institutions party thereto and Akorn (New Jersey), Inc., incorporated by reference to Exhibit 10.2 to Akorn Inc.s report on Form 10-Q filed August 8, 2007.(10.2)*
    
    First Amendment to Sales and Marketing Agreement dated September 28, 2007, by and among Akorn-Strides, LLC, and Akorn, Inc.(10.3)*
    
    Sixth Amendment to OEM Agreement dated September 28, 2007 between Akorn-Strides, LLC and Strides Arcolab Limited.(10.4)
    
    Industrial Building Lease dated October 23, 2007 by and between CV II Gurnee LLC and Akorn, Inc., incorporated by reference to Exhibit 10.1 to Akorn Inc.s report on Form 8-K filed October 29, 2007.(10.5)#
    
    Exclusive Memorandum of Understanding dated October 24, 2007 by and between Akorn, Inc. and Serum Institute of India Ltd., incorporated by reference to Exhibit 10.1 to Akorn Inc.s report on Form 8-K filed October 30, 2007.(10.6)*
    
    Amendment to Credit Agreement dated November 2, 2007, by and among LaSalle Bank National Association, Akorn, Inc. and Akorn (New Jersey), Inc.(10.7)*
    
    Note (Replacement Note) dated October 7, 2003, by Akorn, Inc. and Akorn (New Jersey), Inc. for the benefit of LaSalle Bank National Association, issued in connection with the Amendment to Credit Agreement dated November 2, 2007.(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
 25




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SIGNATURES
  AKORN, INC./s/ JEFFREY A. WHITNELLJeffrey A. WhitnellSr. Vice President, Chief Financial Officer
(Duly Authorized and Principal Financial Officer)  26