##### 



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, 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




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##### 



PagePART I. FINANCIAL INFORMATIONITEM 1. Financial Statements.Condensed Consolidated Balance Sheets-June 30, 2007 and December 31, 2006
    
    
    3Condensed Consolidated Statements of Operations-Three and six months ended June 30, 2007 and 2006
    
    
    4Condensed Consolidated Statement of Shareholders Equity- Six months ended June 30, 2007 and 2006
    
    
    5Condensed Consolidated Statements of Cash Flows- Six months ended June 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.
    
    
    21ITEM 1A. Risk Factors.
    
    
    21ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds.
    
    
    22ITEM 3. Defaults Upon Senior Securities.
    
    
    22ITEM 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
 JUNE 30,
    
    
    DECEMBER 31,2007
    
    
    2006(UNAUDITED)
    
    
    (AUDITED)ASSETSCURRENT ASSETSCash and cash equivalents
    
    $
    12,885
    
    
    $
    21,818Trade accounts receivable (less allowance for doubtful accounts of $1 and $3,
respectively)
    
    
    1,987
    
    
    
    4,781Inventories
    
    
    15,897
    
    
    
    11,734Prepaid expenses and other current assets
    
    
    881
    
    
    
    1,321TOTAL CURRENT ASSETS
    
    
    31,650
    
    
    
    39,654PROPERTY, PLANT AND EQUIPMENT, NET
    
    
    32,956
    
    
    
    33,486OTHER LONG-TERM ASSETSIntangibles, net
    
    
    8,198
    
    
    
    8,825Other
    
    
    103
    
    
    
    118TOTAL OTHER LONG-TERM ASSETS
    
    
    8,301
    
    
    
    8,943TOTAL ASSETS
    
    $
    72,907
    
    
    $
    82,083LIABILITIES AND SHAREHOLDERS EQUITYCURRENT LIABILITIESCurrent installments of debt
    
    $
    408
    
    
    $
    394Trade accounts payable
    
    
    3,827
    
    
    
    4,719Accrued compensation
    
    
    726
    
    
    
    1,849Customer accrued liabilities
    
    
    253
    
    
    
    391Accrued expenses and other liabilities
    
    
    963
    
    
    
    2,900TOTAL CURRENT LIABILITIES
    
    
    6,177
    
    
    
    10,253LONG-TERM LIABILITIESLong-term debt, less current installments
    
    
    
    
    
    
    208Product warranty liability
    
    
    1,308
    
    
    
    1,308TOTAL LONG-TERM LIABILITIES
    
    
    1,308
    
    
    
    1,516TOTAL LIABILITIES
    
    
    7,485
    
    
    
    11,769SHAREHOLDERS EQUITYCommon stock, no par value  150,000,000 shares authorized;
87,579,283 and 85,990,964 shares issued and outstanding
at June 30, 2007 and December 31, 2006, respectively
    
    
    156,877
    
    
    
    150,250Warrants to acquire common stock
    
    
    2,820
    
    
    
    4,862Accumulated deficit
    
    
    (94,275
    )
    
    
    (84,798
    )TOTAL SHAREHOLDERS EQUITY
    
    
    65,422
    
    
    
    70,314TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
    
    $
    72,907
    
    
    $
    82,083
  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 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Revenues
    
    $
    11,638
    
    
    $
    12,475
    
    
    $
    23,373
    
    
    $
    42,205Cost of sales
    
    
    8,752
    
    
    
    7,520
    
    
    
    17,998
    
    
    
    25,517GROSS PROFIT
    
    
    2,886
    
    
    
    4,955
    
    
    
    5,375
    
    
    
    16,688Selling, general and administrative expenses
    
    
    5,189
    
    
    
    4,669
    
    
    
    10,431
    
    
    
    9,153Amortization and write-down of intangibles
    
    
    339
    
    
    
    350
    
    
    
    677
    
    
    
    701Research and development expenses
    
    
    2,161
    
    
    
    2,121
    
    
    
    4,172
    
    
    
    4,166TOTAL OPERATING EXPENSES
    
    
    7,689
    
    
    
    7,140
    
    
    
    15,280
    
    
    
    14,020OPERATING (LOSS) INCOME
    
    
    (4,803
    )
    
    
    (2,185
    )
    
    
    (9,905
    )
    
    
    2,668Interest income/(expense)  net
    
    
    169
    
    
    
    234
    
    
    
    428
    
    
    
    (1,085
    )Debt Retirement Expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (391
    )Other income/(expense)
    
    
    1
    
    
    
    (12
    )
    
    
    1
    
    
    
    (29
    )(LOSS)/INCOME BEFORE INCOME TAXES
    
    
    (4,633
    )
    
    
    (1,963
    )
    
    
    (9,476
    )
    
    
    1,163Income tax provision
    
    
    1
    
    
    
    
    
    
    
    1
    
    
    
    NET (LOSS)/INCOME
    
    
    (4,634
    )
    
    
    (1,963
    )
    
    
    (9,477
    )
    
    
    1,163Preferred stock dividends and adjustments
    
    
    
    
    
    
    (234
    )
    
    
    
    
    
    
    (560
    )NET (LOSS)/INCOME AVAILABLE TO COMMON
STOCKHOLDERS
    
    $
    (4,634
    )
    
    $
    (2,197
    )
    
    $
    (9,477
    )
    
    $
    603NET (LOSS)/INCOME PER SHARE:BASIC
    
    $
    (0.05
    )
    
    $
    (0.03
    )
    
    $
    (0.11
    )
    
    $
    0.01DILUTED
    
    $
    (0.05
    )
    
    $
    (0.03
    )
    
    $
    (0.11
    )
    
    $
    0.01SHARES USED IN COMPUTING NET (LOSS)/INCOME PER SHARE:BASIC
    
    
    86,982
    
    
    
    74,853
    
    
    
    86,619
    
    
    
    68,321DILUTED
    
    
    86,982
    
    
    
    74,853
    
    
    
    86,619
    
    
    
    76,481
  4




---



##### 



AKORN, INC.
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 2007 AND 2006
UNAUDITED
(In Thousands)
 Warrants to
    
    
    RetainedSix Months Ended June 30, 2007
    
    
    
    
    Series 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
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9,477
    )
    
    
    (9,477
    )Exercise of warrants into common stock
    
    
    1,285
    
    
    
    4,534
    
    
    
    
    
    
    
    
    
    
    
    (2,042
    )
    
    
    
    
    
    
    2,492Exercise of stock options
    
    
    168
    
    
    
    532
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    532Employee stock purchase plan issuances
    
    
    20
    
    
    
    129
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    129Amortization of deferred compensation related to restricted stock awards
    
    
    
    
    
    
    368
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    368Restricted Stock Awards withheld for
payment of EE Tax Liability
    
    
    115
    
    
    
    (445
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (445
    )FAS123R share based payment expense
    
    
    
    
    
    
    1,509
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,509BALANCES AT JUNE 30, 2007
    
    
    87,579
    
    
    $
    156,877
    
    
    $
    
    
    
    $
    
    
    
    $
    2,820
    
    
    $
    (94,275
    )
    
    $
    65,422
 Warrants to
    
    
    RetainedSix Months Ended June 30, 2006
    
    
    
    
    Series 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
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,163
    
    
    
    1,163Preferred stock dividends earned
    
    
    
    
    
    
    
    
    
    
    55
    
    
    
    302
    
    
    
    
    
    
    
    (357
    )
    
    
    Intrinsic value of beneficial conversion
features in convertible preferred stock
    
    
    
    
    
    
    203
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (203
    )
    
    
    Conversion of preferred stock into
common stock
    
    
    37,779
    
    
    
    29,758
    
    
    
    (27,287
    )
    
    
    (2,471
    )
    
    
    
    
    
    
    
    
    
    
    Exercise of warrants into common stock
    
    
    1,413
    
    
    
    2,774
    
    
    
    
    
    
    
    
    
    
    
    (1,886
    )
    
    
    
    
    
    
    888Conversion 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
    
    
    
    
    
    
    
    18,078Stock issuance under stock option and
stock purchase plans
    
    
    622
    
    
    
    300
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    300Amortization of deferred compensation
related to restricted stock awards
    
    
    
    
    
    
    277
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    277FAS123R share based payment expense
    
    
    
    
    
    
    701
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    701BALANCES AT JUNE 30, 2006
    
    
    75,285
    
    
    $
    124,907
    
    
    $
    
    
    
    $
    8,589
    
    
    $
    13,631
    
    
    $
    (77,389
    )
    
    $
    69,738
 5




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##### 



AKORN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
IN THOUSANDS (UNAUDITED)
 SIX MONTHSENDED JUNE 302007
    
    
    2006OPERATING ACTIVITIESNet (loss)/income
    
    $
    (9,477
    )
    
    $
    1,163Adjustments to reconcile net (loss)/income to net
cash (used in)/provided by operating activities:Depreciation and amortization
    
    
    2,188
    
    
    
    1,645Amortization of debt discounts
    
    
    
    
    
    
    1,059Non-cash stock compensation expense
    
    
    1,877
    
    
    
    978Changes in operating assets and liabilities:Trade accounts receivable
    
    
    2,794
    
    
    
    (1,765
    )Inventories
    
    
    (4,163
    )
    
    
    (691
    )Prepaid expenses and other current assets
    
    
    455
    
    
    
    (363
    )Trade accounts payable
    
    
    (892
    )
    
    
    (314
    )Product warranty liability
    
    
    
    
    
    
    1,159Accrued customer liability
    
    
    (138
    )
    
    
    197Accrued expenses and other liabilities
    
    
    (3,060
    )
    
    
    (1,039
    )NET CASH (USED IN)/PROVIDED BY OPERATING ACTIVITIES
    
    
    (10,416
    )
    
    
    2,029INVESTING ACTIVITIESPurchases of property, plant and equipment
    
    
    (981
    )
    
    
    (1,388
    )Purchase of intangible assets
    
    
    (50
    )
    
    
    NET CASH USED IN INVESTING ACTIVITIES
    
    
    (1,031
    )
    
    
    (1,388
    )FINANCING
ACTIVITIES (see Note 1 below)Repayment of long-term debt
    
    
    (194
    )
    
    
    (2,917
    )Proceeds from common stock and warrant offering
    
    
    
    
    
    
    18,078Proceeds from warrants exercised
    
    
    2,492
    
    
    
    888Proceeds under stock option and stock purchase plans
    
    
    216
    
    
    
    300NET CASH PROVIDED BY FINANCING ACTIVITIES
    
    
    2,514
    
    
    
    16,349(DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS
    
    
    (8,933
    )
    
    
    16,990Cash and cash equivalents at beginning of period
    
    
    21,818
    
    
    
    791CASH AND CASH EQUIVALENTS AT END OF PERIOD
    
    $
    12,885
    
    
    $
    17,781Amount paid for interest
    
    $
    25
    
    
    $
    561Amount paid for income taxes
    
    $
    3
    
    
    $
    2
  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
      8




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##### 



THREE MONTHS
    
    THREE MONTHSENDED
    
    ENDEDJUNE 30, 2007
    
    JUNE 30, 2006(SFAS 123(R))
    
    (SFAS 123 (R))Expected Volatility
    
    
    45
    %
    
    
    45
    %Expected Life (in years)
    
    
    4.0
    
    
    
    3.6Risk-free interest rate
    
    
    4.8
    %
    
    
    5.0
    %Dividend yield
    
    
    
    
    
    
    Fair value per stock option
    
    $
    2.72
    
    
    $
    1.91Forfeiture Rate
    
    
    10
    %
    
    
    10
    %
  Weighted AverageNumber of
    
    
    Weighted
    
    
    RemainingShares
    
    
    Average
    
    
    Contractual Term
    
    
    Aggregate(in thousands)
    
    
    Exercise Price
    
    
    (Years)
    
    
    Intrinsic ValueOutstanding at January 1, 2007
    
    
    3,155
    
    
    $
    3.22Granted
    
    
    2,115
    
    
    $
    6.29Exercised
    
    
    (168
    )
    
    $
    3.18Forfeited
    
    
    (48
    )
    
    $
    5.27Outstanding at June 30, 2007
    
    
    5,054
    
    
    $
    4.49
    
    
    
    3.3
    
    
    $
    12,632Exercisable at June 30, 2007
    
    
    2,565
    
    
    $
    3.21
    
    
    
    2.3
    
    
    $
    9,684
    Number of Shares
    
    
    Weighted Average(in thousands)
    
    
    Grant Date Fair ValueNonvested at December 31, 2006
    
    
    350
    
    
    $
    5.05Granted
    
    
    
    
    
    
    Vested
    
    
    (175
    )
    
    $
    5.05Canceled
    
    
    
    
    
    
    Nonvested at June 30, 2007
    
    
    175
    
    
    $
    5.05
 9




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##### 



NOTE D  REVENUE RECOGNITION
    NOTE E  ACCOUNTS RECEIVABLE ALLOWANCES
    JUNE 30,
    
    
    DECEMBER 31,2007
    
    
    2006Gross Accounts Receivable
    
    $
    14,453
    
    
    $
    15,827Less:Allowance for Doubtful Accounts
    
    
    (1
    )
    
    
    (3
    )Returns Reserve
    
    
    (1,697
    )
    
    
    (2,437
    )Discount and Allowances Reserve
    
    
    (310
    )
    
    
    (236
    )Chargeback and Rebates Reserves
    
    
    (10,458
    )
    
    
    (8,370
    )Net Trade Accounts Receivable
    
    $
    1,987
    
    
    $
    4,781
   10




---



##### 



NOTE F  INVENTORIES
  JUNE 30,
    
    
    DECEMBER 31,2007
    
    
    2006Finished goods
    
    $
    3,429
    
    
    $
    2,923Work in process
    
    
    1,663
    
    
    
    1,293Raw materials and supplies
    
    
    10,805
    
    
    
    7,518$
    15,897
    
    
    $
    11,734
  NOTE G  PROPERTY, PLANT AND EQUIPMENT
  JUNE 30,
    
    
    DECEMBER 31,2007
    
    
    2006Land
    
    $
    396
    
    
    $
    396Buildings and leasehold improvements
    
    
    18,089
    
    
    
    18,071Furniture and equipment
    
    
    38,269
    
    
    
    37,826Automobiles
    
    
    55
    
    
    
    55Sub-total
    
    
    56,809
    
    
    
    56,348Accumulated depreciation
    
    
    (30,148
    )
    
    
    (28,637
    )26,661
    
    
    
    27,711Construction in progress
    
    
    6,295
    
    
    
    5,775Property, Plant, & Equipment, net
    
    $
    32,956
    
    
    $
    33,486
  NOTE H  FINANCING ARRANGEMENTS
 11




---



##### 



JUNE 30,
    
    
    DECEMBER 31,2007
    
    
    2006Mortgages payable
    
    $
    408
    
    
    $
    602Less current installments of debt
    
    
    (408
    )
    
    
    (394
    )Long-term debt
    
    $
    
    
    
    $
    208
        12




---



##### 



NOTE I  COMMON STOCK ISSUANCE
  NOTE J  EARNINGS PER COMMON SHARE
  THREE MONTHS ENDED
    
    
    SIX MONTHS ENDEDJUNE 30,
    
    
    JUNE 30,
    
    
    JUNE 30,
    
    
    JUNE 30,Fully Diluted Earnings Per Share Data
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006Net income (loss) available to common
stockholders  basic
    
    $
    (4,634
    )
    
    $
    (2,197
    )
    
    $
    (9,477
    )
    
    $
    603Dividend adjustment for dilutive preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Adjusted earnings  fully diluted basis
    
    $
    (4,634
    )
    
    $
    (2,197
    )
    
    $
    (9,477
    )
    
    $
    603Basic Shares
    
    
    86,982
    
    
    
    74,853
    
    
    
    86,619
    
    
    
    68,321Warrants
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,610Options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,550Fully Diluted Shares
    
    
    86,982
    
    
    
    74,853
    
    
    
    86,619
    
    
    
    76,481
  NOTE K  INDUSTRY SEGMENT INFORMATION
  13




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THREE MONTHS ENDED JUNE 30,
    
    
    SIX MONTHS ENDED JUNE 30,2007
    
    
    2006
    
    
    2007
    
    
    2006REVENUESOphthalmic
    
    $
    3,893
    
    
    $
    5,703
    
    
    $
    8,110
    
    
    $
    9,510Hospital Drugs & Injectables
    
    
    5,178
    
    
    
    5,104
    
    
    
    10,621
    
    
    
    29,001Contract Services
    
    
    2,567
    
    
    
    1,668
    
    
    
    4,642
    
    
    
    3,694Total revenues
    
    $
    11,638
    
    
    $
    12,475
    
    
    $
    23,373
    
    
    $
    42,205GROSS PROFITOphthalmic
    
    $
    648
    
    
    $
    2,287
    
    
    $
    1,322
    
    
    $
    3,285Hospital Drugs & Injectables
    
    
    1,468
    
    
    
    2,190
    
    
    
    2,986
    
    
    
    12,367Contract Services
    
    
    770
    
    
    
    478
    
    
    
    1,067
    
    
    
    1,036Total gross profit
    
    
    2,886
    
    
    
    4,955
    
    
    
    5,375
    
    
    
    16,688Operating expenses
    
    
    7,689
    
    
    
    7,140
    
    
    
    15,280
    
    
    
    14,020Operating (loss)/income
    
    
    (4,803
    )
    
    
    (2,185
    )
    
    
    (9,905
    )
    
    
    2,668Interest & Other income (expense)
    
    
    170
    
    
    
    222
    
    
    
    429
    
    
    
    (1,114
    )Debt Retirement expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (391
    )(Loss)/Income before income taxes
    
    $
    (4,633
    )
    
    $
    (1,963
    )
    
    $
    (9,476
    )
    
    $
    1,163
  NOTE L  COMMITMENTS AND CONTINGENCIES
     14




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NOTE M  CUSTOMER AND SUPPLIER CONCENTRATION
     NOTE N  RECENT ACCOUNTING PRONOUNCEMENTS
   15




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16




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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 JUNE 30, 2007 COMPARED TO 2006
  THREE MONTHS ENDED JUNE 30,2007
    
    
    2006Ophthalmic segment
    
    $
    3,893
    
    
    $
    5,703Hospital Drugs & Injectables segment
    
    
    5,178
    
    
    
    5,104Contract Services segment
    
    
    2,567
    
    
    
    1,668Total revenues
    
    $
    11,638
    
    
    $
    12,475
  17




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SIX MONTHS ENDED JUNE 30, 2007 COMPARED TO 2006
  SIX MONTHS ENDED JUNE 30,2006
    
    
    2005Ophthalmic segment
    
    $
    8,110
    
    
    $
    9,510Hospital Drugs & Injectables segment
    
    
    10,621
    
    
    
    29,001Contract Services segment
    
    
    4,642
    
    
    
    3,694Total revenues
    
    $
    23,373
    
    
    $
    42,205
    18




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FINANCIAL CONDITION AND LIQUIDITY
 Overview
     Facility Expansion
  19




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##### 



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
  Changes in Internal Control Over Financial Reporting
  PART II. OTHER INFORMATION
 ITEM 1. LEGAL PROCEEDINGS
  ITEM 1A. RISK FACTORS
  21




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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
    ITEM 3. DEFAULTS UPON SENIOR SECURITIES
  22




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##### 



ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
   Nominee
    
    Votes For
    
    
    Votes WithheldJohn N. Kapoor, Ph.D.
    
    
    74,126,928
    
    
    
    538,002Arthur S. Przybyl
    
    
    74,136,039
    
    
    
    528,891Jerry N. Ellis
    
    
    74,568,408
    
    
    
    96,522Ronald M. Johnson
    
    
    74,483,019
    
    
    
    181,911Jerry I. Treppel
    
    
    74,430,100
    
    
    
    234,830Subhash Kapre, Ph.D.
    
    
    73,988,541
    
    
    
    676,389Randall J. Wall
    
    
    74,570,608
    
    
    
    94,322
  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.(4.11)
    
    Form of Common Stock Purchase Warrant between Akorn, Inc. and certain investors, incorporated by reference
to
 24




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Exhibit No.
    
    DescriptionExhibit 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)
    
    2007 Management Bonus Objectives, incorporated by reference to Exhibit 10.1 to Akorn Inc.s report on Form
8-K filed April 23, 2007.(10.2)*
    
    Amendment to Credit Agreement dated August 8, 2007 between Akorn, Inc., LaSalle Bank, the financial
institutions party thereto and Akorn (New Jersey), Inc.(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