##### Table of Contents









UNITED STATES SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549


Form 10-K


FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO
SECTIONS 13 OR 15(d)


OF THE SECURITIES EXCHANGE ACT OF 1934


|   |  |                                                                                             
|-- |  | --------------------------------------------------------------------------------------------
|þ  |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934    
|   |  | For the Fiscal Year Ended June 30, 2006                                                     
|Or
|  
|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 000-51445


Adams Respiratory Therapeutics, Inc.


(Exact name of Registrant as specified in its Charter)


|                         |  |                                     
|------------------------ |  | ------------------------------------
|Delaware                 |  | 75-2725552                          
|(State of incorporation) |  | (I.R.S. Employer Identification No.)

|                                                                                  |  |                
|--------------------------------------------------------------------------------- |  | ---------------
|4 Mill Ridge Lane
    Chester, New Jersey(Address of principal executive offices) |  | 07930(Zip Code)

(908) 879-1400


(Registrants telephone number, including area code)


Securities registered pursuant to Section 12(b) of the
Securities Exchange Act of 1934:


None


Securities registered pursuant to Section 12(g) of the
Securities Exchange Act of 1934:


Common Stock, Par Value $0.01 Per Share


(Title of class)


þ o


o þ


þ o


S-K 10-K 10-K. o


12b-2


o o þ


12b-2 o þ






10-K.










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##### 










TABLE OF CONTENTS


|                                                                    |  |                                                                                                                      |   |      |    | 
|------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------- | - | ---- | -- | 
|                                                                    |  |                                                                                                                      |   | Page |   
|                                                                    |  |                                                                                                                      |   |      |   
|PART I                                                             
|Special Note Regarding Forward-looking
    Statements               |  |                                                                                                                      | 1 |     
|Item 1.                                                             |  | Business                                                                                                             |   |      | 2  | 
|Item 1A.                                                            |  | Risk Factors                                                                                                         |   |      | 22 | 
|Item 1B.                                                            |  | Unresolved Staff Comments                                                                                            |   |      | 39 | 
|Item 2.                                                             |  | Properties                                                                                                           |   |      | 39 | 
|Item 3.                                                             |  | Legal Proceedings                                                                                                    |   |      | 40 | 
|Item 4.                                                             |  | Submission of Matters to a Vote of Security
    Holders                                                              |   |      | 40 | 
|                                                                   
|PART II                                                            
|Item 5.                                                             |  | Market For Registrants Common Equity,
    Related Stockholder Matters and Issuer Purchases of Equity
    Securities |   |      | 40 | 
|Item 6.                                                             |  | Selected Financial Data                                                                                              |   |      | 42 | 
|Item 7.                                                             |  | Managements Discussion and Analysis
    of Financial Condition and Results of Operations                            |   |      | 44 | 
|Item 7A.                                                            |  | Quantitative and Qualitative Disclosure
    About Market Risk                                                        |   |      | 61 | 
|Item 8.                                                             |  | Financial Statements and Supplementary
    Data                                                                      |   |      | 62 | 
|Item 9.                                                             |  | Changes in and Disagreements with
    Accountants on Accounting and Financial Disclosure                             |   |      | 62 | 
|Item 9A.                                                            |  | Controls and Procedures                                                                                              |   |      | 62 | 
|Item 9B.                                                            |  | Other Information                                                                                                    |   |      | 62 | 
|                                                                   
|PART III                                                           
|Item 10.                                                            |  | Directors and Executive Officers of the
    Registrant                                                               |   |      | 62 | 
|Item 11.                                                            |  | Executive Compensation                                                                                               |   |      | 63 | 
|Item 12.                                                            |  | Security Ownership of Certain Beneficial
    Owners and Management and Related Stockholder Matters                   |   |      | 63 | 
|Item 13.                                                            |  | Certain Relationships and Related
    Transactions                                                                   |   |      | 63 | 
|Item 14.                                                            |  | Principal Accountant Fees and Services                                                                               |   |      | 63 | 
|                                                                   
|PART IV                                                            
|Item 15.                                                            |  | Exhibits and Financial Statement
    Schedules                                                                       |   |      | 63 | 
|EX-10.27 SENIOR REVOLVING CREDIT AGREEMENT DATED SEPTEMBER 26, 2006
|EX-10.29 SECURITY AGREEMENT SUPPLEMENT DATED SEPTEMBER 26, 2006    
|EX-21 SUBSIDIARIES                                                 
|EX-23 CONSENT OF ERNST & YOUNG LLP                                 
|EX-31.1 SECTION 302 CERTIFICATION OF CEO                           
|EX-31.2 SECTION 302 CERTIFICATION OF CFO                           
|EX-32.1 SECTION 906 CERTIFICATION OF CEO                           
|EX-32.2 SECTION 906 CERTIFICATION OF CFO                           







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##### Table of Contents






PART I





SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS


10-K




| |   |                                                                                                                                                                                                                          
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | our course of action related to a new drug application filing by
    Mutual Pharmaceutical Company;                                                                                                                      
|
| |  | our involvement in litigation having a material adverse impact
    on our business, financial condition, results of operations or
    cash flows;                                                                        
|
| |  | our obligations related to product returns and royalty payments;                                                                                                                                                         
|
| |  | our ability to obtain sufficient quantities of raw materials,
    including guaifenesin and dextromethorphan;                                                                                                            
|
| |  | our expectations of the seasonality of Mucinex sales and related
    revenue fluctuations;                                                                                                                               
|
| |  | our intentions to market additional products, grow our business
    and expand our product portfolio;                                                                                                                    
|
| |  | our ability to meet our anticipated operating needs with our
    revenues;                                                                                                                                               
|
| |  | the timing of the United States Patent and Trademark
    Offices, or USPTOs, reexamination of the
    patentability of our delivery system for guaifenesin and our
    ability to prevail in the reexamination process;
|
| |  | our reliance on and continued consolidation of our top customers;                                                                                                                                                        
|
| |  | our expectations of increased pricing pressures;                                                                                                                                                                         
|
| |  | our ability to leverage our brand names;                                                                                                                                                                                 
|
| |  | our ability to develop a reputation as an expert in the
    respiratory therapeutics market; and                                                                                                                         
|
| |  | our exposure to credit rate and interest rate risk.                                                                                                                                                                      





1



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|        |         
|------- | --------
|Item 1. | Business

Overview


over-the


52-week






12-hour 52-week


2



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52-week


12-hour


tm tm




long-acting 125-person


3



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Market, Ranking And Other Data






tm tm


The Respiratory Therapeutics Market


Market Overview.


4



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tm tm




The Long-Acting Guaifenesin Market. tm


tm tm


The OTC Cough, Cold, Allergy, and Sinus Market.


® ® ® ® ® ® ® ® 52-week


The OTC Pediatric Market. ® ® ® ® ® ®


5



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Our Competitive Strengths


Mucinex SE and Humibid SE are the Only Long-Acting,
Single-Ingredient Guaifenesin Products Available in the United
States.


Strength of the Mucinex Brand.


|                       |       |               |                |  |                 |  |                |         |  |  |                |  |  |          |      |       |         |  |      |       |   |  |      |       |  
|---------------------- | ----- | ------------- | -------------- |  | --------------- |  | -------------- | ------- |  |  | -------------- |  |  | -------- | ---- | ----- | ------- |  | ---- | ----- | - |  | ---- | ----- | -
|                       |       | Brand Rank(1) |                |  | Market Share(1) | 
|                       |       |               |                |  |                 | 
|                       |       | 52 Weeks      |                |  | 12 Weeks        |  |                | 4 Weeks |  |  | 52 Weeks       |  |  | 12 Weeks |      |       | 4 Weeks | 
|Brand                  |       | Ended         |                |  | Ended           |  |                | Ended   |  |  | Ended          |  |  | Ended    |      |       | Ended   | 
|                       |       |               |                |  |                 |  |                |         |  |  |                |  |  |          |      |       |         | 
|Private label          |       |               |                |  |                 |  |                |         |  |  |                |  |  |          | 21.9 | %     |         |  | 23.9 | %     |   |  | 24.1 | %    
|Claritin®              |       |               | 1              |  |                 |  | 1              |         |  |  | 1              |  |  |          | 10.2 |       |         |  | 14.9 |       |   |  | 13.5 |      
|Vicks®                 |       |               | 2              |  |                 |  | 3              |         |  |  | 3              |  |  |          | 9.6  |       |         |  | 6.8  |       |   |  | 6.9  |      
|Tylenol®               |       |               | 3              |  |                 |  | 5              |         |  |  | 5              |  |  |          | 7.2  |       |         |  | 6.3  |       |   |  | 6.5  |      
|Mucinex                |       |               | 4              |  |                 |  | 4              |         |  |  | 4              |  |  |          | 6.7  |       |         |  | 6.7  |       |   |  | 6.7  |      
|Robitussin®            |       |               | 5              |  |                 |  | 7              |         |  |  | 7              |  |  |          | 6.2  |       |         |  | 4.5  |       |   |  | 4.3  |      
|Benadryl®              |       |               | 6              |  |                 |  | 2              |         |  |  | 2              |  |  |          | 6.0  |       |         |  | 9.3  |       |   |  | 10.2 |      
|Sudafed®               |       |               | 7              |  |                 |  | 6              |         |  |  | 6              |  |  |          | 5.8  |       |         |  | 6.0  |       |   |  | 6.0  |      
|Airborne               |       |               | 8              |  |                 |  | 9              |         |  |  | 9              |  |  |          | 3.2  |       |         |  | 1.9  |       |   |  | 2.0  |      
|Theraflu®              |       |               | 9              |  |                 |  | 13             |         |  |  | 13             |  |  |          | 2.3  |       |         |  | 1.3  |       |   |  | 1.3  |      
|Alka Seltzer
    Plus® |       |               | 10             |  |                 |  | 11             |         |  |  | 11             |  |  |          | 2.2  |       |         |  | 1.4  |       |   |  | 1.4  |      
|Triaminic®             |       |               | 11             |  |                 |  | 12             |         |  |  | 12             |  |  |          | 2.0  |       |         |  | 1.4  |       |   |  | 1.3  |      
|Advil®                 |       |               | 12             |  |                 |  | 10             |         |  |  | 10             |  |  |          | 1.8  |       |         |  | 1.5  |       |   |  | 1.5  |      
|Others                 |       |               | 13 through 176 |  |                 |  | 13 through 160 |         |  |  | 13 through 148 |  |  |          | 14.9 |       |         |  | 14.1 |       |   |  | 14.2 |      
|                       |       |               |                |  |                 |  |                |         |  |  |                |  |  |          |      |       |         | 
|                       | Total |               |                |  |                 |  |                |         |  |  |                |  |  |          |      | 100.0 | %       |  |      | 100.0 | % |  |      | 100.0 | %
|                       |       |               |                |  |                 |  |                |         |  |  |                |  |  |          |      |       |         | 






|    |                                                                                                                                                       
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes products sold in the OTC cough, cold, allergy, and
    sinus market and does not include other products marketed under
    these brand names.



Over-the


6



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Our Patented Guaifenesin Delivery Systems Provide a Platform
for the Introduction of Additional Respiratory Products.


Focus on the Respiratory Therapeutics Market.


Integrated Effort in Both the Prescription and OTC
Marketplace.


Experienced Senior Management Team with Proven Ability to
Develop and Grow Brands. ® ® ® ® ® ® ® ® ® ® ® ® ® ®


7



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Our Business Strategy






| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Continue to Switch Prescriptions for Long-Acting Guaifenesin
    into OTC Sales of Our Products. Based on data from IMS
    Health-NPAtm,
    during the 12 months ended June 30, 2003, physicians
    wrote and pharmacists dispensed an estimated 10.5 million
    long-acting, single-ingredient guaifenesin prescriptions. As a
    result of the FDAs removal of all competing long-acting,
    single-ingredient guaifenesin products from the U.S. market
    in December 2003, Mucinex SE and Humibid SE are now the only
    single-ingredient, long-acting guaifenesin products available in
    the United States. Despite the FDAs removal of the
    unapproved products from the market, physicians continue to
    write prescriptions for these products. In order to switch
    prescriptions for these guaifenesin products to physician
    recommendations for Mucinex SE, Mucinex DM, Mucinex D, and
    Humibid SE, our 125-person professional sales force details our
    long-acting guaifenesin products to the approximately 25,000
    healthcare professionals who have traditionally written the
    majority of long-acting guaifenesin prescriptions.                                                                                                                                                          
|
| |  | Expand the Market by Educating Healthcare Professionals about
    the Benefits of Long-Acting Guaifenesin. The prescription
    market for long-acting guaifenesin historically consisted
    primarily of generic products. As a result, physicians,
    pharmacists and other healthcare professionals were not
    regularly detailed about the benefits of long-acting
    guaifenesin. Our sales force seeks to educate these
    professionals as to the therapeutic value of long-acting
    guaifenesin in an effort to expand the market for our current
    and future products. We have also organized a panel of leading
    physicians specializing in respiratory care to study the use of
    long-acting guaifenesin products and to further establish the
    products as valuable therapeutic agents in the field.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|
| |  | Build the Mucinex Brand in the Consumer Market. While
    guaifenesin in short-acting or immediate-release formulations is
    a common ingredient in numerous OTC cough, cold and sinus
    remedies, long-acting guaifenesin was available only by
    prescription until the FDAs approval of Mucinex SE as an
    OTC product. According to IRI, for the
    52-week period ended
    August 13, 2006, the retail OTC market for cough, cold,
    allergy, and sinus remedies was approximately $2.9 billion.
    Our consumer advertising strategy is to educate consumers about
    the unique benefits of Mucinex and encourage consumers to try
    our Mucinex products. We seek to position Mucinex as the
    preferred brand for relief from congestion due to excess mucus,
    a symptom common to most respiratory ailments. Our current
    advertising campaign features the animated characters called
    Mr. Mucus and Mrs. Mucus and
    the tag-line Mucinex In. Mucus Out. Based on
    research we sponsored, aided brand awareness of Mucinex
    increased from 14% prior to the launch of our first advertising
    campaign to 67% during the peak of the 2005 cough, cold and flu
    season. We believe our continued efforts will result in
    increased consumer awareness and brand loyalty for Mucinex.
|
| |  | Launch New Products Under Our Existing Brands. We seek to
    capture a larger share of the OTC cough, cold, allergy, and
    sinus market by launching new products under our Mucinex and
    Humibid brands. To date, we have extended our line of products
    under these brands to include Mucinex DM, Mucinex D and Humibid
    SE, which incorporate our patented technology for long-acting
    guaifenesin. We launched Mucinex DM in August 2004, Mucinex D in
    October 2005, and Humibid SE in March 2006. We launched a line
    of immediate-release guaifenesin products under the
    Childrens Mucinex brand in August 2006. We intend to
    launch the maximum strength versions of our guaifenesin
    combination products under the Humibid brand in fiscal year 2007.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| |  | Develop Prescription Respiratory Products. We are
    considering a number of product development candidates for the
    prescription market. In May 2005, we in-licensed erdosteine, a
    regulator of mucus production. In addition, by applying our
    patented delivery system for guaifenesin, we plan to develop
    products that combine long-acting guaifenesin with prescription
    active ingredients. We currently are developing prescription
    products utilizing this delivery system. We will use our
    existing professional sales force to market these products to
    physicians we currently target. Our product                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | development expenses were approximately $18.9 million,
    $7.4 million and $3.2 million for the fiscal years
    ended June 30, 2006, 2005 and 2004, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| |  | Continue to In-License or Acquire Pharmaceutical Respiratory
    Products and Brands. We intend to expand our product
    portfolio by selectively in-licensing or acquiring prescription
    or OTC products in the respiratory market. We will focus on
    prescription products in the later stages of development and OTC
    brands that we believe can be expanded in the cough, cold,
    allergy, and sinus market. As part of this strategy, we acquired
    the Humibid brand, historically a strong brand in the
    long-acting prescription guaifenesin marketplace. We believe
    this brand will provide us with a platform from which to launch
    the other maximum strength versions of our Mucinex products and
    to take advantage of the awareness of the Humibid brand by
    physicians, pharmacists and other healthcare professionals. On
    June 12, 2006, we acquired the Delsym product line, the
    only FDA-approved,
    long-acting OTC liquid cough suppressant. We currently market
    two products under the Delsym brand  an adult Delsym
    product and a childrens Delsym product  and
    intend to further expand this product line. Further, in March
    2006, we in-licensed the proprietary technology from Losan
    Pharma GmbH, which we utilize in our Childrens Mucinex
    Mini-Melts. In addition, we are evaluating licensing respiratory
    prescription products and may seek FDA approval to introduce
    them into the market. In May 2005, we
    in-licensed erdosteine,
    which is currently approved for use in Europe, South Africa and
    Asia for the symptomatic treatment of respiratory infections,
    bronchitis and COPD. In March 2006, we initiated a
    Phase IIb clinical trial of erdosteine.

Our Products


|                              |  |                                                              |  |             |      |                 |               |   |       | 
|----------------------------- |  | ------------------------------------------------------------ |  | ----------- | ---- | --------------- | ------------- | - | ----- | 
|                              |  |                                                              |  |             |      | 12 Months Ended |              
|                              |  |                                                              |  | Fiscal      |      |                 | June 30, 2006 |  
|Product                       |  | Active Ingredients                                           |  | Launch Year |      |                 | Net Sales     |  
|                              |  |                                                              |  |             |      |                 |               |  
|                              |  |                                                              |  |             |      | (In millions)   |              
|Mucinex SE                    |  | 600 mg guaifenesin                                           |  |             | 2003 |                 |               | $ | 158.6 | 
|Mucinex DM                    |  | 600 mg guaifenesin/30 mg dextromethorphan HBr                |  |             | 2005 |                 |               |   | 59.2  | 
|Mucinex D                     |  | 600 mg guaifenesin/60 mg pseudoephedrine HCl                 |  |             | 2006 |                 |               |   | 19.3  | 
|Delsym (Adult & Children)     |  | 5 ml dextromethorphan polistirex (equivalent to 30 mg        |  |             | 2006 | *               |               |   | 0.7   | 
|                              |  | dextromethorphan HBr)                                        |  |             |      |                 |               |   |       | 
|Humibid SE                    |  | 1200 mg guaifenesin                                          |  |             | 2006 |                 |               |   | 1.3   | 
|Humibid DM                    |  | 1200 mg guaifenesin/60 mg dextromethorphan HBr               |  |             | 2007 | **              |               |   |      | 
|Humibid D                     |  | 1200 mg guaifenesin/120 mg pseudoephedrine HCl               |  |             | 2007 | **              |               |   |      | 
|Childrens Mucinex Mini-Melts |  | 50 mg guaifenesin                                            |  |             | 2007 |                 |               |   |      | 
|                              |  | 100 mg guaifenesin                                           |  |             | 2007 |                 |               |   |      | 
|Childrens Mucinex Liquid     |  | 100 mg/5 ml guaifenesin                                      |  |             | 2007 |                 |               |   |      | 
|                              |  | 100 mg/5 ml guaifenesin/5 mg/5 ml dextromethorphan
    (HBr) |  |             | 2007 |                 |               |   |      | 






| |   |                               
| | - | ------------------------------
| | * | Acquired by Adams in June 2006



|   |                            
|-- | ---------------------------
|** | Proposed fiscal launch year

Mucinex SE.


9



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52-week


Mucinex DM. 52-week


Mucinex D. 52-week


Maximum Strength Guaifenesin Product Line. tm


Delsym. 12-hour


Childrens Mucinex. 52-week


Other Products. tm tm tm


The FDAs Removal of Competing Products.


10



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tm tm


Product Pipeline.


Our Sales and Marketing Strategy




Professional Marketing. tm




11



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tm


Consumer Marketing.




Trade Sales and Distribution




|                        |  |                           |      |   |      |  |      |      |  |  |      |  
|----------------------- |  | ------------------------- | ---- | - | ---- |  | ---- | ---- |  |  | ---- | -
|                        |  | Percentage of Gross Sales |     
|                        |  |                           |     
|Channel of Distribution |  | 2006                      |      |   | 2005 |  |      | 2004 | 
|                        |  |                           |      |   |      |  |      |      | 
|Wholesale Drug          |  |                           | 25.7 | % |      |  | 34.4 | %    |  |  | 69.5 | %
|Drug                    |  |                           | 30.1 |   |      |  | 32.5 |      |  |  | 18.7 |  
|Mass                    |  |                           | 26.9 |   |      |  | 19.0 |      |  |  | 7.0  |  
|Food                    |  |                           | 16.5 |   |      |  | 13.4 |      |  |  | 4.2  |  
|Other                   |  |                           | 0.9  |   |      |  | 0.6  |      |  |  | 0.7  |  

tm


12



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|                        |  |                  
|----------------------- |  | -----------------
|Channel of Distribution |  | Customers        
|                        |  |                  
|Wholesale Drug          |  | AmerisourceBergen
|                        |  | Cardinal Health  
|                        |  | McKesson*        
|Drug                    |  | CVS*             
|                        |  | Brooks/Eckerd    
|                        |  | Rite Aid         
|                        |  | Walgreens*       
|Food                    |  | Albertsons       
|                        |  | Peytons/Kroger  
|                        |  | Safeway          
|Mass                    |  | Kmart            
|                        |  | Target           
|                        |  | Wal-Mart*        
|                        |  | Sams Club       






|  |                                                                                                                             
|- | ----------------------------------------------------------------------------------------------------------------------------
|* | Represents customers who each accounted for greater than 10% of
    our gross sales for the fiscal year ended June 30, 2006.





|           |  |                               |      |   |      |  |      |                |  |  |      |   |  |      |      |   |                |  |      |   |  |  |      |  
|---------- |  | ----------------------------- | ---- | - | ---- |  | ---- | -------------- |  |  | ---- | - |  | ---- | ---- | - | -------------- |  | ---- | - |  |  | ---- | -
|           |  | ACV 52 Weeks Ended August 13, |     
|           |  |                               |     
|           |  | 2006                          |      |   | 2005 | 
|           |  |                               |      |   |      | 
|           |  | Drug                          |      |   | Food |  |      | Food/Drug/Mass |  |  | Drug |   |  | Food |      |   | Food/Drug/Mass | 
|           |  |                               |      |   |      |  |      |                |  |  |      |   |  |      |      |   |                | 
|Mucinex SE |  |                               | 90.2 | % |      |  | 64.7 | %              |  |  | 81.4 | % |  |      | 86.5 | % |                |  | 46.5 | % |  |  | 70.6 | %
|Mucinex DM |  |                               | 80.1 | % |      |  | 53.2 | %              |  |  | 70.8 | % |  |      | 63.9 | % |                |  | 30.8 | % |  |  | 49.1 | %
|Mucinex D  |  |                               | 45.7 | % |      |  | 15.8 | %              |  |  | 32.2 | % |  |      |     | % |                |  |     | % |  |  |     | %



13



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Segment and Geographic Information






Government Regulation






| |                     
| | --------------------
| | FDA Approval Process





| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | New Drug Applications. NDAs are the standard applications
    required for new drug products and require extensive original
    clinical data demonstrating the safety and efficacy of the
    product candidate. Typically, NDAs require three phases of human
    clinical trials. In Phase I, the product candidate is
    introduced into humans and tested for safety, dose ranges and
    pharmacokinetics. In Phase II, the product candidate is
    introduced into a slightly larger patient population to assess
    efficacy for specific indications, assess response rates
    tolerance, determine optimal dose, and identify safety risks and
    adverse effects. In Phase III, the product candidate is
    introduced in an expanded patient population at multiple
    geographically dispersed sites to further test for safety and
    clinical efficacy. In addition, prior to beginning the human
    clinical trial work required for either a NDA or
    Section 505(b)(2) NDA, an applicant must obtain approval to
    begin this clinical testing by submitting an Investigational New
    Drug application, or IND, which includes the results of
    preclinical animal studies, to the FDA.
|
| |  | Abbreviated New Drug Applications. An ANDA is a type of
    application in which approval is based on a showing of
    sameness to an already approved drug product. ANDAs
    do not contain full reports of safety and effectiveness as
    required in NDAs but rather demonstrate that their proposed
    products are the same as reference products with
    regard to their conditions of use, active ingredients, route of
    administration, dosage form, strength, and labeling. ANDA
    applicants must demonstrate the bioequivalence of their products
    to the reference product. Bioequivalence generally means that no
    significant difference exists in the rate and extent to which
    the active ingredients enter the blood-stream and become
    available at the site of drug action. Bioequivalence, however,
    does not mean that the products must be identical in all
    respects. Furthermore, the FDA has broad discretion to determine
    whether a product meets the ANDA approval standards.                                                                                                                                                                               

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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 505(b)(2) Applications. If a proposed product represents
    a change from an already approved product, and therefore does
    not qualify for an ANDA, the applicant may be able to submit a
    Section 505(b)(2) NDA or 505(b)(2) application. A 505(b)(2)
    application is made pursuant to Section 505(b)(2) of the
    FDCA and relies on one or more investigations conducted by a
    party other than the applicant in connection with an existing
    approved product. The FDA has determined that 505(b)(2)
    applications may be submitted for products that represent
    changes from approved products in conditions of use, active
    ingredients, route of administration, dosage form, strength, or
    bioavailability. A 505(b)(2) applicant must reference an
    approved product as well as the related safety data on which it
    proposes to rely. The applicant must also provide the FDA with
    any additional clinical data necessary to demonstrate the safety
    and effectiveness of the product with the proposed changes.
    Consequently, while an applicant avoids duplication of
    preclinical and certain clinical safety and efficacy studies
    through the use of a 505(b)(2) application, the FDA usually
    requires the applicant to perform at least one additional human
    clinical study in support of the application.









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Approval of Our Existing Long-Acting Guaifenesin
Products.


|                                                                |  |            |                |                |            |  |              |              |  |  |                | 
|--------------------------------------------------------------- |  | ---------- | -------------- | -------------- | ---------- |  | ------------ | ------------ |  |  | -------------- | 
|                                                                |  |            |                | 505(b)(2)      |            |  |             
|                                                                |  |            |                | Application or |            |  |             
|                                                                |  |            |                | Supplement     |            |  |             
|Product                                                         |  | IND Filing |                |                | Submission |  |              | FDA Approval | 
|                                                                |  |            |                |                |            |  |              |              | 
|Mucinex SE                                                      |  |            | June 1998      |                |            |  | June 2000    |              |  |  | July 2002      | 
|Humibid SE                                                      |  |            | June 1998      |                |            |  | August 2002  |              |  |  | December  2002 | 
|Mucinex DM                                                      |  |            | September 2000 |                |            |  | June 2003    |              |  |  | April 2004     | 
|Humibid DM (maximum strength guaifenesin/ dextromethorphan HBr) |  |            | September 2000 |                |            |  | June 2003    |              |  |  | April 2004     | 
|Mucinex D                                                       |  |            | September 2000 |                |            |  | January 2003 |              |  |  | June 2004      | 
|Humibid D (maximum strength guaifenesin/ pseudoephedrine HCl)   |  |            | September 2000 |                |            |  | January 2003 |              |  |  | June 2004      | 









| |   |                                                                                                                                                                               
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the FDA required that the warning letter recipients cease
    manufacturing unapproved single-ingredient guaifenesin
    extended-release products no later than May 21, 2003;
|
| |  | no distribution (including distribution by secondary wholesalers
    or other distributors) could occur after October 23, 2003;
    and                                       
|
| |  | no retail sales could occur after November 30, 2003.                                                                                                                          



16



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Other Regulation






Reimbursement






Manufacturing






17



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##### Table of Contents









Raw Material Sourcing Arrangements.






Intellectual Property






18



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12-hour










tm


19



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tm tm tm tm


Competition








| |   |                                                                                                                                                                                                                                        
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Pfizer, Inc.
    (Sudafed®,
    Benadryl®
    and
    PediaCare®);                                                                                                                                                                     
|
| |  | The Procter & Gamble Company
    (Dayquil®,
    Nyquil®
    and Vicks
    44®);                                                                                                                                                        
|
| |  | McNeil Consumer and Specialty Pharmaceuticals, a division of
    McNeil-PPC, Inc., which is an operating company of
    Johnson & Johnson (Tylenol Cold and
    Flu®,
    Motrin Cold and
    Sinus®,
    and Childrens
    Tylenol®);
|
| |  | Wyeth
    (Robitussin®,
    Dimetapp®
    and Advil Cold and
    Sinus®);                                                                                                                                                              
|
| |  | Novartis Consumer Health, a division of Novartis AG
    (Theraflu®
    and
    Triaminic®);                                                                                                                                            
|
| |  | Schering-Plough Corp.
    (Claritin®,
    Coricidin®
    and
    Drixoral®);
    and                                                                                                                                                   
|
| |  | Bayer AG (Alka Seltzer Plus
    Cold®
    and Aleve Cold and
    Sinus®).                                                                                                                                                              



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Employees




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Access to Our Filings with the Securities and Exchange
Commission


www.adamsrt.com 10-K. 10-K, 10-Q, 8-K,


1-800-SEC-0330. www.sec.gov







|         |             
|-------- | ------------
|Item 1A. | Risk Factors

Risks Relating to Our Business




| |                                                                                                               
| | --------------------------------------------------------------------------------------------------------------
| | An ANDA, for a single-ingredient, extended-release
    formulation of guaifenesin has been filed with the FDA.











| |                                                                                                                                     
| | ------------------------------------------------------------------------------------------------------------------------------------
| | If the FDA approves generic products that compete with any
    of our products, sales of our products may be adversely
    affected.



22



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| |                                                                                                                                                                                                                                                                                           
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We face substantial competition that may prevent us from
    maintaining or increasing market share for our existing products
    and gaining market acceptance of our future products. Our
    competitors may develop or commercialize products before or more
    successfully than us.





| |   |                                                                                                                                                             
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Pfizer, Inc.
    (Sudafed®,
    Benadryl®
    and
    PediaCare®);                                                                                          
|
| |  | The Procter & Gamble Company
    (Dayquil®,
    Nyquil®
    and Vicks
    44®);                                                                             
|
| |  | McNeil PPC, Inc., an operating company of Johnson &
    Johnson (Tylenol Cold and
    Flu®,
    Childrens
    Tylenol®
    and Motrin Cold and
    Sinus®);
|
| |  | Wyeth
    (Robitussin®,
    Dimetapp®
    and Advil Cold and
    Sinus®);                                                                                   
|
| |  | Novartis AG
    (Theraflu®
    and
    Triaminic®);                                                                                                         
|
| |  | Schering-Plough Corp.
    (Claritin®,
    Coricidin®
    and
    Drixoral®); and                                                                            
|
| |  | Bayer AG (Alka Seltzer Plus
    Cold®
    and Aleve Cold and
    Sinus®).                                                                                   





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| |                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We depend heavily on the success of two of our existing
    products, Mucinex SE and Mucinex DM, and the strength of the
    Mucinex brand. If we are unable to continue to successfully
    commercialize Mucinex SE and Mucinex DM and build the Mucinex,
    Humibid and Delsym brands and our Childrens Mucinex line
    of products with the introduction of new products, our results
    of operations and future prospects will suffer.





| |                                                                                                                                                                                                                                                                                                                                                                                          
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We rely on two suppliers for guaifenesin, the active
    ingredient we require to manufacture our Mucinex SE, Mucinex DM,
    Mucinex D, and Humibid product lines, and we have historically
    had difficulty obtaining the amount of guaifenesin we have
    required. We also rely on a single supplier for
    dextromethorphan, the additional active ingredient in Mucinex
    DM.

12-month


24



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| |                                                                                                            
| | -----------------------------------------------------------------------------------------------------------
| | We recently repurchased the Fort Worth, Texas
    manufacturing assets and operations from Cardinal Health.

day-to






| |   |                                                          
| | - | ---------------------------------------------------------
| |  | maintaining production yields;                           
|
| |  | maintaining quality control;                             
|
| |  | maintaining costs;                                       
|
| |  | hiring and retaining qualified personnel; and            
|
| |  | complying with the FDAs cGMP regulations and guidelines.





| |                                              
| | ---------------------------------------------
| | We recently acquired the Delsym product line.





| |   |                                                                                    
| | - | -----------------------------------------------------------------------------------
| |  | difficulties in integrating the Delsym product line into our
    existing business;
|
| |  | delays in realizing the benefits of the Delsym product line
    acquisition;       
|
| |  | diversion of our managements time and attention from other
    business concerns; 

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| |   |                                                                                                                   
| | - | ------------------------------------------------------------------------------------------------------------------
| |  | higher costs of integration than we anticipated;                                                                  
|
| |  | difficulties in retaining key employees who are necessary to
    manage the Delsym product line; or               
|
| |  | difficulties in maintaining uniform standards, controls,
    procedures and policies throughout our product lines.







| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We rely on Cardinal Health to perform certain aspects of
    the manufacture and packaging of Mucinex SE, Mucinex DM, Mucinex
    D, and Humibid SE. We do not have the manufacturing capacity to
    manufacture Delsym products or our Childrens Mucinex line
    of products and rely on other manufacturers to manufacture those
    products. If such manufacturers are unable to supply enough
    product to meet our customers demand, our results of
    operations may suffer.









| |   |                                                                                                                                                                                
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the possibility that third parties may not comply with the
    FDAs cGMP regulations, other regulatory requirements and
    quality assurance;                                
|
| |  | the possible breach of manufacturing agreements by third parties
    due to factors beyond our control; and                                                                    
|
| |  | the possibility of termination or nonrenewal of an agreement by
    a third party, based on their own business priorities, at a time
    that is costly or inconvenient for us.



26



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| |                                                                                                                                                                                                                                                                                                                                                    
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We cannot ensure that the FDA will enforce removal from
    the market of the existing prescription
    long-acting guaifenesin
    combination products similar to Mucinex DM and Mucinex D, and
    other companies may introduce products into the OTC market
    containing long-acting guaifenesin that are competitive with our
    products.







| |                                                                                                                                                                                                                            
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Many of our products and product candidates rely on
    guaifenesin, which is an expectorant. If our competitors develop
    a superior expectorant, our products and our patented technology
    may be rendered obsolete.





| |                                                                                                                                                                                                                                                                          
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We depend on a limited number of customers for a large
    portion of our sales, and demands made by, or the loss of, one
    or more of these customers could significantly reduce our
    margins or sales and adversely affect our business and financial
    results.



27



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| |                                                                                                 
| | ------------------------------------------------------------------------------------------------
| | We have generated net income for a short time and may not
    generate net income in the future.





| |                                                                                                     
| | ----------------------------------------------------------------------------------------------------
| | Adverse publicity associated with us or our products could
    have a material adverse effect on us.





| |                                                                                                                                                      
| | -----------------------------------------------------------------------------------------------------------------------------------------------------
| | Product liability lawsuits could divert our resources,
    result in substantial liabilities and reduce the commercial
    potential of our products.





| |                                                                                                                                                                                                                                                                                                                                    
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If we fail to obtain an adequate level of reimbursement
    for our products by Medicaid, our business may be adversely
    affected. Additionally, many state Medicaid programs do not
    cover the costs of our products and we cannot ensure that any
    Medicaid programs will continue to reimburse us for our
    products.





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| |                                                                                                                                        
| | ---------------------------------------------------------------------------------------------------------------------------------------
| | Seasonal fluctuations in demand for our products may cause
    our operating results to vary significantly from quarter to
    quarter.



Risks Related to Product Development




| |                                                                                 
| | --------------------------------------------------------------------------------
| | We may not be successful in our efforts to expand our
    portfolio of products.





| |   |                                                                                                                                                                                          
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | developing and commercializing line extensions of Mucinex and
    Humibid by combining long-acting guaifenesin with other
    ingredients to address various respiratory conditions;     
|
| |  | developing and commercializing our Childrens Mucinex line
    of products;                                                                                                              
|
| |  | developing and commercializing line extensions of Delsym;                                                                                                                                
|
| |  | developing and commercializing prescription products to address
    additional segments of the respiratory market using our platform
    technology for extended-release guaifenesin; and
|
| |  | acquiring or in-licensing additional technologies and additional
    pharmaceutical products or product candidates in the respiratory
    therapeutics market.                           





| |                                                                                                                                                                                           
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We intend to conduct clinical trials on product candidates
    we develop or acquire in the future, which will be costly, take
    years to complete and may not ultimately be successful.





| |   |                                                                                                                    
| | - | -------------------------------------------------------------------------------------------------------------------
| |  | our inability to obtain materials sufficient for use in
    preclinical studies and clinical trials;               
|
| |  | delays in patient enrollment and variability in the number and
    types of patients available for clinical trials;
|
| |  | difficulty in maintaining contact with patients after treatment,
    resulting in incomplete data;                 
|
| |  | inability to demonstrate effectiveness of product candidates
    during clinical trials;                           
|
| |  | unforeseen safety issues or side effects;                                                                          
|
| |  | governmental or regulatory delays and changes in regulatory
    requirements, policy and guidelines; or            
|
| |  | varying interpretation of data by the FDA.                                                                         

29



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| |                                                                                                                                                                                                                                                                                                      
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We recently began clinical trials of erdosteine. If these
    clinical studies are unsuccessful, or if the FDA or other
    regulatory agencies do not accept or approve the results of such
    studies, this product may not successfully come to market and
    our business prospects may suffer.



Regulatory Risks




| |                                                                                                                                                                                                                  
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Products approved for marketing remain subject to
    regulation. Complying with such regulation can be costly, and
    failure to comply could result in a loss of approvals or
    suspension of product sales.









| |   |                                                                                       
| | - | --------------------------------------------------------------------------------------
| |  | suspend manufacturing operations;                                                     
|
| |  | change product formulations;                                                          
|
| |  | suspend the sale of products with non-complying specifications;                       
|
| |  | initiate product recalls; or                                                          
|
| |  | change product labeling, packaging or advertising or take other
    corrective action.

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| |                                                                                                                                                                                                     
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We may not be able to obtain marketing approval for any of
    the products resulting from our development efforts and failure
    to obtain these approvals could materially harm our
    business.











| |                                                                                                                                                                                                                                                                                                                                                                   
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The manufacture and packaging of pharmaceutical products
    such as our Mucinex, Humibid, Delsym, and our Childrens
    Mucinex product lines are subject to the requirements of the
    FDA. If we or our third party manufacturers fail to satisfy
    these requirements, our product development and
    commercialization efforts may be materially harmed.



31



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| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our current guaifenesin-based products may be associated
    with mild and transient side effects including upset stomach,
    nausea, vomiting, diarrhea, headache, dizziness, confusion, skin
    rash (including hives), constipation, and drowsiness. Mucinex D
    may additionally be associated with unusual paleness, increased
    sweating, weakness, trouble in sleeping, nervousness,
    restlessness, fast or pounding heartbeat, trembling and
    difficulty urinating. Our Delsym products may be associated with
    confusion, constipation, dizziness, drowsiness, headache, nausea
    or vomiting, and stomach pain. Our Childrens Mucinex line
    of products are not expected to be associated with different
    side effects or problems. If we or others identify additional,
    more severe side effects associated with our current or future
    products, we may be required to withdraw our products from the
    market, perform lengthy additional clinical trials or change the
    labeling of our products, any of which would hinder or preclude
    our ability to generate revenues.





| |   |                                                                                                                                                                                                                
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | regulatory authorities may withdraw their approvals;                                                                                                                                                           
|
| |  | we may be required to reformulate our products, conduct
    additional clinical trials, change the labeling of our products,
    or implement changes to obtain new approvals of
    manufacturers facilities;
|
| |  | we may recall the affected products from the market;                                                                                                                                                           
|
| |  | we may experience a significant drop in sales of the affected
    products;                                                                                                                                    
|
| |  | our reputation in the marketplace may suffer;                                                                                                                                                                  
|
| |  | we may become the target of lawsuits, including class action
    suits; and                                                                                                                                    
|
| |  | we may be required to withdraw our products from the market and
    not be able to re-introduce them into the market.                                                                                          





| |                                                                                                                                                       
| | ------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our products are subject to recalls even after receiving
    FDA regulatory clearance or approval. Recalls could harm our
    reputation and business.





| |                                                                                                                                                                                      
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The sale of products containing pseudoephedrine is
    restricted by additional federal and state government
    regulations, which may negatively impact our sales of Mucinex
    D.



32



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Risks Related to Managing Growth




| |                                                                                                                                                  
| | -------------------------------------------------------------------------------------------------------------------------------------------------
| | We depend on our key personnel and if we are not able to
    retain them or recruit additional technical personnel, our
    business will suffer.









| |                                                                                                                                                                                                                                         
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We may undertake strategic acquisitions of technologies
    and products. Integration of such technologies and products will
    involve a variety of costs, and we may never realize the
    anticipated benefits of such acquisitions.



33



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Risks Related to Intellectual Property




| |                                                                                                                                                                                                                                                                                                                                                                                                           
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our U.S. patent no. 6,372,252 is the subject of a
    request for reexamination, which the United States Patent and
    Trade Mark Office, or USPTO, granted upon petition to the USPTO
    Director. If the USPTO cancels our patent or substantially
    narrows the claims of our patent such that it no longer protects
    our products from competition, our business will be materially
    harmed.







| |                                                                                                                                                                                   
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If our patent position does not adequately protect our
    products and future products, others will be able to compete
    against us more directly, which may harm our business.



34



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| |                                                                                                                                                                                                 
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If we are unable to protect the intellectual property
    rights related to our brands, our ability to compete effectively
    in the markets for our products could be negatively
    impacted.





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| |                                                                                                                                                                                      
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If we are unable to protect the confidentiality of our
    trade secrets and proprietary information, our technology and
    information may be used by others to compete against us.





| |                                                                                                                                                                                                   
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Legal proceedings or third party claims of intellectual
    property infringement may require us to spend time and money and
    could prevent us from developing or commercializing
    products.







Risks Relating to Future Financing Needs




| |                                                                                                                                                                                                                                                
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We may need additional financing, which may be difficult
    to obtain. Our failure to obtain necessary financing or doing so
    on unattractive terms could adversely affect our marketing and
    development programs and other operations.





| |   |                                                                                                                                             
| | - | --------------------------------------------------------------------------------------------------------------------------------------------
| |  | the success of our commercialization of our products and the
    costs associated with related marketing, promotional and sales
    efforts;

36



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| |   |                                                                                                                          
| | - | -------------------------------------------------------------------------------------------------------------------------
| |  | the timing of new product launches, product development and
    advancement of other product candidates into development;
|
| |  | potential acquisition or in-licensing of other products or
    technologies;                                             
|
| |  | the timing of, and the costs involved in, obtaining regulatory
    approvals;                                            
|
| |  | the cost of manufacturing activities, including raw material
    sourcing and regulatory compliance; and                 
|
| |  | the costs involved in establishing and protecting our patent,
    trademark and other intellectual property rights.      



Risks Related to Our Common Stock




| |                                                                                                   
| | --------------------------------------------------------------------------------------------------
| | Our stock price is volatile and purchasers of our common
    stock could incur substantial losses.





| |   |                                                                                                      
| | - | -----------------------------------------------------------------------------------------------------
| |  | the regulatory status of potentially competitive products;                                           
|
| |  | regulatory developments;                                                                             
|
| |  | developments or disputes concerning patents or other proprietary
    rights;                         
|
| |  | our ability to manufacture products to commercial standards;                                         
|
| |  | public concern over our drugs;                                                                       
|
| |  | litigation;                                                                                          
|
| |  | the departure of key personnel;                                                                      
|
| |  | future sales of our common stock;                                                                    
|
| |  | variations in our financial results or those of companies that
    are perceived to be similar to us;
|
| |  | investors perceptions of us; and                                                                    
|
| |  | general economic, industry and market conditions.                                                    



| |                                                                                       
| | --------------------------------------------------------------------------------------
| | If there are substantial sales of our common stock, our
    stock price could decline.



37



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lock-up 180-day lock-up lock-up 90-day lock-up lock-up


S-3 S-3






| |                                                                                                                                                 
| | ------------------------------------------------------------------------------------------------------------------------------------------------
| | Our executive officers, directors and major stockholders
    have the ability to control all matters submitted to
    stockholders for approval.





| |                                                                                                                                                                                                                             
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Provisions in our certificate of incorporation and under
    Delaware law may prevent or frustrate attempts by our
    stockholders to change our management and hinder efforts to
    acquire a controlling interest in us.





| |   |                                                                           
| | - | --------------------------------------------------------------------------
| |  | a classified board of directors;                                          
|
| |  | limitations on the removal of directors;                                  
|
| |  | advance notice requirements for stockholder proposals and
    nominations;

38



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| |   |                                                                                                                                              
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------
| |  | the inability of stockholders to act by written consent or to
    call special meetings; and                                                 
|
| |  | the ability of our board of directors to designate the terms of
    and issue new series of preferred stock without stockholder
    approval.

2 3 2 3






| |                                                                                                                                                                                                                                                                                                         
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Other than the $45 million cash dividend declared by
    our board of directors on June 2, 2005, we have not paid
    cash dividends and do not expect to pay dividends in the future,
    which means that our stockholders may not be able to realize the
    value of our shares except through sale.








|         |                          
|-------- | -------------------------
|Item 1B. | Unresolved Staff Comments








|        |           
|------- | ----------
|Item 2. | Properties







39



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##### Table of Contents








|        |                  
|------- | -----------------
|Item 3. | Legal Proceedings








|        |                                                    
|------- | ---------------------------------------------------
|Item 4. | Submission of Matters to a Vote of Security Holders






PART II







|        |                                                                                                                     
|------- | --------------------------------------------------------------------------------------------------------------------
|Item 5. | Market For Registrants Common Equity, Related
    Stockholder Matters and Issuer Purchases of Equity
    Securities

Market Information and Holders




|               |  |  |                              |            |  |   |           |  |  |   |       | 
|-------------- |  |  | ---------------------------- | ---------- |  | - | --------- |  |  | - | ----- | 
|Fiscal 2006    |  |  |                              | High Close |  |   | Low Close | 
|               |  |  |                              |            |  |   |           | 
|First Quarter  |  |  | July 21- September 30, 2005  |            |  | $ | 34.32     |  |  | $ | 25.75 | 
|Second Quarter |  |  | October 1- December 31, 2005 |            |  | $ | 48.54     |  |  | $ | 32.95 | 
|Third Quarter  |  |  | January 1- March 31, 2006    |            |  | $ | 46.05     |  |  | $ | 35.13 | 
|Fourth Quarter |  |  | April 1- June 30, 2006       |            |  | $ | 49.05     |  |  | $ | 38.97 | 



Dividends


10-K.


40



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##### Table of Contents



Securities Authorized for Issuance Under Equity Compensation
Plans




|                                                           |  |                   |           |  |                  |            |      |                      |  |  |           | 
|---------------------------------------------------------- |  | ----------------- | --------- |  | ---------------- | ---------- | ---- | -------------------- |  |  | --------- | 
|                                                           |  |                   |           |  |                  | Number of  |     
|                                                           |  |                   |           |  |                  | Securities |     
|                                                           |  | Number of         |           |  | Weighted-        |            |      | Remaining Available  | 
|                                                           |  | Securities to be  |           |  | Average Exercise |            |      | for Future Issuance  | 
|                                                           |  | Issued Upon       |           |  | Price of         |            |      | Under Equity         | 
|                                                           |  | Exercise of       |           |  | Outstanding      |            |      | Compensation Plans   | 
|                                                           |  | Outstanding       |           |  | Options,         |            |      | (Excluding           | 
|                                                           |  | Options, Warrants |           |  | Warrants and     |            |      | Securities Reflected | 
|Plan Category                                              |  | and Rights        |           |  | Rights           |            |      | in Second Column)    | 
|                                                           |  |                   |           |  |                  |            |      |                      | 
|Equity compensation plans approved by security holders     |  |                   | 2,837,515 |  |                  | $          | 8.08 |                      |  |  | 1,782,849 | 
|Equity compensation plans not approved by security holders |  |                   |          |  |                  |            |     |                      |  |  |          | 
|                                                           |  |                   |           |  |                  |            |      |                      | 
|Total                                                      |  |                   | 2,837,515 |  |                  | $          | 8.08 |                      |  |  | 1,782,849 | 
|                                                           |  |                   |           |  |                  |            |      |                      | 

Use of Proceeds from Registered Securities


S-1 333-123585),




Recent Sales of Unregistered Securities




Issuances of Capital Stock.






41



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Stock Option Grants and Exercises.







|        |                        
|------- | -----------------------
|Item 6. | Selected Financial Data



|                                                    |         |                                          |         |      |      |   |          |        |   |   |         |      |  |      |         |       |   |   |         |       |  
|--------------------------------------------------- | ------- | ---------------------------------------- | ------- | ---- | ---- | - | -------- | ------ | - | - | ------- | ---- |  | ---- | ------- | ----- | - | - | ------- | ----- | -
|                                                    |         | Years Ended June 30,                     |        
|                                                    |         |                                          |        
|                                                    |         | 2006                                     |         |      | 2005 |   |          | 2004   |   |   | 2003    |      |  | 2002 |        
|                                                    |         |                                          |         |      |      |   |          |        |   |   |         |      |  |      |        
|                                                    |         | (In thousands, except per share amounts) |        
|Statements of Operations Data                       |         |                                          |         |      |      |   |          |        |   |   |         |      |  |      |         |       |   |   |         |      
|Net sales                                           |         | $                                        | 239,105 |      |      | $ | 160,210  |        |   | $ | 61,295  |      |  | $    | 14,038  |       |   | $ | 13,755  |      
|Cost of goods sold                                  |         |                                          | 49,358  |      |      |   | 31,126   |        |   |   | 11,928  |      |  |      | 5,252   |       |   |   | 4,024   |      
|                                                    |         |                                          |         |      |      |   |          |        |   |   |         |      |  |      |        
|Gross margin                                        |         |                                          | 189,747 |      |      |   | 129,084  |        |   |   | 49,367  |      |  |      | 8,786   |       |   |   | 9,731   |      
|Selling, marketing and administrative(1)            |         |                                          | 98,998  |      |      |   | 78,044   |        |   |   | 23,286  |      |  |      | 23,310  |       |   |   | 17,968  |      
|Product development                                 |         |                                          | 18,904  |      |      |   | 7,392    |        |   |   | 3,181   |      |  |      | 4,542   |       |   |   | 7,419   |      
|Other, net                                          |         |                                          | (4,307  | )    |      |   | (789     | )      |   |   | 3,198   |      |  |      | 3,572   |       |   |   | (180    | )    
|                                                    |         |                                          |         |      |      |   |          |        |   |   |         |      |  |      |        
|Income/(loss) before income taxes                   |         |                                          | 76,152  |      |      |   | 44,437   |        |   |   | 19,702  |      |  |      | (22,638 | )     |   |   | (15,476 | )    
|Provision/(benefit) for income taxes                |         |                                          | 29,801  |      |      |   | 17,438   |        |   |   | (16,124 | )    |  |      |        |       |   |   |        |      
|                                                    |         |                                          |         |      |      |   |          |        |   |   |         |      |  |      |        
|Net income/(loss)                                   |         |                                          | 46,351  |      |      |   | 26,999   |        |   |   | 35,826  |      |  |      | (22,638 | )     |   |   | (15,476 | )    
|Accretion of preferred stock                        |         |                                          |        |      |      |   | (202,566 | )      |   |   | (28,100 | )    |  |      | 8,204   |       |   |   | (7,619  | )    
|Dividend paid to preferred stockholders             |         |                                          |        |      |      |   | (30,033  | )      |   |   |        |      |  |      |        |       |   |   |        |      
|                                                    |         |                                          |         |      |      |   |          |        |   |   |         |      |  |      |        
|Net income/(loss) applicable to common stockholders |         | $                                        | 46,351  |      |      | $ | (205,600 | )      |   | $ | 7,726   |      |  | $    | (14,434 | )     |   | $ | (23,095 | )    
|                                                    |         |                                          |         |      |      |   |          |        |   |   |         |      |  |      |        
|Income/(loss) per common share                      |         |                                          |         |      |      |   |          |        |   |   |         |      |  |      |         |       |   |   |         |      
|                                                    | Basic   |                                          | $       | 1.42 |      |   | $        | (32.97 | ) |   | $       | 1.64 |  |      | $       | (4.66 | ) |   | $       | (7.47 | )
|                                                    |         |                                          |         |      |      |   |          |        |   |   |         |      |  |      |        
|                                                    | Diluted |                                          | $       | 1.28 |      |   | $        | (32.97 | ) |   | $       | 0.90 |  |      | $       | (4.66 | ) |   | $       | (7.47 | )
|                                                    |         |                                          |         |      |      |   |          |        |   |   |         |      |  |      |        






|    |                                                                                                         
|--- | --------------------------------------------------------------------------------------------------------
|(1) | Selling, marketing and administrative includes non-cash
    stock-based compensation expense as follows:

| |  |                      |       |  |      |   |     |      |  |   |      |  |  |      |     |  |  |   |       | 
| |  | -------------------- | ----- |  | ---- | - | --- | ---- |  | - | ---- |  |  | ---- | --- |  |  | - | ----- | 
| |  | Years Ended June 30, |      
| |  |                      |      
| |  | 2006                 |       |  | 2005 |   |     | 2004 |  |   | 2003 |  |  | 2002 |    
| |  |                      |       |  |      |   |     |      |  |   |      |  |  |      |    
| |  | (In thousands)       |      
| |  | $                    | 3,879 |  |      | $ | 477 |      |  | $ | 686  |  |  | $    | 880 |  |  | $ | 1,292 | 

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|                                       |  |                |          |   |      |   |          |      |  |   |         |   |  |      |         |   |  |   |         |  
|-------------------------------------- |  | -------------- | -------- | - | ---- | - | -------- | ---- |  | - | ------- | - |  | ---- | ------- | - |  | - | ------- | -
|                                       |  | At June 30,    |         
|                                       |  |                |         
|                                       |  | 2006           |          |   | 2005 |   |          | 2004 |  |   | 2003    |   |  | 2002 |        
|                                       |  |                |          |   |      |   |          |      |  |   |         |   |  |      |        
|                                       |  | (In thousands) |         
|Balance Sheet Data                     |  |                |          |   |      |   |          |      |  |   |         |   |  |      |         |   |  |   |         |  
|Cash and cash equivalents              |  | $              | 34,815   |   |      | $ | 24,655   |      |  | $ | 43,391  |   |  | $    | 9,405   |   |  | $ | 7,272   |  
|Working capital                        |  |                | 71,339   |   |      |   | 32,736   |      |  |   | 47,151  |   |  |      | 5,230   |   |  |   | 6,766   |  
|Total assets                           |  |                | 252,590  |   |      |   | 63,840   |      |  |   | 71,035  |   |  |      | 20,382  |   |  |   | 17,350  |  
|Long-term liabilities                  |  |                | 2,010    |   |      |   | 2,281    |      |  |   | 2,731   |   |  |      | 14,873  |   |  |   |        |  
|Redeemable convertible preferred stock |  |                |         |   |      |   | 316,455  |      |  |   | 110,851 |   |  |      | 60,647  |   |  |   | 68,851  |  
|Accumulated deficit                    |  |                | (242,842 | ) |      |   | (289,193 | )    |  |   | (68,626 | ) |  |      | (76,352 | ) |  |   | (61,918 | )
|Total stockholders equity/(deficit)   |  | $              | 222,273  |   |      | $ | (273,625 | )    |  | $ | (56,997 | ) |  | $    | (64,169 | ) |  | $ | (56,517 | )

43



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|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|Item 7. | Managements Discussion and Analysis of Financial
    Condition and Results of Operations

You should read the following discussion and analysis of our
financial condition and results of operations together with our
financial statements and related notes appearing elsewhere in
this Annual Report on
Form 10-K. Some of
the information contained in this discussion and analysis or set
forth elsewhere in this Annual Report on
Form 10-K,
including information with respect to our plans and strategy for
our business and related financing, includes forward-looking
statements that involve risks and uncertainties. You should
review Item 1A. Risk Factors of this Annual
Report on
Form 10-K for a
discussion of important factors that could cause our actual
results to differ materially from the results described in or
implied by the forward-looking statements contained in the
following discussion and analysis.


Overview




Mucinex SE.


Mucinex DM.


Mucinex D.


Humibid SE.


Delsym.


Childrens Mucinex.


Future Products.


Revenue Growth.


44



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##### Table of Contents







| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The FDAs removal of competitive long-acting,
    single-ingredient guaifenesin prescription products after
    November 2003. The FDAs removal resulted in Mucinex
    SEs status as the only
    long-acting,
    single-ingredient guaifenesin product available in the United
    States. Based on data from IMS Health 
    NPAtm,
    we estimate that, for the 12 months ended June 30,
    2003, approximately 10.5 million prescriptions were filled
    for long-acting, single-ingredient guaifenesin products. After
    November 2003, we believe that a majority of prescriptions
    written for long-acting, single-ingredient guaifenesin resulted
    in OTC sales of our Mucinex SE. Humibid SE is now also available
    to meet this demand in a maximum strength format.
|
| |  | Our professional marketing efforts to physicians, pharmacists
    and other healthcare professionals. Our professional sales
    force targets high-prescribers of long-acting guaifenesin
    products and encourages them to recommend Mucinex SE, Mucinex DM
    and Mucinex D to their patients. Our professional sales force
    also educates physicians, pharmacists and other healthcare
    professionals about the benefits of long-acting guaifenesin.
    Since December 2004, we expanded our sales force from 50 to 125
    representatives.                                                                                                                                                                                                                                       
|
| |  | Expansion of our trade sales department and trade development
    efforts. Our trade sales force calls on national and
    regional retail accounts and wholesale distribution companies.
    The primary focus of our trade sales force is to maximize our
    shelf presence at retail drug, food and mass merchandise stores
    to support the efforts of our professional sales representatives
    and consumer advertising campaign. Since December 2003, we have
    grown our trade sales force from one to 10 professionals.                                                                                                                                                                                                                                                           
|
| |  | Consumer advertising campaign. Prior to the FDAs
    approval of Mucinex SE as an OTC drug, long-acting guaifenesin
    and combination products were available only by prescription. We
    launched our initial consumer advertising campaign in November
    2004, and our strategy has been to educate consumers about the
    unique benefits of Mucinex to encourage trial of our products.                                                                                                                                                                                                                                                                                                                                                                                               

Results of Operations.


Seasonality.


Future Growth.


Recent Developments.


45



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Critical Accounting Policies and Estimates




10-K,


Revenue Recognition.


Sales Returns and Allowances.


46



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|                                                   |  |          |       |  |      |   |       | 
|-------------------------------------------------- |  | -------- | ----- |  | ---- | - | ----- | 
|                                                   |  | June 30, |      
|                                                   |  |          |      
|                                                   |  | 2006     |       |  | 2005 |  
|                                                   |  |          |       |  |      |  
|Product returns                                    |  | $        | 3,150 |  |      | $ | 5,884 | 
|Chargebacks                                        |  |          | 941   |  |      |   | 2,473 | 
|Rebates and other                                  |  |          | 1,610 |  |      |   | 1,590 | 
|                                                   |  |          |       |  |      |  
|Accrued returns, chargebacks, rebates and other(1) |  | $        | 5,701 |  |      | $ | 9,947 | 
|                                                   |  |          |       |  |      |  
|Cash discounts(2)                                  |  | $        | 495   |  |      | $ | 170   | 
|Trade promotions(2)                                |  | $        | 2,796 |  |      | $ | 2,108 | 






|    |                                                                                                                                                   
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Accrued returns, chargebacks, rebates and other sales allowances
    are reported under Current liabilities on the Consolidated
    Balance Sheet.
|   
|(2) | Cash discounts and trade promotions are reported as valuation
    allowances against Accounts receivable on the Consolidated
    Balance Sheet.   



|                                                               |  |         |        |       |            |   |                   |                  |  |   |         |  
|-------------------------------------------------------------- |  | ------- | ------ | ----- | ---------- | - | ----------------- | ---------------- |  | - | ------- | -
|                                                               |  |         |        | Other |            |   | Total Accrued     |                 
|                                                               |  |         |        | Sales |            |   | Returns and Other |                 
|                                                               |  | Returns |        |       | Allowances |   |                   | Sales Allowances | 
|                                                               |  |         |        |       |            |   |                   |                  | 
|Balance at June 30, 2004                                       |  |         | 3,622  |       |            |   | 3,332             |                  |  |   | 6,954   |  
|Assumed liability for Humibid returns                          |  |         | 3,000  |       |            |   |                  |                  |  |   | 3,000   |  
|Provision made to sales during the period                      |  |         | 1,054  |       |            |   | 6,648             |                  |  |   | 7,702   |  
|Provision/(benefit) related to sales made during prior periods |  |         | 649    |       |            |   | (1,045            | )                |  |   | (396    | )
|Payments/credits                                               |  |         | (2,441 | )     |            |   | (4,872            | )                |  |   | (7,313  | )
|                                                               |  |         |        |       |            |   |                   |                  | 
|Balance at June 30, 2005                                       |  | $       | 5,884  |       |            | $ | 4,063             |                  |  | $ | 9,947   |  
|Provision made to sales during the period                      |  |         | 2,643  |       |            |   | 6,240             |                  |  |   | 8,883   |  
|Benefit related to sales made during prior periods             |  |         | (188   | )     |            |   | (2,591            | )                |  |   | (2,779  | )
|Payments/credits                                               |  |         | (5,189 | )     |            |   | (5,161            | )                |  |   | (10,350 | )
|                                                               |  |         |        |       |            |   |                   |                  | 
|Balance at June 30, 2006                                       |  | $       | 3,150  |       |            | $ | 2,551             |                  |  | $ | 5,701   |  
|                                                               |  |         |        |       |            |   |                   |                  | 

Product Returns. 24-month tm


tm tm 18-month


47



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Chargebacks.






48



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Rebates and Other Sales Allowances. point-of point-of


Cash Discounts.


Trade Promotions.


Cardinal Health Profit Share. mark-up mark-up


mark-up mark-up


49



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|                                                     |  |                     |      |   |                     |   |      |                     |  |   |     | 
|---------------------------------------------------- |  | ------------------- | ---- | - | ------------------- | - | ---- | ------------------- |  | - | --- | 
|                                                     |  | Contract Year Ended |      |   | Contract Year Ended |   |      | Contract Year Ended | 
|                                                     |  | March 31, 2005      |      |   | March 31, 2006      |   |      | March 31, 2007      | 
|                                                     |  |                     |      |   |                     |   |      |                     | 
|                                                     |  | (In millions)       |     
|Total profit share payments to Cardinal Health       |  | $                   | 13.4 |   |                     | $ | 17.6 |                     |  | $ | 3.8 | 
|Profit share earned by Cardinal Health  FY 2004(1)  |  |                     | 1.4  |   |                     |   |     |                     |  |   |    | 
|Profit share earned by Cardinal Health  FY 2005(1)  |  |                     | 7.6  |   |                     |   | 1.9  |                     |  |   |    | 
|Profit share earned by Cardinal Health  FY 2006(1)  |  |                     |     |   |                     |   | 8.3  |                     |  |   | 1.9 | 
|Profit share included in ending inventory(2)         |  |                     | 0.5  |   |                     |   | 0.7  |                     |  |   | 1.5 | 
|                                                     |  |                     |      |   |                     |   |      |                     | 
|Excess profit share payments made to Cardinal Health |  |                     | 3.9  |   |                     |   | 6.7  |                     |  |   | 0.4 | 
|                                                     |  |                     |      |   |                     |   |      |                     | 
|Payments made by Cardinal                            |  |                     | (3.9 | ) |                     |   | (6.7 | )                   |  |   |    | 
|                                                     |  |                     |      |   |                     |   |      |                     | 
|Balance due from Cardinal June 30, 2006(3)           |  | $                   |     |   |                     | $ |     |                     |  | $ | 0.4 | 
|                                                     |  |                     |      |   |                     |   |      |                     | 






|    |                                                                                                                                                                                                                           
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Earned profit share is included in Cost of goods sold. For the
    2007 contract year, the estimated effective profit share for the
    fourth quarter of fiscal year 2006 was used to record the profit
    share earned.
|   
|(2) | Amounts included in ending inventory at March 31, 2005 for
    the 2005 contract year, at March 31, 2006 for the 2006
    contract year, and at June 30, 2006 for the 2007 contract
    year.                             
|   
|(3) | Excess profit share payments were included in Prepaid expenses
    and other assets at June 30, 2006.                                                                                                                     







Stock-Based Compensation. Share-Based Payment Accounting for Stock-Based
Compensation, Accounting for Stock-Based Compensation 
Transition and Disclosure.


50



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Income Taxes. Accounting for Income
Taxes.


U.S.-based,


Accretion of Preferred Stock.




51



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Operating Expenses


Product Development. scale-up






Selling, Marketing and Administrative.










Results of Operations




| |                                                                                
| | -------------------------------------------------------------------------------
| | Fiscal Year Ended June 30, 2006 Compared to Fiscal
    Year Ended June 30, 2005

Net Sales.




52



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tm tm




|               |  |                     |         |           |      |   |         |            |  |   |        |  
|-------------- |  | ------------------- | ------- | --------- | ---- | - | ------- | ---------- |  | - | ------ | -
|               |  | Year Ended June 30, |        
|               |  |                     |        
|               |  |                     |         | Increase/ |     
|Product        |  | 2006                |         |           | 2005 |   |         | (Decrease) | 
|               |  |                     |         |           |      |   |         |            | 
|               |  | (In thousands)      |        
|Mucinex SE     |  | $                   | 158,575 |           |      | $ | 117,369 |            |  | $ | 41,206 |  
|Mucinex DM     |  |                     | 59,235  |           |      |   | 38,278  |            |  |   | 20,957 |  
|Mucinex D      |  |                     | 19,347  |           |      |   |        |            |  |   | 19,347 |  
|Humibid SE     |  |                     | 1,296   |           |      |   |        |            |  |   | 1,296  |  
|Delsym         |  |                     | 652     |           |      |   |        |            |  |   | 652    |  
|Other products |  |                     |        |           |      |   | 4,563   |            |  |   | (4,563 | )
|               |  |                     |         |           |      |   |         |            | 
|Net Sales      |  | $                   | 239,105 |           |      | $ | 160,210 |            |  | $ | 78,895 |  
|               |  |                     |         |           |      |   |         |            | 

Cost of Goods Sold.


Selling, Marketing and Administrative.


Product Development. start-up


Other, net.


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Income Taxes.


Accretion of Preferred Stock.


Dividend Paid to Preferred Stockholders.




| |                                                                                
| | -------------------------------------------------------------------------------
| | Fiscal Year Ended June 30, 2005 Compared to Fiscal
    Year Ended June 30, 2004

Net Sales. tm


tm tm




|               |  |                     |         |           |      |   |        |            |  |   |        |  
|-------------- |  | ------------------- | ------- | --------- | ---- | - | ------ | ---------- |  | - | ------ | -
|               |  | Year Ended June 30, |        
|               |  |                     |        
|               |  |                     |         | Increase/ |     
|Product        |  | 2005                |         |           | 2004 |   |        | (Decrease) | 
|               |  |                     |         |           |      |   |        |            | 
|               |  | (In thousands)      |        
|Mucinex SE     |  | $                   | 117,369 |           |      | $ | 52,863 |            |  | $ | 64,506 |  
|Mucinex DM     |  |                     | 38,278  |           |      |   |       |            |  |   | 38,278 |  
|Other products |  |                     | 4,563   |           |      |   | 8,432  |            |  |   | (3,869 | )
|               |  |                     |         |           |      |   |        |            | 
|Net Sales      |  | $                   | 160,210 |           |      | $ | 61,295 |            |  | $ | 98,915 |  
|               |  |                     |         |           |      |   |        |            | 

Cost of Goods Sold.


54



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Selling, Marketing and Administrative.




Product Development.


Other, net.


Income Taxes.


Accretion of Preferred Stock.


55



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Dividend Paid to Preferred Stockholders.


Liquidity and Capital Resources








held-to


mark-up mark-up mark-up mark-up mark-up




56



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57



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Cash Flows


Fiscal year ended June 30, 2006 compared to fiscal year
ended June 30, 2005.






Fiscal year ended June 30, 2005 compared to fiscal year
ended June 30, 2004.


tm




58



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##### Table of Contents



Commitments and Contractual Obligations




|                                |       |                |        |           |        |   |        |           |  |   |           |        |  |         |        |        |  |   |        |        | 
|------------------------------- | ----- | -------------- | ------ | --------- | ------ | - | ------ | --------- |  | - | --------- | ------ |  | ------- | ------ | ------ |  | - | ------ | ------ | 
|                                |       |                |        | Less Than |        |   |        |           |  |   | More Than |       
|                                |       | Total          |        |           | 1 Year |   |        | 1-3 Years |  |   | 3-5 Years |        |  | 5 Years |       
|                                |       |                |        |           |        |   |        |           |  |   |           |        |  |         |       
|                                |       | (In thousands) |       
|Operating leases(1)             |       | $              | 12,919 |           |        | $ | 1,915  |           |  | $ | 2,412     |        |  | $       | 1,958  |        |  | $ | 6,634  |       
|Purchase obligations(2)         |       |                | 83,584 |           |        |   | 14,289 |           |  |   | 31,918    |        |  |         | 25,618 |        |  |   | 11,759 |       
|Cardinal Health profit share(3) |       |                | 3,000  |           |        |   | 3,000  |           |  |   |          |        |  |         |       |        |  |   |       |       
|Royalty payments(4)             |       |                | 4,100  |           |        |   | 550    |           |  |   | 1,050     |        |  |         | 1,000  |        |  |   | 1,500  |       
|Consulting payments(5)          |       |                | 257    |           |        |   | 198    |           |  |   | 59        |        |  |         |       |        |  |   |       |       
|                                |       |                |        |           |        |   |        |           |  |   |           |        |  |         |       
|                                | Total |                | $      | 103,860   |        |   | $      | 19,952    |  |   | $         | 35,439 |  |         | $      | 28,576 |  |   | $      | 19,893 | 
|                                |       |                |        |           |        |   |        |           |  |   |           |        |  |         |       






|    |                                                                                                                                                                                   
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes the minimum rental payments for our corporate office
    buildings in Chester, New Jersey, office equipment leases and
    automobile lease payments for the sales force.
|   
|(2) | Consists of commitments to purchase raw materials and finished
    products.                                                                                                      
|   
|(3) | Represents minimum profit share commitments to Cardinal Health
    under the 2004 Supply Agreement.                                                                               
|   
|(4) | Represents minimum royalty payments to CellTech and Cornerstone.                                                                                                                  
|   
|(5) | Includes payments for consulting arrangements primarily for
    validation projects.                                                                                              









59



---



##### Table of Contents









tm tm tm


tm


60



---



##### Table of Contents



tm 18-month 18-month 18-month tm






Inflation




Off-Balance Sheet Arrangements




Recently Issued Accounting Pronouncements


Accounting for Uncertainty in Income Taxes Accounting for Income Taxes.







|         |                                                              
|-------- | -------------------------------------------------------------
|Item 7A. | Quantitative and Qualitative Disclosure About Market
    Risk





61



---



##### Table of Contents










|        |                                            
|------- | -------------------------------------------
|Item 8. | Financial Statements and Supplementary Data








|        |                                                                                         
|------- | ----------------------------------------------------------------------------------------
|Item 9. | Changes in and Disagreements with Accountants on
    Accounting and Financial Disclosure








|         |                        
|-------- | -----------------------
|Item 9A. | Controls and Procedures

Evaluation of Disclosure Controls and Procedures. 13a-15.


Changes in Internal Control Over Financial Reporting.







|         |                  
|-------- | -----------------
|Item 9B. | Other Information






PART III







|         |                                                   
|-------- | --------------------------------------------------
|Item 10. | Directors and Executive Officers of the Registrant



www.adamsrt.com


10-K.


62



---



##### Table of Contents








|         |                       
|-------- | ----------------------
|Item 11. | Executive Compensation

10-K.







|         |                                                                                                   
|-------- | --------------------------------------------------------------------------------------------------
|Item 12. | Security Ownership of Certain Beneficial Owners and
    Management and Related Stockholder Matters

10-K.







|         |                                               
|-------- | ----------------------------------------------
|Item 13. | Certain Relationships and Related Transactions

10-K.







|         |                                       
|-------- | --------------------------------------
|Item 14. | Principal Accountant Fees and Services

Pre-Approval 10-K.





PART IV







|         |                                                            
|-------- | -----------------------------------------------------------
|Item 15. | Exhibits and Consolidated Financial Statement
    Schedules

Financial Statements and Schedules.




| |                                                                                                                                        
| | ---------------------------------------------------------------------------------------------------------------------------------------
| | (1) The following consolidated financial statements of the
    Company and Report of Ernst & Young LLP are included in
    this report:

|    |  |                                                                                                                 |  |     
|--- |  | --------------------------------------------------------------------------------------------------------------- |  | ----
|    |  | Report of Independent Registered Public Accounting Firm                                                         |  | F-2 
|    |  | Consolidated Balance Sheets as of June 30, 2006 and 2005                                                        |  | F-3 
|    |  | Consolidated Statements of Operations for the years ended
    June 30, 2006, 2005 and 2004                      |  | F-4 
|    |  | Consolidated Statements of Stockholders Equity/ (Deficit)
    for the years ended June 30, 2006, 2005 and 2004 |  | F-5 
|    |  | Consolidated Statements of Cash Flows for the years ended
    June 30, 2006, 2005 and 2004                      |  | F-6 
|    |  | Notes to Consolidated Financial Statements                                                                      |  | F-7 
|(2) |  | Schedule of Valuation and Qualifying Accounts                                                                   |  | F-29

10-K 10-K.


63



---



##### Table of Contents





| |             
| | ------------
| | (3) Exhibits



| |                                                                                                                                  
| | ---------------------------------------------------------------------------------------------------------------------------------
| | The Exhibits listed in the Index of Exhibits appearing at
    pages 65 to 67 are included in this Annual Report on
    Form 10-K.

Exhibits:




| |                          
| | -------------------------
| | See Item 15(a)(3), above.

Financial Statement Schedules:




| |                          
| | -------------------------
| | See Item 15(a)(2), above.

64



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##### Table of Contents



SIGNATURES






| |                                     
| | ------------------------------------
| | ADAMS RESPIRATORY THERAPEUTICS, INC.
|
| | /s/ Michael J.
    Valentino        
| |                                     
| | By: Michael J. Valentino            
| | Its: Chief Executive Officer        



|                                                       |  |                                                                              |  |                    |  | 
|------------------------------------------------------ |  | ---------------------------------------------------------------------------- |  | ------------------ |  | 
|Name                                                   |  | Title                                                                        |  | Date              
|                                                       |  |                                                                              |  |                   
|                                                      
|/s/ Michael J.
    ValentinoMichael
    J. Valentino   |  | Chief Executive Officer and
    Director
    (principal executive officer)   |  | September 28, 2006
|                                                      
|/s/ David P. BeckerDavid
    P. Becker                 |  | Chief Financial Officer
    (principal financial and
    accounting officer) |  | September 28, 2006
|                                                      
|/s/ Kirk K. CalhounKirk
    K. Calhoun                 |  | Director                                                                     |  | September 28, 2006
|                                                      
|/s/ Steven A. ElmsSteven
    A. Elms                   |  | Director                                                                     |  | September 28, 2006
|                                                      
|/s/ Donald J.
    LiebentrittDonald
    J. Liebentritt |  | Director                                                                     |  | September 28, 2006
|                                                      
|/s/ John N. LillyJohn
    N. Lilly                     |  | Director                                                                     |  | September 28, 2006
|                                                      
|/s/ Joan P. NeuschelerJoan
    P. Neuscheler           |  | Director                                                                     |  | September 28, 2006
|                                                      
|/s/ Harold F. OberkfellHarold
    F. Oberkfell         |  | Director                                                                     |  | September 28, 2006
|                                                      
|/s/ William C. PateWilliam
    C. Pate                 |  | Director                                                                     |  | September 28, 2006

65



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##### Table of Contents



EXHIBIT INDEX


|        |    |     |  |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|------- | -- | --- |  | ----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |     |  |            
|Number  |    |     |  | Description
|        |    |     |  |            
|        | 2  | .1  |  |            |  | Agreement of Merger between Adams Respiratory Therapeutics, Inc.
    and Adams Merger Sub, Inc. dated June 1, 2005, filed as
    Exhibit 2.1 to the Companys Registration Statement on
    Form S-1 (Registration No. 333-123585), and
    incorporated herein by reference.                                                                                                                                                                                                     
|       
|        | 2  | .2  |  |            |  | Product Purchase Agreement, dated May 24, 2006, among UCB,
    Inc., UCB Manufacturing, Inc., Adams Respiratory Operations Sub,
    Inc. and Adams Respiratory Therapeutics, Inc., filed on
    May 31, 2006 as Exhibit 2.1 to the Companys
    Current Report on Form 8-K, and incorporated herein by
    reference.                                                                                                                                                            
|       
|        | 2  | .3 |  |            |  | Asset Purchase Agreement, dated July 27, 2006, by and
    between Cardinal Health PTS, LLC and Adams Respiratory
    Operations, Inc., filed on August 2, 2006 as
    Exhibit 2.1 to the Companys Current Report on
    Form 8-K, and incorporated herein by reference.                                                                                                                                                                                                          
|       
|        | 3  | .1  |  |            |  | Certificate of Incorporation of Adams Respiratory Therapeutics,
    Inc., as amended, filed as Exhibit 3.1 to the
    Companys Annual Report on Form 10-K for the fiscal
    year ended June 30, 2005, and incorporated herein by
    reference.                                                                                                                                                                                                                                 
|       
|        | 3  | .2  |  |            |  | Bylaws of Adams Respiratory Therapeutics, Inc., filed as
    Exhibit 3.2 to the Companys Registration Statement on
    Form S-1 (Registration No. 333-123585), and
    incorporated herein by reference.                                                                                                                                                                                                                                                                         
|       
|        | 4  | .1  |  |            |  | Specimen Stock Certificate of Adams Respiratory Therapeutics,
    Inc.s Common Stock, par value $0.01 per share, filed
    as Exhibit 4.1 to the Companys Registration Statement
    on Form S-1 (Registration No. 333-123585), and
    incorporated herein by reference.                                                                                                                                                                                                       
|       
|        | 4  | .2  |  |            |  | Reference is made to Exhibits 3.1 and 3.2.                                                                                                                                                                                                                                                                                                                                                                                                                                        
|       
|        | 4  | .3  |  |            |  | Amended and Restated Registration Rights Agreement, dated
    July 9, 2001, by and between Adams Laboratories, Inc. and
    certain stockholders, filed as Exhibit 4.3 to the
    Companys Registration Statement on Form S-1
    (Registration No. 333-123585), and incorporated herein by
    reference.                                                                                                                                                                       
|       
|        | 4  | .4  |  |            |  | Series C Preferred Stock Registration Rights Agreement,
    dated May 19, 2003, between Adams Laboratories, Inc. and
    Tullis-Dickerson Capital Focus III, L.P., TD Origen Capital
    Fund, L.P., TD Lighthouse Capital Fund, L.P., EGI-Fund (02-04)
    Investors, LLC and Perseus-Soros Biopharmaceutical Fund, LP,
    filed as Exhibit 4.4 to the Companys Registration
    Statement on Form S-1 (Registration No. 333-123585),
    and incorporated herein by reference.
|       
|        | 10 | .1  |  |            |  | Lease Agreement dated April 1, 2004 between Adams
    Laboratories, Inc. and William J. Adams, Jr. for Adams
    Respiratory Therapeutics, Inc.s office in Chester, New
    Jersey, filed as Exhibit 10.1 to the Companys
    Registration Statement on Form S-1 (Registration
    No. 333-123585), and incorporated herein by reference.                                                                                                                                       
|       
|        | 10 | .2 |  |            |  | Exclusive Distribution Agreement dated April 1, 2004
    between Adams Laboratories, Inc. and Cardinal Health PTS, LLC,
    filed as Exhibit 10.3 to the Companys Registration
    Statement on Form S-1 (Registration No. 333-123585), and
    incorporated herein by reference.                                                                                                                                                                                                
|       
|        | 10 | .3  |  |            |  | Commercial Services Agreement dated April 1, 2004 between
    Cardinal Health PTS, LLC and Adams Laboratories, Inc., filed as
    Exhibit 10.5 to the Companys Registration Statement
    on Form S-1 (Registration No. 333-123585), and incorporated
    herein by reference.                                                                                                                                                                                                   
|       
|        | 10 | .4 |  |            |  | 1999 Long-Term Incentive Plan, filed as Exhibit 10.6 to the
    Companys Registration Statement on Form S-1
    (Registration No. 333-123585), and incorporated herein by
    reference.                                                                                                                                                                                                                                                                                         
|       
|        | 10 | .5 |  |            |  | Form of Award under the 1999 Long-Term Incentive Plan, filed as
    Exhibit 10.7 to the Companys Registration Statement
    on Form S-1 (Registration No. 333-123585), and
    incorporated herein by reference.                                                                                                                                                                                                                                                                 
|       
|        | 10 | .6  |  |            |  | Adams Respiratory Therapeutics, Inc. Director Compensation Plan,
    filed as Exhibit 10.8 to the Companys Registration
    Statement on Form S-1 (Registration No. 333-123585),
    and incorporated herein by reference.                                                                                                                                                                                                                                                       

66



---



##### Table of Contents



|        |    |      |  |             |  |                                                                                                                                                                                                                                                                                                                        
|------- | -- | ---- |  | ----------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |      |  |            
|Number  |    |      |  | Description
|        |    |      |  |            
|        | 10 | .7   |  |            |  | Form of Awards under Adams Respiratory Therapeutics, Inc.
    Director Compensation Plan, filed as Exhibit 10.9 to the
    Companys Registration Statement on Form S-1
    (Registration No. 333-123585), and incorporated herein by
    reference.                                                                   
|       
|        | 10 | .8  |  |            |  | Adams Laboratories, Inc. Retirement Savings Plan, filed as
    Exhibit 10.10 to the Companys Registration Statement
    on Form S-1 (Registration No. 333-123585), and
    incorporated herein by reference.                                                                                                          
|       
|        | 10 | .9  |  |            |  | Employment Agreement with Michael J. Valentino dated
    August 7, 2003, filed as Exhibit 10.11 to the
    Companys Registration Statement on Form S-1
    (Registration No. 333-123585), and incorporated herein by
    reference.                                                                                   
|       
|        | 10 | .10 |  |            |  | Income Security Agreement with David P. Becker dated
    September 22, 2004, filed as Exhibit 10.12 to the
    Companys Registration Statement on Form S-1
    (Registration No. 333-123585), and incorporated herein by
    reference.                                                                               
|       
|        | 10 | .11 |  |            |  | Income Security Agreement with John Thievon dated
    September 22, 2004, filed as Exhibit 10.13 to the
    Companys Registration Statement on Form S-1
    (Registration No. 333-123585), and incorporated herein by
    reference.                                                                                  
|       
|        | 10 | .12 |  |            |  | Income Security Agreement with Robert Casale dated
    September 22, 2004, filed as Exhibit 10.14 to the
    Companys Registration Statement on Form S-1
    (Registration No. 333-123585), and incorporated herein by
    reference.                                                                                 
|       
|        | 10 | .13 |  |            |  | Income Security Agreement with Walter E. Riehemann dated
    September 22, 2004, filed as Exhibit 10.15 to the
    Companys Registration Statement on Form S-1
    (Registration No. 333-123585), and incorporated herein by
    reference.                                                                           
|       
|        | 10 | .14 |  |            |  | Income Security Agreement with Helmut H. Albrecht dated
    October 1, 2004, filed as Exhibit 10.16 to the
    Companys Registration Statement on Form S-1
    (Registration No. 333-123585), and incorporated herein by
    reference.                                                                               
|       
|        | 10 | .15 |  |            |  | Income Security Agreement with Susan Witham dated
    October 4, 2004, filed as Exhibit 10.17 to the
    Companys Registration Statement on Form S-1
    (Registration No. 333-123585), and incorporated herein by
    reference.                                                                                     
|       
|        | 10 | .16  |  |            |  | Form of Indemnity Agreement between Adams Respiratory
    Therapeutics, Inc. and Directors and Certain Officers, filed as
    Exhibit 10.18 to the Companys Registration Statement
    on Form S-1 (Registration No. 333-123585), and
    incorporated herein by reference.                                           
|       
|        | 10 | .17  |  |            |  | Lease Agreement, dated October 31, 2005, by and between
    WR&E  Chester, LLC and Adams Respiratory
    Therapeutics, Inc., filed on November 3, 2005 as
    Exhibit 10.1 to the Companys Current Report on
    Form 8-K, and incorporated herein by reference.                                                     
|       
|        | 10 | .18  |  |            |  | Settlement Agreement dated January 14, 2005 by and among
    Adams Laboratories, Inc., Carolina Pharmaceuticals, Inc. and
    Cornerstone Biopharma, Inc. , filed as Exhibit 10.20 to the
    Companys Registration Statement on Form S-1
    (Registration No. 333-123585), and incorporated herein by
    reference.
|       
|        | 10 | .19 |  |            |  | Adams Respiratory Therapeutics, Inc. 2005 Incentive Plan, filed
    as Exhibit 10.21 to the Companys Registration
    Statement on Form S-1 (Registration No. 333-123585),
    and incorporated herein by reference.                                                                                                  
|       
|        | 10 | .20 |  |            |  | Amendment to the Adams Respiratory Therapeutics 2005 Incentive
    Plan, filed on August 28, 2006 as Exhibit 99.3 to the
    Companys Current Report on Form 8-K, and incorporated
    herein by reference.                                                                                                           
|       
|        | 10 | .21 |  |            |  | Amendment to the Adams Laboratories, Inc. 1999 Long-Term
    Incentive Plan, filed on August 28, 2006 as
    Exhibit 99.4 to the Companys Current Report on
    Form 8-K, and incorporated herein by reference.                                                                                                       
|       
|        | 10 | .22 |  |            |  | Form of Restricted Stock Award under Adams Respiratory
    Therapeutics, Inc. 2005 Incentive Plan, filed as
    Exhibit 10.22 to the Companys Registration Statement
    on Form S-1 (Registration No. 333-123585), and
    incorporated herein by reference.                                                         

67



---



##### Table of Contents



|        |     |      |  |             |  |                                                                                                                                                                                                                                                                                     
|------- | --- | ---- |  | ----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |     |      |  |            
|Number  |     |      |  | Description
|        |     |      |  |            
|        | 10  | .23 |  |            |  | Form of Incentive Stock Option Award under Adams Respiratory
    Therapeutics, Inc. 2005 Incentive Plan, filed as
    Exhibit 10.23 to the Companys Registration Statement
    on Form S-1 (Registration No. 333-123585), and
    incorporated herein by reference.                
|       
|        | 10  | .24 |  |            |  | Form of Non-Statutory Stock Option Award under Adams Respiratory
    Therapeutics, Inc. 2005 Incentive Plan, filed as
    Exhibit 10.24 to the Companys Registration Statement
    on Form S-1 (Registration No. 333-123585), and
    incorporated herein by reference.            
|       
|        | 10  | .25 |  |            |  | Form of Non-Statutory Stock Option Award under Adams Respiratory
    Therapeutics, Inc. 2005 Incentive Plan, filed on August 28,
    2006 as Exhibit 99.1 to the Companys Current Report
    on Form 8-K, and incorporated herein by reference.                                    
|       
|        | 10  | .26 |  |            |  | Form of Performance-Based Restricted Stock Unit Certificate,
    filed on August 28, 2006 as Exhibit 99.2 to the
    Companys Current Report on Form 8-K, and incorporated
    herein by reference.                                                                                
|       
|        | 10  | .27* |  |            |  | Senior Revolving Credit Agreement, dated September 26,
    2006, among Adams Respiratory Therapeutics, Inc., the Subsidiary
    Guarantors named therein, the Initial Lenders named therein, the
    Issuing Bank named therein and Royal Bank of Canada.                           
|       
|        | 10  | .28  |  |            |  | Security Agreement, dated July 11, 2006, from Adams
    Respiratory Therapeutics and the other Grantors named therein to
    Royal Bank of Canada, filed on July 17, 2006 as
    Exhibit 10.2 to the Companys Current Report on
    Form 8-K, and incorporated herein by reference.
|       
|        | 10  | .29* |  |            |  | Security Agreement Supplement, dated September 26, 2006,
    among Adams Respiratory Products, Inc., Adams Respiratory
    Operations, Inc., Adams Respiratory Operations Sub, Inc., and
    Royal Bank of Canada.                                                                  
|       
|        | 14  |      |  |            |  | Code of Business Conduct and Ethics, filed as Exhibit 14 to
    the Companys Annual Report on Form 10-K for the
    fiscal year ended June 30, 2005, and incorporated herein by
    reference.                                                                                     
|       
|        | 21* |      |  |            |  | Subsidiaries.                                                                                                                                                                                                                                                                       
|       
|        | 23* |      |  |            |  | Consent of Ernst & Young LLP.                                                                                                                                                                                                                                                       
|       
|        | 31  | .1*  |  |            |  | Certification of the Chief Executive Officer of Pursuant to
    Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                      
|       
|        | 31  | .2*  |  |            |  | Certification of the Chief Financial Officer of Pursuant to
    Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                      
|       
|        | 32  | .1*  |  |            |  | Certification of the Chief Executive Officer Pursuant to
    18 U.S.C. Section 1350, As Adopted Pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                      
|       
|        | 32  | .2*  |  |            |  | Certification of the Chief Financial Officer Pursuant to
    18 U.S.C. Section 1350, As Adopted Pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                      






|  |                               
|- | ------------------------------
|* | Filed with this Annual Report.



|  |                                                                                                                                                            
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------
| | Portions of the exhibit have been omitted pursuant to a request
    for confidential treatment. The confidential portions have been
    filed with the SEC.
| 
| | Management compensation contract or plan.                                                                                                                  

68



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##### Table of Contents



Adams Respiratory Therapeutics, Inc.


Index to Consolidated Financial Statements and Schedule


|                                                                                                                   |  |     
|------------------------------------------------------------------------------------------------------------------ |  | ----
|Report of Independent Registered Public
    Accounting Firm                                                        |  | F-2 
|Consolidated Balance Sheets as of
    June 30, 2006 and 2005                                                       |  | F-3 
|Consolidated Statements of Operations for
    the years ended June 30, 2006, 2005 and 2004                         |  | F-4 
|Consolidated Statements of
    Stockholders Equity (Deficit) for the years ended
    June 30, 2006, 2005 and 2004 |  | F-5 
|Consolidated Statements of Cash Flows for
    the years ended June 30, 2006, 2005 and 2004                         |  | F-6 
|Notes to Consolidated Financial
    Statements                                                                     |  | F-7 
|Schedule of Valuation and Qualifying
    Accounts                                                                  |  | F-29

F-1



---



##### Table of Contents






Report of Independent Registered Public Accounting Firm














| |                          
| | -------------------------
| | /s/
    ERNST & YOUNG LLP







F-2



---



##### Table of Contents



Adams Respiratory Therapeutics, Inc.





Consolidated Balance Sheets


(Amounts in thousands, except per share amounts)


|                                                                                                                  |                                                                                                                          |                            |                                                                                              |          |      |     |          |          |   |         | 
|----------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------ | -------------------------- | -------------------------------------------------------------------------------------------- | -------- | ---- | --- | -------- | -------- | - | ------- | 
|                                                                                                                  |                                                                                                                          | June 30,                   |                                                                                             
|                                                                                                                  |                                                                                                                          |                            |                                                                                             
|                                                                                                                  |                                                                                                                          | 2006                       |                                                                                              |          | 2005 |    
|                                                                                                                  |                                                                                                                          |                            |                                                                                              |          |      |    
|ASSETS                                                                                                           
|Current assets:                                                                                                   |                                                                                                                          |                            |                                                                                              |          |      |     |          |         
|                                                                                                                  | Cash and cash equivalents                                                                                                |                            | $                                                                                            | 34,815   |      |     | $        | 24,655   |  
|                                                                                                                  | Short-term investments                                                                                                   |                            |                                                                                              | 22,223   |      |     |          |         |  
|                                                                                                                  | Accounts receivable, net of allowances for doubtful accounts of
    $54 and $166 at June 30, 2006 and 2005, respectively |                            |                                                                                              | 19,444   |      |     |          | 8,531    |  
|                                                                                                                  | Inventories, net                                                                                                         |                            |                                                                                              | 10,603   |      |     |          | 3,107    |  
|                                                                                                                  | Prepaid expenses and other assets                                                                                        |                            |                                                                                              | 4,857    |      |     |          | 4,727    |  
|                                                                                                                  | Income taxes receivable                                                                                                  |                            |                                                                                              | 4,045    |      |     |          | 4,990    |  
|                                                                                                                  | Deferred tax assets                                                                                                      |                            |                                                                                              | 3,659    |      |     |          | 5,455    |  
|                                                                                                                  |                                                                                                                          |                            |                                                                                              |          |      |    
|Total current assets                                                                                              |                                                                                                                          |                            | 99,646                                                                                       |          |      |     | 51,465   |         
|Property, plant and equipment, net of accumulated depreciation                                                    |                                                                                                                          |                            | 7,388                                                                                        |          |      |     | 1,925    |         
|Deferred tax assets                                                                                               |                                                                                                                          |                            | 2,545                                                                                        |          |      |     | 2,789    |         
|Intangible assets, net of accumulated amortization of $1,635 and
    $799 at June 30, 2006 and 2005, respectively |                                                                                                                          |                            | 127,128                                                                                      |          |      |     | 5,964    |         
|Other assets                                                                                                      |                                                                                                                          |                            | 15,883                                                                                       |          |      |     | 1,697    |         
|                                                                                                                  |                                                                                                                          |                            |                                                                                              |          |      |    
|Total assets                                                                                                      |                                                                                                                          | $                          | 252,590                                                                                      |          |      | $   | 63,840   |         
|                                                                                                                  |                                                                                                                          |                            |                                                                                              |          |      |    
|                                                                                                                 
|LIABILITIES AND STOCKHOLDERS EQUITY/(DEFICIT)                                                                   
|Current liabilities:                                                                                              |                                                                                                                          |                            |                                                                                              |          |      |     |          |         
|                                                                                                                  | Accounts payable                                                                                                         |                            | $                                                                                            | 15,189   |      |     | $        | 6,818    |  
|                                                                                                                  | Accrued compensation and related items                                                                                   |                            |                                                                                              | 5,769    |      |     |          | 866      |  
|                                                                                                                  | Accrued returns, chargebacks, rebates and other sales allowances                                                         |                            |                                                                                              | 5,701    |      |     |          | 9,947    |  
|                                                                                                                  | Other current liabilities                                                                                                |                            |                                                                                              | 1,648    |      |     |          | 1,098    |  
|                                                                                                                  |                                                                                                                          |                            |                                                                                              |          |      |    
|Total current liabilities                                                                                         |                                                                                                                          |                            | 28,307                                                                                       |          |      |     | 18,729   |         
|Long-term liabilities:                                                                                            |                                                                                                                          |                            |                                                                                              |          |      |     |          |         
|                                                                                                                  | Deferred gain on sale of plant assets                                                                                    |                            |                                                                                              | 1,309    |      |     |          | 1,478    |  
|                                                                                                                  | Accrued royalties                                                                                                        |                            |                                                                                              | 701      |      |     |          | 803      |  
|                                                                                                                  |                                                                                                                          |                            |                                                                                              |          |      |    
|Total liabilities                                                                                                 |                                                                                                                          |                            | 30,317                                                                                       |          |      |     | 21,010   |         
|                                                                                                                  |                                                                                                                          |                            |                                                                                              |          |      |    
|Redeemable convertible preferred stock:                                                                           |                                                                                                                          |                            |                                                                                              |          |      |     |          |         
|                                                                                                                  |                                                                                                                          | Series A, $0.01 par value: |                                                                                              |          |      |     |          |          |   |        
|                                                                                                                  |                                                                                                                          |                            | Authorized shares  15,000                                                                   |          |      |     |          |          |   |         | 
|                                                                                                                  |                                                                                                                          |                            | Issued and outstanding shares  none at June 30,
    2006 and 4,307 at June 30, 2005         |          |      |    |          |          |   | 98,705  | 
|                                                                                                                  |                                                                                                                          | Series B, $0.01 par value: |                                                                                              |          |      |     |          |          |   |        
|                                                                                                                  |                                                                                                                          |                            | Authorized shares  20,000                                                                   |          |      |     |          |          |   |         | 
|                                                                                                                  |                                                                                                                          |                            | Issued and outstanding shares  none at June 30,
    2006 and 6,328 at June 30, 2005         |          |      |    |          |          |   | 98,251  | 
|                                                                                                                  |                                                                                                                          | Series C, $0.01 par value: |                                                                                              |          |      |     |          |          |   |        
|                                                                                                                  |                                                                                                                          |                            | Authorized shares  15,000                                                                   |          |      |     |          |          |   |         | 
|                                                                                                                  |                                                                                                                          |                            | Issued and outstanding shares  none at June 30,
    2006 and 4,849 at June 30, 2005         |          |      |    |          |          |   | 119,499 | 
|                                                                                                                  |                                                                                                                          |                            |                                                                                              |          |      |    
|Total redeemable convertible preferred stock                                                                      |                                                                                                                          |                            |                                                                                             |          |      |     | 316,455  |         
|                                                                                                                  |                                                                                                                          |                            |                                                                                              |          |      |    
|Stockholders equity/(deficit):                                                                                   |                                                                                                                          |                            |                                                                                              |          |      |     |          |         
|                                                                                                                  | Preferred stock, $0.01 par value: Authorized
    shares  50,000, Issued and outstanding 
    none                      |                            |                                                                                              |         |      |     |          |          |  
|                                                                                                                  | Common stock, Class A, $0.01 par value:                                                                                  |                            |                                                                                              |          |      |     |          |          |  
|                                                                                                                  |                                                                                                                          |                            | Authorized shares  100,000,                                                                 |          |      |     |          |          |   |         | 
|                                                                                                                  |                                                                                                                          |                            | Issued and outstanding shares  34,874 and 8,737 at
    June 30, 2006 and 2005, respectively |          |      | 349 |          |          |   | 87      | 
|                                                                                                                  | Additional paid-in capital                                                                                               |                            |                                                                                              | 464,877  |      |     |          | 15,481   |  
|                                                                                                                  | Accumulated deficit                                                                                                      |                            |                                                                                              | (242,842 | )    |     |          | (289,193 | )
|                                                                                                                  | Accumulated other comprehensive loss                                                                                     |                            |                                                                                              | (111     | )    |     |          |         |  
|                                                                                                                  |                                                                                                                          |                            |                                                                                              |          |      |    
|Total stockholders equity/(deficit)                                                                              |                                                                                                                          |                            | 222,273                                                                                      |          |      |     | (273,625 | )       
|                                                                                                                  |                                                                                                                          |                            |                                                                                              |          |      |    
|Total liabilities, redeemable convertible preferred stock and
    stockholders equity/(deficit)                  |                                                                                                                          | $                          | 252,590                                                                                      |          |      | $   | 63,840   |         
|                                                                                                                  |                                                                                                                          |                            |                                                                                              |          |      |    



F-3



---



##### Table of Contents



Adams Respiratory Therapeutics, Inc.





Consolidated Statements of Operations


(Amounts in thousands, except per share amounts)


|                                                                                  |         |                     |         |        |      |   |          |        |   |   |         |       | 
|--------------------------------------------------------------------------------- | ------- | ------------------- | ------- | ------ | ---- | - | -------- | ------ | - | - | ------- | ----- | 
|                                                                                  |         | Year Ended June 30, |        
|                                                                                  |         |                     |        
|                                                                                  |         | 2006                |         |        | 2005 |   |          | 2004   |  
|                                                                                  |         |                     |         |        |      |   |          |        |  
|Net sales                                                                         |         | $                   | 239,105 |        |      | $ | 160,210  |        |   | $ | 61,295  |      
|Cost of goods sold                                                                |         |                     | 49,358  |        |      |   | 31,126   |        |   |   | 11,928  |      
|                                                                                  |         |                     |         |        |      |   |          |        |  
|Gross margin                                                                      |         |                     | 189,747 |        |      |   | 129,084  |        |   |   | 49,367  |      
|                                                                                  |         |                     |         |        |      |   |          |        |  
|Selling, marketing & administrative                                               |         |                     | 98,998  |        |      |   | 78,044   |        |   |   | 23,286  |      
|Product development                                                               |         |                     | 18,904  |        |      |   | 7,392    |        |   |   | 3,181   |      
|Other, net                                                                        |         |                     | (4,307  | )      |      |   | (789     | )      |   |   | 3,198   |      
|                                                                                  |         |                     |         |        |      |   |          |        |  
|                                                                                  |         |                     | 113,595 |        |      |   | 84,647   |        |   |   | 29,665  |      
|                                                                                  |         |                     |         |        |      |   |          |        |  
|Income before income taxes                                                        |         |                     | 76,152  |        |      |   | 44,437   |        |   |   | 19,702  |      
|Provision/(benefit) for income taxes                                              |         |                     | 29,801  |        |      |   | 17,438   |        |   |   | (16,124 | )    
|                                                                                  |         |                     |         |        |      |   |          |        |  
|Net income                                                                        |         |                     | 46,351  |        |      |   | 26,999   |        |   |   | 35,826  |      
|                                                                                  |         |                     |         |        |      |   |          |        |  
|Accretion of preferred stock                                                      |         |                     |        |        |      |   | (202,566 | )      |   |   | (28,100 | )    
|Dividend paid to preferred stockholders                                           |         |                     |        |        |      |   | (30,033  | )      |   |   |        |      
|                                                                                  |         |                     |         |        |      |   |          |        |  
|Net income/(loss) applicable to common stockholders                               |         | $                   | 46,351  |        |      | $ | (205,600 | )      |   | $ | 7,726   |      
|                                                                                  |         |                     |         |        |      |   |          |        |  
|Income/(loss) per common share                                                    |         |                     |         |        |      |   |          |        |   |   |         |      
|                                                                                  | Basic   |                     | $       | 1.42   |      |   | $        | (32.97 | ) |   | $       | 1.64  | 
|                                                                                  | Diluted |                     | $       | 1.28   |      |   | $        | (32.97 | ) |   | $       | 0.90  | 
|Weighted-average of common shares used in income/(loss) per
    share calculation |         |                     |         |        |      |   |          |        |   |   |         |      
|                                                                                  | Basic   |                     |         | 32,616 |      |   |          | 6,236  |   |   |         | 4,699 | 
|                                                                                  | Diluted |                     |         | 36,349 |      |   |          | 6,236  |   |   |         | 8,629 | 



F-4



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##### Table of Contents



Adams Respiratory Therapeutics, Inc.





Consolidated Statements of Stockholders
Equity/(Deficit)


(Amounts in thousands)


|                                                                                  |                                                             |              |        |   |            |   |     |             |  |       |               |   |               |         |          |   |           |   |      |      |   |   |          |      |  
|--------------------------------------------------------------------------------- | ----------------------------------------------------------- | ------------ | ------ | - | ---------- | - | --- | ----------- |  | ----- | ------------- | - | ------------- | ------- | -------- | - | --------- | - | ---- | ---- | - | - | -------- | ---- | -
|                                                                                  |                                                             |              |        |   |            |   |     | Accumulated |  |       | Total         |  
|                                                                                  |                                                             | Common Stock |        |   | Additional |   |     |             |  | Other |               |   | Stockholders |        
|                                                                                  |                                                             |              |        |   | Paid-In    |   |     | Accumulated |  |       | Comprehensive |   |               | Equity/ |         
|                                                                                  |                                                             | Shares       |        |   | Amount     |   |     | Capital     |  |       | Deficit       |   |               | Loss    |          |   | (Deficit) |  
|                                                                                  |                                                             |              |        |   |            |   |     |             |  |       |               |   |               |         |          |   |           |  
|Balance as of June 30, 2003                                                       |                                                             |              | 3,100  |   |            | $ | 31  |             |  | $     | 12,152        |   |               | $       | (76,352  | ) |           |   |     |      |   | $ | (64,169  | )   
|Issuance of common stock warrants related to Series C Notes                       |                                                             |              |       |   |            |   |    |             |  |       | 811           |   |               |         |         |   |           |   |     |      |   |   | 811      |     
|Issuance of preferred stock, net                                                  |                                                             |              |       |   |            |   |    |             |  |       |              |   |               |         |         |   |           |   |     |      |   |   |         |     
|Reverse unamortized debt discount upon conversion of
    Series C preferred stock |                                                             |              |       |   |            |   |    |             |  |       | (2,119        | ) |               |         |         |   |           |   |     |      |   |   | (2,119   | )   
|Stock option compensation expense                                                 |                                                             |              |       |   |            |   |    |             |  |       | 686           |   |               |         |         |   |           |   |     |      |   |   | 686      |     
|Exercise of stock options                                                         |                                                             |              | 22     |   |            |   |    |             |  |       | 9             |   |               |         |         |   |           |   |     |      |   |   | 9        |     
|Exercise of warrants                                                              |                                                             |              | 2,088  |   |            |   | 21  |             |  |       | 38            |   |               |         |         |   |           |   |     |      |   |   | 59       |     
|Accretion of preferred stock                                                      |                                                             |              |       |   |            |   |    |             |  |       |              |   |               |         | (28,100  | ) |           |   |     |      |   |   | (28,100  | )   
|Comprehensive and net income                                                      |                                                             |              |       |   |            |   |    |             |  |       |              |   |               |         | 35,826   |   |           |   |     |      |   |   | 35,826   |     
|                                                                                  |                                                             |              |        |   |            |   |     |             |  |       |               |   |               |         |          |   |           |  
|Balance as of June 30, 2004                                                       |                                                             |              | 5,210  |   |            | $ | 52  |             |  | $     | 11,577        |   |               | $       | (68,626  | ) |           |   |     |      |   | $ | (56,997  | )   
|Stock option compensation expense                                                 |                                                             |              |       |   |            |   |    |             |  |       | 477           |   |               |         |         |   |           |   |     |      |   |   | 477      |     
|Exercise of stock options                                                         |                                                             |              | 384    |   |            |   | 4   |             |  |       | 1,200         |   |               |         |         |   |           |   |     |      |   |   | 1,204    |     
|Exercise of warrants                                                              |                                                             |              | 3,143  |   |            |   | 31  |             |  |       | 1,164         |   |               |         |         |   |           |   |     |      |   |   | 1,195    |     
|Dividend                                                                          |                                                             |              |       |   |            |   |    |             |  |       |              |   |               |         | (45,000  | ) |           |   |     |      |   |   | (45,000  | )   
|Tax benefit of stock options                                                      |                                                             |              |       |   |            |   |    |             |  |       | 1,063         |   |               |         |         |   |           |   |     |      |   |   | 1,063    |     
|Accretion of preferred stock                                                      |                                                             |              |       |   |            |   |    |             |  |       |              |   |               |         | (202,566 | ) |           |   |     |      |   |   | (202,566 | )   
|Comprehensive and net income                                                      |                                                             |              |       |   |            |   |    |             |  |       |              |   |               |         | 26,999   |   |           |   |     |      |   |   | 26,999   |     
|                                                                                  |                                                             |              |        |   |            |   |     |             |  |       |               |   |               |         |          |   |           |  
|Balance as of June 30, 2005                                                       |                                                             |              | 8,737  |   |            | $ | 87  |             |  | $     | 15,481        |   |               | $       | (289,193 | ) |           |   |     |      |   | $ | (273,625 | )   
|Comprehensive income:                                                             |                                                             |              |        |   |            |   |     |             |  |       |               |   |               |         |          |   |           |   |      |      |   |   |          |     
|Net income                                                                        |                                                             |              |       |   |            |   |    |             |  |       |              |   |               |         | 46,351   |   |           |   |     |      |   |   | 46,351   |     
|                                                                                  | Unrealized loss on marketable securities, net of tax of $65 |              |        |  |            |   |     |            |  |       |               |  |               |         |          |  |           |   |      | (111 | ) |   |          | (111 | )
|                                                                                  |                                                             |              |        |   |            |   |     |             |  |       |               |   |               |         |          |   |           |  
|Total comprehensive income                                                        |                                                             |              |        |   |            |   |     |             |  |       |               |   |               |         |          |   |           |   |      |      |   |   | 46,240   |     
|                                                                                  |                                                             |              |        |   |            |   |     |             |  |       |               |   |               |         |          |   |           |  
|Stock compensation expense                                                        |                                                             |              |       |   |            |   |    |             |  |       | 4,549         |   |               |         |         |   |           |   |     |      |   |   | 4,549    |     
|Restricted stock units                                                            |                                                             |              |       |   |            |   |    |             |  |       | 255           |   |               |         |         |   |           |   |     |      |   |   | 255      |     
|Exercise of stock options                                                         |                                                             |              | 1,340  |   |            |   | 14  |             |  |       | 2,034         |   |               |         |         |   |           |   |     |      |   |   | 2,048    |     
|Exercise of warrants                                                              |                                                             |              | 373    |   |            |   | 3   |             |  |       | 714           |   |               |         |         |   |           |   |     |      |   |   | 717      |     
|Tax benefit of stock options                                                      |                                                             |              |       |   |            |   |    |             |  |       | 19,036        |   |               |         |         |   |           |   |     |      |   |   | 19,036   |     
|Conversion of preferred stock                                                     |                                                             |              | 17,534 |   |            |   | 176 |             |  |       | 316,279       |   |               |         |         |   |           |   |     |      |   |   | 316,455  |     
|Initial public offering                                                           |                                                             |              | 6,890  |   |            |   | 69  |             |  |       | 106,529       |   |               |         |         |   |           |   |     |      |   |   | 106,598  |     
|                                                                                  |                                                             |              |        |   |            |   |     |             |  |       |               |   |               |         |          |   |           |  
|Balance as of June 30, 2006                                                       |                                                             |              | 34,874 |   |            | $ | 349 |             |  | $     | 464,877       |   |               | $       | (242,842 | ) |           | $ | (111 | )    |   | $ | 222,273  |     
|                                                                                  |                                                             |              |        |   |            |   |     |             |  |       |               |   |               |         |          |   |           |  



F-5



---



##### Table of Contents



Adams Respiratory Therapeutics, Inc.





Consolidated Statements of Cash Flows


(Amounts in thousands)


|                                                                                      |  |                     |          |   |      |   |         |      |  |   |         |  
|------------------------------------------------------------------------------------- |  | ------------------- | -------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                                                                      |  | Year Ended June 30, |         
|                                                                                      |  |                     |         
|                                                                                      |  | 2006                |          |   | 2005 |   |         | 2004 | 
|                                                                                      |  |                     |          |   |      |   |         |      | 
|Operating Activities                                                                  |  |                     |          |   |      |   |         |      |  |   |         |  
|Net income                                                                            |  | $                   | 46,351   |   |      | $ | 26,999  |      |  | $ | 35,826  |  
|Adjustments to reconcile net income to net cash provided by
    operating activities: |  |                     |          |   |      |   |         |      |  |   |         |  
|Depreciation and amortization                                                         |  |                     | 1,259    |   |      |   | 978     |      |  |   | 1,043   |  
|Stock compensation expense                                                            |  |                     | 4,804    |   |      |   | 477     |      |  |   | 686     |  
|Non-cash interest capitalized in note principal                                       |  |                     |         |   |      |   |        |      |  |   | 969     |  
|Non-cash interest on convertible notes payable                                        |  |                     |         |   |      |   |        |      |  |   | 1,406   |  
|Write off of intangible assets                                                        |  |                     |         |   |      |   | 900     |      |  |   | 205     |  
|Litigation settlement                                                                 |  |                     |         |   |      |   |        |      |  |   | (2,000  | )
|Loss/(gain) on disposal of property, plant and equipment                              |  |                     | 926      |   |      |   | 9       |      |  |   | (78     | )
|Loss on lease, net of sublease income                                                 |  |                     | 631      |   |      |   |        |      |  |   |        |  
|Deferred tax assets                                                                   |  |                     | 2,040    |   |      |   | 8,549   |      |  |   | (16,793 | )
|Changes in operating assets and liabilities:                                          |  |                     |          |   |      |   |         |      |  |   |         |  
|Accounts receivable                                                                   |  |                     | (10,913  | ) |      |   | (4,357  | )    |  |   | (1,541  | )
|Inventories                                                                           |  |                     | (7,496   | ) |      |   | (591    | )    |  |   | (656    | )
|Prepaid expenses and other current assets                                             |  |                     | (130     | ) |      |   | (3,544  | )    |  |   | (1,339  | )
|Other assets                                                                          |  |                     |         |   |      |   |        |      |  |   | 265     |  
|Accounts payable                                                                      |  |                     | 8,371    |   |      |   | 2,253   |      |  |   | 2,319   |  
|Income taxes payable (receivable)                                                     |  |                     | 945      |   |      |   | (4,195  | )    |  |   | 269     |  
|Accrued expenses                                                                      |  |                     | 828      |   |      |   | (1,679  | )    |  |   | 5,172   |  
|                                                                                      |  |                     |          |   |      |   |         |      | 
|Net cash provided by operating activities                                             |  |                     | 47,616   |   |      |   | 25,799  |      |  |   | 25,753  |  
|Investing Activities                                                                  |  |                     |          |   |      |   |         |      |  |   |         |  
|Purchases of property, plant and equipment                                            |  |                     | (6,812   | ) |      |   | (1,731  | )    |  |   | (530    | )
|Proceeds from disposal of property, plant and equipment                               |  |                     |         |   |      |   | 33      |      |  |   | 5,580   |  
|Purchases of investments and increase in restricted cash                              |  |                     | (474,861 | ) |      |   |        |      |  |   |        |  
|Proceeds from sales of investments                                                    |  |                     | 436,644  |   |      |   |        |      |  |   |        |  
|Purchases of intangible assets                                                        |  |                     | (122,000 | ) |      |   | (2,100  | )    |  |   | (1,250  | )
|                                                                                      |  |                     |          |   |      |   |         |      | 
|Net cash (used in)/provided by investing activities                                   |  |                     | (167,029 | ) |      |   | (3,798  | )    |  |   | 3,800   |  
|Financing Activities                                                                  |  |                     |          |   |      |   |         |      |  |   |         |  
|Payments on equipment loan and line of credit                                         |  |                     |         |   |      |   |        |      |  |   | (271    | )
|Proceeds from issuance of convertible notes payable and bridge
    loan               |  |                     |         |   |      |   |        |      |  |   | 4,636   |  
|Proceeds from exercise of warrants                                                    |  |                     | 717      |   |      |   | 4,233   |      |  |   | 59      |  
|Proceeds from exercise of stock options                                               |  |                     | 2,048    |   |      |   | 1,204   |      |  |   | 9       |  
|Excess tax benefit from exercise of stock options                                     |  |                     | 19,036   |   |      |   |        |      |  |   |        |  
|Proceeds from issuance of common stock                                                |  |                     | 107,772  |   |      |   |        |      |  |   |        |  
|Payments of initial public offering costs                                             |  |                     |         |   |      |   | (1,174  | )    |  |   |        |  
|Dividend payments                                                                     |  |                     |         |   |      |   | (45,000 | )    |  |   |        |  
|                                                                                      |  |                     |          |   |      |   |         |      | 
|Net cash provided by/(used in) financing activities                                   |  |                     | 129,573  |   |      |   | (40,737 | )    |  |   | 4,433   |  
|Net increase/(decrease) in Cash and cash equivalents                                  |  |                     | 10,160   |   |      |   | (18,736 | )    |  |   | 33,986  |  
|Cash and cash equivalents at beginning of year                                        |  |                     | 24,655   |   |      |   | 43,391  |      |  |   | 9,405   |  
|                                                                                      |  |                     |          |   |      |   |         |      | 
|Cash and cash equivalents at end of year                                              |  | $                   | 34,815   |   |      | $ | 24,655  |      |  | $ | 43,391  |  
|                                                                                      |  |                     |          |   |      |   |         |      | 
|Supplemental Disclosure of Cash Flow Information                                      |  |                     |          |   |      |   |         |      |  |   |         |  
|Cash paid during the year for interest                                                |  | $                   |         |   |      | $ |        |      |  | $ | 917     |  
|Cash paid during the year for income taxes                                            |  | $                   | 10,732   |   |      | $ | 13,084  |      |  | $ | 400     |  



F-6



---



##### Table of Contents



Adams Respiratory Therapeutics, Inc.





Notes to Consolidated Financial Statements


($ in thousands, except per share amounts)




|   |                                                                        
|-- | -----------------------------------------------------------------------
|1. | Nature of Operations and Summary of Significant Accounting
    Policies



| |                     
| | --------------------
| | Nature of Operations

over-the




| |                      
| | ---------------------
| | Basis of Presentation





| |                            
| | ---------------------------
| | Principles of Consolidation





| |                 
| | ----------------
| | Use of Estimates





| |                                 
| | --------------------------------
| | Derivative Financial Instruments





| |                 
| | ----------------
| | Cash Equivalents





| |            
| | -----------
| | Investments



held-to Accounting
for Certain Investments in Debt and Equity Securities.


F-7



---



##### Table of Contents



Adams Respiratory Therapeutics, Inc.


Notes to Consolidated Financial
Statements  (Continued)


($ in thousands, except per share amounts)


held-to




|                              |  |                |        |            |       |  |            |        |  |                |       |  |  |   |        | 
|----------------------------- |  | -------------- | ------ | ---------- | ----- |  | ---------- | ------ |  | -------------- | ----- |  |  | - | ------ | 
|                              |  |                |        | Gross      |       |  | Gross      |        |  |               
|                              |  |                |        | Unrealized |       |  | Unrealized |        |  | Estimated Fair |      
|                              |  | Amortized Cost |        |            | Gains |  |            | Losses |  |                | Value | 
|                              |  |                |        |            |       |  |            |        |  |                |       | 
|U.S. state agency bonds       |  | $              | 12,282 |            |       |  |           |        |  | $              | 13    |  |  | $ | 12,269 | 
|U.S. federal government bonds |  |                | 25,000 |            |       |  |           |        |  |                | 163   |  |  |   | 24,837 | 
|                              |  |                |        |            |       |  |            |        |  |                |       | 
|Total investments             |  | $              | 37,282 |            |       |  |           |        |  | $              | 176   |  |  | $ | 37,106 | 
|                              |  |                |        |            |       |  |            |        |  |                |       | 



|                                     |  |                |        |                |       |   |        | 
|------------------------------------ |  | -------------- | ------ | -------------- | ----- | - | ------ | 
|                                     |  |                |        | Estimated Fair |      
|                                     |  | Amortized Cost |        |                | Value |  
|                                     |  |                |        |                |       |  
|Due in one year or less              |  | $              | 22,282 |                |       | $ | 22,223 | 
|Due after one year through two years |  |                | 15,000 |                |       |   | 14,883 | 
|                                     |  |                |        |                |       |  
|Total investments                    |  | $              | 37,282 |                |       | $ | 37,106 | 
|                                     |  |                |        |                |       |  





| |                    
| | -------------------
| | Accounts Receivable

30-day


F-8



---



##### Table of Contents



Adams Respiratory Therapeutics, Inc.


Notes to Consolidated Financial
Statements  (Continued)


($ in thousands, except per share amounts)




| |            
| | -----------
| | Inventories

first-in,


|                               |  |          |        |   |      |   |       |  
|------------------------------ |  | -------- | ------ | - | ---- | - | ----- | -
|                               |  | June 30, |       
|                               |  |          |       
|                               |  | 2006     |        |   | 2005 |  
|                               |  |          |        |   |      |  
|Finished goods                 |  | $        | 10,627 |   |      | $ | 3,136 |  
|Less: reserve for obsolescence |  |          | (24    | ) |      |   | (29   | )
|                               |  |          |        |   |      |  
|                               |  | $        | 10,603 |   |      | $ | 3,107 |  
|                               |  |          |        |   |      |  





| |                              
| | -----------------------------
| | Property, Plant and Equipment

|                               |                                |          |       |       |      |   |       |       |  
|------------------------------ | ------------------------------ | -------- | ----- | ----- | ---- | - | ----- | ----- | -
|                               |                                | June 30, |      
|                               |                                |          |      
|                               |                                | 2006     |       |       | 2005 |  
|                               |                                |          |       |       |      |  
|Property, plant and equipment: |                                |          |       |       |      |   |       |      
|                               | Machinery and equipment        |          | $     | 390   |      |   | $     | 386   |  
|                               | Leasehold improvements         |          |       | 2,360 |      |   |       | 830   |  
|                               | Furniture and fixtures         |          |       | 3,034 |      |   |       | 1,176 |  
|                               | Construction in progress       |          |       | 2,311 |      |   |       |      |  
|                               |                                |          |       |       |      |  
|                               |                                |          | 8,095 |       |      |   | 2,392 |      
|                               | Less: accumulated depreciation |          |       | (707  | )    |   |       | (467  | )
|                               |                                |          |       |       |      |  
|                               |                                | $        | 7,388 |       |      | $ | 1,925 |      
|                               |                                |          |       |       |      |  





| |                  
| | -----------------
| | Intangible Assets



| |                 
| | ----------------
| | Delsym Trademark



F-9



---



##### Table of Contents



Adams Respiratory Therapeutics, Inc.


Notes to Consolidated Financial
Statements  (Continued)


($ in thousands, except per share amounts)






| |                              
| | -----------------------------
| | Amortizable Intangible Assets



Accounting for the
Impairment or Disposal of Long-Lived Assets.




tm tm tm


tm tm tm 18-month 18-month tm


F-10



---



##### Table of Contents



Adams Respiratory Therapeutics, Inc.


Notes to Consolidated Financial
Statements  (Continued)


($ in thousands, except per share amounts)










|            |  |   |       | 
|----------- |  | - | ----- | 
|Fiscal 2007 |  | $ | 836   | 
|Fiscal 2008 |  |   | 836   | 
|Fiscal 2009 |  |   | 807   | 
|Fiscal 2010 |  |   | 316   | 
|Fiscal 2011 |  |   | 316   | 
|Thereafter  |  |   | 2,017 | 
|            |  |   |      
|            |  | $ | 5,128 | 
|            |  |   |      



| |             
| | ------------
| | Other Assets







| |             
| | ------------
| | Income Taxes

Accounting for Income Taxes.


F-11



---



##### Table of Contents



Adams Respiratory Therapeutics, Inc.


Notes to Consolidated Financial
Statements  (Continued)


($ in thousands, except per share amounts)






| |                    
| | -------------------
| | Revenue Recognition





| |                             
| | ----------------------------
| | Sales Returns and Allowances













F-12



---



##### Table of Contents



Adams Respiratory Therapeutics, Inc.


Notes to Consolidated Financial
Statements  (Continued)


($ in thousands, except per share amounts)






| |                                         
| | ----------------------------------------
| | Cardinal Health Profit Share Arrangement

mark-up mark-up true-up mark-up








| |            
| | -----------
| | Advertising





| |                            
| | ---------------------------
| | Shipping and Handling Costs



F-13



---



##### Table of Contents



Adams Respiratory Therapeutics, Inc.


Notes to Consolidated Financial
Statements  (Continued)


($ in thousands, except per share amounts)






| |                                       
| | --------------------------------------
| | Accrued Compensation and Related Items





| |                    
| | -------------------
| | Product Development

scale-up








| |                             
| | ----------------------------
| | Accretion of Preferred Stock





| |                                        
| | ---------------------------------------
| | Accounting for Stock-Based Compensation

Share-Based Payment Accounting for Stock-Based Compensation Accounting for Stock-Based
Compensation  Transition and Disclosure.


F-14



---



##### Table of Contents



Adams Respiratory Therapeutics, Inc.


Notes to Consolidated Financial
Statements  (Continued)


($ in thousands, except per share amounts)








| |           
| | ----------
| | Other, net





| |                               
| | ------------------------------
| | Income/(Loss) per Common Share





| |                                          
| | -----------------------------------------
| | Recently Issued Accounting Pronouncements

Accounting for Uncertainty in Income Taxes Accounting for Income
Taxes.


F-15



---



##### Table of Contents



Adams Respiratory Therapeutics, Inc.


Notes to Consolidated Financial
Statements  (Continued)


($ in thousands, except per share amounts)




|   |             
|-- | ------------
|2. | Benefit Plan





|   |                          
|-- | -------------------------
|3. | Convertible Notes Payable





Accounting for Convertible Securities with
Beneficial Conversion Features or Contingently Adjustable
Conversion Ratios 00-27, Application of Issue 98-5 to Certain Convertible
Instruments


|                                                 |  |                |         |  
|------------------------------------------------ |  | -------------- | ------- | -
|                                                 |  | Series C Notes |        
|                                                 |  |                |        
|Balance of Notes as of June 30, 2003             |  |                | 13,785  |  
|Proceeds from Note Issuance in fiscal year 2004  |  |                | 4,636   |  
|Less value assigned to warrants and BCF          |  |                | (811    | )
|Amortization of debt discount (interest expense) |  |                | 1,406   |  
|                                                 |  |                |        
|Subtotal                                         |  |                | 19,016  |  
|Accrued interest                                 |  |                | 969     |  
|Unamortized discount                             |  |                | 2,119   |  
|Conversion of Notes to Series C                  |  |                | (22,104 | )
|                                                 |  |                |        
|Ending balance of Notes as of June 30, 2004      |  | $              |        |  
|                                                 |  |                |        

F-16



---



##### Table of Contents



Adams Respiratory Therapeutics, Inc.


Notes to Consolidated Financial
Statements  (Continued)


($ in thousands, except per share amounts)






|   |                                       
|-- | --------------------------------------
|4. | Redeemable Convertible Preferred Stock











|                              |  |          |         |   |          |   |         |          |  |   |          |  
|----------------------------- |  | -------- | ------- | - | -------- | - | ------- | -------- |  | - | -------- | -
|                              |  | Series A |         |   | Series B |   |         | Series C | 
|                              |  |          |         |   |          |   |         |          | 
|Balance at June 30, 2003      |  |          | 32,639  |   |          |   | 28,008  |          |  |   |         |  
|Issued, net of issuance costs |  |          |        |   |          |   |        |          |  |   | 22,104   |  
|Adjustment to fair value      |  |          | (6,584  | ) |          |   | (2,585  | )        |  |   | 36,679   |  
|Accretion of issuance costs   |  |          | 206     |   |          |   | 384     |          |  |   |         |  
|                              |  |          |         |   |          |   |         |          | 
|Balance at June 30, 2004      |  |          | 26,261  |   |          |   | 25,807  |          |  |   | 58,783   |  
|                              |  |          |         |   |          |   |         |          | 
|Exercise of warrants          |  |          |        |   |          |   | 3,038   |          |  |   |         |  
|Adjustment to fair value      |  |          | 72,444  |   |          |   | 69,406  |          |  |   | 60,716   |  
|                              |  |          |         |   |          |   |         |          | 
|Balance at June 30, 2005      |  |          | 98,705  |   |          |   | 98,251  |          |  |   | 119,499  |  
|                              |  |          |         |   |          |   |         |          | 
|Conversion to common stock    |  |          | (98,705 | ) |          |   | (98,251 | )        |  |   | (119,499 | )
|                              |  |          |         |   |          |   |         |          | 
|Balance at June 30, 2006      |  | $        |        |   |          | $ |        |          |  | $ |         |  
|                              |  |          |         |   |          |   |         |          | 



|   |                               
|-- | ------------------------------
|5. | Stockholders Equity (Deficit)



| |                        
| | -----------------------
| | Initial Public Offering



F-17



---



##### Table of Contents



Adams Respiratory Therapeutics, Inc.


Notes to Consolidated Financial
Statements  (Continued)


($ in thousands, except per share amounts)




| |                   
| | ------------------
| | Secondary Offering





| |                        
| | -----------------------
| | Stock Compensation Plan







lock-up




F-18



---



##### Table of Contents



Adams Respiratory Therapeutics, Inc.


Notes to Consolidated Financial
Statements  (Continued)


($ in thousands, except per share amounts)








|                                                     |  |                     |       |   |      |   |      |      |  |   |      |  
|---------------------------------------------------- |  | ------------------- | ----- | - | ---- | - | ---- | ---- |  | - | ---- | -
|                                                     |  | Year Ended June 30, |      
|                                                     |  |                     |      
|                                                     |  | 2006                |       |   | 2005 |   |      | 2004 | 
|                                                     |  |                     |       |   |      |   |      |      | 
|Expected life of the option (in years)               |  |                     | 5     |   |      |   | 6    |      |  |   | 6    |  
|Risk-free interest rate                              |  |                     | 4.1   | % |      |   | 3.4  | %    |  |   | 3.4  | %
|Volatility                                           |  |                     | 65.3  | % |      |   | 0    | %    |  |   | 0    | %
|Expected dividend yield                              |  |                     | 0     | % |      |   | 0    | %    |  |   | 0    | %
|Weighted-average fair value of stock options granted |  | $                   | 11.84 |   |      | $ | 1.14 |      |  | $ | 0.14 |  



|                                     |           |                       |       |           |       |   |      |       | 
|------------------------------------ | --------- | --------------------- | ----- | --------- | ----- | - | ---- | ----- | 
|                                     |           |                       |       | Weighted- |      
|                                     |           |                       |       | Average   |      
|                                     |           |                       |       | Exercise  |      
|                                     |           | Shares                |       |           | Price |  
|                                     |           |                       |       |           |       |  
|                                     |           | (Shares in thousands) |      
|Options outstanding at June 30, 2003 |           |                       | 1,297 |           |       | $ | 4.27 |      
|                                     | Granted   |                       |       | 2,082     |       |   |      | 0.71  | 
|                                     | Canceled  |                       |       | (133      | )     |   |      | 3.68  | 
|                                     | Exercised |                       |       | (22       | )     |   |      | 0.40  | 
|                                     |           |                       |       |           |       |  
|Options outstanding at June 30, 2004 |           |                       | 3,224 |           |       |   | 1.23 |      
|                                     | Granted   |                       |       | 486       |       |   |      | 6.56  | 
|                                     | Canceled  |                       |       | (79       | )     |   |      | 2.26  | 
|                                     | Exercised |                       |       | (384      | )     |   |      | 3.16  | 
|                                     |           |                       |       |           |       |  
|Options outstanding at June 30, 2005 |           |                       | 3,247 |           |       |   | 1.68 |      
|                                     | Granted   |                       |       | 955       |       |   |      | 20.74 | 
|                                     | Canceled  |                       |       | (26       | )     |   |      | 11.15 | 
|                                     | Exercised |                       |       | (1,338    | )     |   |      | 1.53  | 
|                                     |           |                       |       |           |       |  
|Options outstanding at June 30, 2006 |           |                       | 2,838 |           |       | $ | 8.08 |      
|                                     |           |                       |       |           |       |  

F-19



---



##### Table of Contents



Adams Respiratory Therapeutics, Inc.


Notes to Consolidated Financial
Statements  (Continued)


($ in thousands, except per share amounts)




|                          |  |                       |       |           |                     |  |           |           |  |           |           |  |  |             |         |  |             |          |     |            |           |  |           |  |  |   |       |  |  |   |        | 
|------------------------- |  | --------------------- | ----- | --------- | ------------------- |  | --------- | --------- |  | --------- | --------- |  |  | ----------- | ------- |  | ----------- | -------- | --- | ---------- | --------- |  | --------- |  |  | - | ----- |  |  | - | ------ | 
|                          |  | Options Outstanding   |       |           | Options Exercisable | 
|                          |  |                       |       |           |                     | 
|                          |  |                       |       | Weighted- |                     |  |           |           |  |           | Weighted- |  |  |            
|                          |  |                       |       | Average   |                     |  |           |           |  |           | Average   |  |  |            
|                          |  |                       |       | Years     |                     |  | Weighted- |           |  |           |           |  |  | Years       |         |  | Weighted-   |          |     |           
|                          |  |                       |       | Remaining |                     |  | Average   |           |  |           |           |  |  | Remaining   |         |  | Average     |          |     |           
|                          |  |                       |       | on        |                     |  | Exercise  |           |  | Aggregate |           |  |  |             | on      |  |             | Exercise |     |            | Aggregate | 
|                          |  | Number                |       |           | Contractual         |  |           | Price per |  |           | Intrinsic |  |  | Number      |         |  | Contractual |          |     | Price      |           |  | Intrinsic | 
|Ranges of Exercise Prices |  | Outstanding           |       |           | Life                |  |           | Option    |  |           | Value     |  |  | Exercisable |         |  | Life        |          |     | per Option |           |  | Value     | 
|                          |  |                       |       |           |                     |  |           |           |  |           |           |  |  |             |         |  |             |          |     |            |           |  |           | 
|                          |  | (Shares in thousands) |      
|$0.40                     |  |                       | 1,163 |           |                     |  | 7.0       |           |  | $         | 0.40      |  |  | $           | 51,405  |  |             |          | 739 |            |           |  | 6.9       |  |  | $ | 0.40  |  |  | $ | 32,676 | 
|$1.42 - $2.22             |  |                       | 340   |           |                     |  | 7.7       |           |  |           | 1.59      |  |  |             | 14,647  |  |             |          | 37  |            |           |  | 7.8       |  |  |   | 1.84  |  |  |   | 1,569  | 
|$3.02 - $4.56             |  |                       | 125   |           |                     |  | 7.7       |           |  |           | 3.16      |  |  |             | 5,195   |  |             |          | 17  |            |           |  | 4.3       |  |  |   | 3.99  |  |  |   | 706    | 
|$5.01 - $5.70             |  |                       | 172   |           |                     |  | 8.3       |           |  |           | 5.02      |  |  |             | 6,795   |  |             |          | 5   |            |           |  | 7.0       |  |  |   | 5.39  |  |  |   | 202    | 
|$11.40                    |  |                       | 95    |           |                     |  | 8.6       |           |  |           | 11.40     |  |  |             | 3,149   |  |             |          | 8   |            |           |  | 8.6       |  |  |   | 11.40 |  |  |   | 257    | 
|$17.00                    |  |                       | 783   |           |                     |  | 9.1       |           |  |           | 17.00     |  |  |             | 21,619  |  |             |          | 9   |            |           |  | 9.1       |  |  |   | 17.00 |  |  |   | 245    | 
|$28.50 - $48.00           |  |                       | 160   |           |                     |  | 9.5       |           |  |           | 39.10     |  |  |             | 992     |  |             |          | 1   |            |           |  | 9.2       |  |  |   | 34.11 |  |  |   | 9      | 
|                          |  |                       |       |           |                     |  |           |           |  |           |           |  |  |             |         |  |             |          |     |            |           |  |           | 
|                          |  |                       | 2,838 |           |                     |  |           |           |  |           |           |  |  | $           | 103,802 |  |             |          | 816 |            |           |  |           |  |  |   |       |  |  | $ | 35,664 | 
|                          |  |                       |       |           |                     |  |           |           |  |           |           |  |  |             |         |  |             |          |     |            |           |  |           | 





|                                              |  |                       |       |                  |                       |   |       | 
|--------------------------------------------- |  | --------------------- | ----- | ---------------- | --------------------- | - | ----- | 
|                                              |  |                       |       | Weighted Average |                      
|                                              |  | Number of             |       |                  | Grant Date            |  
|                                              |  | Options               |       |                  | Fair Value per Option |  
|                                              |  |                       |       |                  |                       |  
|                                              |  | (Shares in thousands) |      
|Nonvested options at June 30, 2005            |  |                       | 1,631 |                  |                       | $ | 0.42  | 
|Nonvested options at June 30, 2006            |  |                       | 2,022 |                  |                       |   | 5.72  | 
|Vested during the year ended June 30, 2006    |  |                       | 581   |                  |                       |   | 0.52  | 
|Granted during the year ended June 30, 2006   |  |                       | 955   |                  |                       |   | 11.84 | 
|Forfeited during the year ended June 30, 2006 |  |                       | 26    |                  |                       |   | 4.50  | 



F-20



---



##### Table of Contents



Adams Respiratory Therapeutics, Inc.


Notes to Consolidated Financial
Statements  (Continued)


($ in thousands, except per share amounts)




| |         
| | --------
| | Warrants



|               |       |  |          |   |      |             |  |  |          |  |  |   |      | 
|-------------- | ----- |  | -------- | - | ---- | ----------- |  |  | -------- |  |  | - | ---- | 
|As of June 30, |      
|               |      
|2006           |       |  | 2005     |  
|               |       |  |          |  
|Outstanding    |       |  | Exercise |   |      | Outstanding |  |  | Exercise | 
|Warrants       |       |  | Price    |   |      | Warrants    |  |  | Price    | 
|               |       |  |          |   |      |             |  |  |          | 
|               | 1,020 |  |          | $ | 0.03 |             |  |  | 3,711    |  |  | $ | 0.03 | 
|               |      |  |          | $ | 4.13 |             |  |  | 133,986  |  |  | $ | 4.13 | 
|               | 324   |  |          | $ | 4.56 |             |  |  | 265,768  |  |  | $ | 4.56 | 
|               |       |  |          |   |      |             |  |  |          | 
|               | 1,344 |  |          |   |      |             |  |  | 403,465  |  |  |   |      | 
|               |       |  |          |   |      |             |  |  |          | 





|   |             
|-- | ------------
|6. | Income Taxes







|                          |         |          |        |        |      |   |        |       |  |   |         |         |  
|------------------------- | ------- | -------- | ------ | ------ | ---- | - | ------ | ----- |  | - | ------- | ------- | -
|                          |         | June 30, |       
|                          |         |          |       
|                          |         | 2006     |        |        | 2005 |   |        | 2004  | 
|                          |         |          |        |        |      |   |        |       | 
|Current provision:        |         |          |        |        |      |   |        |       |  |   |         |        
|                          | Federal |          | $      | 25,450 |      |   | $      | 6,743 |  |   | $       | 519     |  
|                          | State   |          |        | 2,248  |      |   |        | 2,146 |  |   |         | 150     |  
|Deferred:                 |         |          |        |        |      |   |        |       |  |   |         |        
|                          | Federal |          |        | 1,457  |      |   |        | 7,767 |  |   |         | (15,014 | )
|                          | State   |          |        | 646    |      |   |        | 782   |  |   |         | (1,779  | )
|                          |         |          |        |        |      |   |        |       | 
|Total provision/(benefit) |         | $        | 29,801 |        |      | $ | 17,438 |       |  | $ | (16,124 | )      
|                          |         |          |        |        |      |   |        |       | 

F-21



---



##### Table of Contents



Adams Respiratory Therapeutics, Inc.


Notes to Consolidated Financial
Statements  (Continued)


($ in thousands, except per share amounts)




|                                           |  |          |      |   |      |  |      |      |  |  |        |   
|------------------------------------------ |  | -------- | ---- | - | ---- |  | ---- | ---- |  |  | ------ | --
|                                           |  | June 30, |     
|                                           |  |          |     
|                                           |  | 2006     |      |   | 2005 |  |      | 2004 | 
|                                           |  |          |      |   |      |  |      |      | 
|Provision at Federal statutory rate        |  |          | 35.0 | % |      |  | 35.0 | %    |  |  | 35.0   | % 
|State income taxes, net of Federal benefit |  |          | 2.6  |   |      |  | 4.3  |      |  |  | (5.4   | ) 
|Research credit                            |  |          | (0.1 | ) |      |  | (0.4 | )    |  |  | (0.7   | ) 
|Change in valuation allowance              |  |          |     |   |      |  |     |      |  |  | (113.8 | ) 
|Debt discount                              |  |          |     |   |      |  |     |      |  |  | 2.0    |   
|Incentive stock options                    |  |          | 1.4  |   |      |  | 0.3  |      |  |  | 0.7    |   
|Other                                      |  |          | 0.2  |   |      |  |     |      |  |  | 0.4    |   
|                                           |  |          |      |   |      |  |      |      | 
|Effective tax rate                         |  |          | 39.1 | % |      |  | 39.2 | %    |  |  | (81.8  | )%
|                                           |  |          |      |   |      |  |      |      | 



|                                   |                                       |                                         |       |       |       |   |       |        |       | 
|---------------------------------- | ------------------------------------- | --------------------------------------- | ----- | ----- | ----- | - | ----- | ------ | ----- | 
|                                   |                                       | June 30,                                |      
|                                   |                                       |                                         |      
|                                   |                                       | 2006                                    |       |       | 2005  |  
|                                   |                                       |                                         |       |       |       |  
|Deferred tax assets  current:     |                                       |                                         |       |       |       |   |       |       
|                                   | Net operating loss carryforwards      |                                         | $     | 151   |       |   | $     | 1,733  |      
|                                   | Sales returns and allowances          |                                         |       | 2,971 |       |   |       | 3,782  |      
|                                   | Research credit                       |                                         |       | 200   |       |   |       |       |      
|                                   | Other                                 |                                         |       | 337   |       |   |       | (60    | )    
|                                   |                                       |                                         |       |       |       |  
|                                   |                                       | Total deferred tax assets  current     |       |       | 3,659 |   |       |        | 5,455 | 
|                                   |                                       |                                         |       |       |       |  
|Deferred tax assets  non-current: |                                       |                                         |       |       |       |   |       |       
|                                   | Net operating loss carryforwards      |                                         |       | 639   |       |   |       | 595    |      
|                                   | Deferred gain on sale of plant assets |                                         |       | 491   |       |   |       | 606    |      
|                                   | Research credit                       |                                         |       |      |       |   |       | 341    |      
|                                   | Nonqualified stock options            |                                         |       | 1,292 |       |   |       | 882    |      
|                                   | Humibid returns                       |                                         |       | 400   |       |   |       | 1,230  |      
|                                   | Intangibles                           |                                         |       | (623  | )     |   |       | (1,199 | )    
|                                   | Other                                 |                                         |       | 346   |       |   |       | 334    |      
|                                   |                                       |                                         |       |       |       |  
|                                   |                                       | Total deferred tax assets  non-current |       |       | 2,545 |   |       |        | 2,789 | 
|                                   |                                       |                                         |       |       |       |  
|Total net deferred tax assets      |                                       | $                                       | 6,204 |       |       | $ | 8,244 |       
|                                   |                                       |                                         |       |       |       |  

F-22



---



##### Table of Contents



Adams Respiratory Therapeutics, Inc.


Notes to Consolidated Financial
Statements  (Continued)


($ in thousands, except per share amounts)




|   |                               
|-- | ------------------------------
|7. | Income/(Loss) per Common Share



|                                                    |                                                                                   |                       |        |       |      |   |          |      |        |   |         |       |      | 
|--------------------------------------------------- | --------------------------------------------------------------------------------- | --------------------- | ------ | ----- | ---- | - | -------- | ---- | ------ | - | ------- | ----- | ---- | 
|                                                    |                                                                                   | June 30,              |       
|                                                    |                                                                                   |                       |       
|                                                    |                                                                                   | 2006                  |        |       | 2005 |   |          | 2004 |       
|                                                    |                                                                                   |                       |        |       |      |   |          |      |       
|                                                    |                                                                                   | (Shares in thousands) |       
|Net income                                          |                                                                                   | $                     | 46,351 |       |      | $ | 26,999   |      |        | $ | 35,826  |      
|Accretion of preferred stock                        |                                                                                   |                       |       |       |      |   | (202,566 | )    |        |   | (28,100 | )    
|Dividend paid to preferred stockholders             |                                                                                   |                       |       |       |      |   | (30,033  | )    |        |   |        |      
|                                                    |                                                                                   |                       |        |       |      |   |          |      |       
|Net income/(loss) applicable to common stockholders |                                                                                   | $                     | 46,351 |       |      | $ | (205,600 | )    |        | $ | 7,726   |      
|                                                    |                                                                                   |                       |        |       |      |   |          |      |       
|Average shares outstanding  basic                  |                                                                                   |                       | 32,616 |       |      |   | 6,236    |      |        |   | 4,699   |      
|                                                    | Weighted average assumed conversion of redeemable convertible
    preferred stock |                       |        | 961   |      |   |          |     |        |   |         |      |     
|                                                    | Weighted average dilutive warrants                                                |                       |        | 196   |      |   |          |     |        |   |         | 2,790 |     
|                                                    | Weighted average dilutive stock options                                           |                       |        | 2,571 |      |   |          |     |        |   |         | 1,140 |     
|                                                    | Weighted average dilutive restricted stock units                                  |                       |        | 5     |      |   |          |     |        |   |         |      |     
|                                                    |                                                                                   |                       |        |       |      |   |          |      |       
|Average shares outstanding  diluted                |                                                                                   |                       | 36,349 |       |      |   | 6,236    |      |        |   | 8,629   |      
|                                                    |                                                                                   |                       |        |       |      |   |          |      |       
|Income/(loss) per common share:                     |                                                                                   |                       |        |       |      |   |          |      |        |   |         |      
|                                                    |                                                                                   | Basic                 |        | $     | 1.42 |   |          | $    | (32.97 | ) |         | $     | 1.64 | 
|                                                    |                                                                                   | Diluted               |        | $     | 1.28 |   |          | $    | (32.97 | ) |         | $     | 0.90 | 



|              |  |                       |     |  |      |  |       |      |  |  |       | 
|------------- |  | --------------------- | --- |  | ---- |  | ----- | ---- |  |  | ----- | 
|              |  | June 30,              |    
|              |  |                       |    
|              |  | 2006                  |     |  | 2005 |  |       | 2004 | 
|              |  |                       |     |  |      |  |       |      | 
|              |  | (Shares in thousands) |    
|Warrants      |  |                       |    |  |      |  | 2,713 |      |  |  | 1,334 | 
|Stock options |  |                       | 135 |  |      |  | 2,703 |      |  |  | 955   | 
|              |  |                       |     |  |      |  |       |      | 
|              |  |                       | 135 |  |      |  | 5,416 |      |  |  | 2,289 | 
|              |  |                       |     |  |      |  |       |      | 



|   |                              
|-- | -----------------------------
|8. | Commitments and Contingencies





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##### Table of Contents



Adams Respiratory Therapeutics, Inc.


Notes to Consolidated Financial
Statements  (Continued)


($ in thousands, except per share amounts)




|            |  |   |        | 
|----------- |  | - | ------ | 
|Fiscal 2007 |  | $ | 1,915  | 
|Fiscal 2008 |  |   | 1,342  | 
|Fiscal 2009 |  |   | 1,070  | 
|Fiscal 2010 |  |   | 1,011  | 
|Fiscal 2011 |  |   | 947    | 
|Thereafter  |  |   | 6,634  | 
|            |  |   |       
|            |  | $ | 12,919 | 
|            |  |   |       











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##### Table of Contents



Adams Respiratory Therapeutics, Inc.


Notes to Consolidated Financial
Statements  (Continued)


($ in thousands, except per share amounts)


tm


tm tm 18-month 18-month tm


tm tm




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##### Table of Contents



Adams Respiratory Therapeutics, Inc.


Notes to Consolidated Financial
Statements  (Continued)


($ in thousands, except per share amounts)








|   |         
|-- | --------
|9. | Dividend





|    |                      
|--- | ---------------------
|10. | Net Sales Information



| |                     
| | --------------------
| | Net Sales by Product



|               |  |                     |         |  |      |   |         |      |  |   |        | 
|-------------- |  | ------------------- | ------- |  | ---- | - | ------- | ---- |  | - | ------ | 
|               |  | Year Ended June 30, |        
|               |  |                     |        
|Product        |  | 2006                |         |  | 2005 |   |         | 2004 | 
|               |  |                     |         |  |      |   |         |      | 
|               |  | (In thousands)      |        
|Mucinex SE     |  | $                   | 158,575 |  |      | $ | 117,369 |      |  | $ | 52,863 | 
|Mucinex DM     |  |                     | 59,235  |  |      |   | 38,278  |      |  |   |       | 
|Mucinex D      |  |                     | 19,347  |  |      |   |        |      |  |   |       | 
|Humibid SE     |  |                     | 1,296   |  |      |   |        |      |  |   |       | 
|Delsym         |  |                     | 652     |  |      |   |        |      |  |   |       | 
|Other products |  |                     |        |  |      |   | 4,563   |      |  |   | 8,432  | 
|               |  |                     |         |  |      |   |         |      | 
|Net Sales      |  | $                   | 239,105 |  |      | $ | 160,210 |      |  | $ | 61,295 | 
|               |  |                     |         |  |      |   |         |      | 

Concentration of Credit Risk




F-26



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##### Table of Contents



Adams Respiratory Therapeutics, Inc.


Notes to Consolidated Financial
Statements  (Continued)


($ in thousands, except per share amounts)




|                                 |  |                     |    |   |      |  |    |      |  |  |    |  
|-------------------------------- |  | ------------------- | -- | - | ---- |  | -- | ---- |  |  | -- | -
|                                 |  | Year Ended June 30, |   
|                                 |  |                     |   
|                                 |  | 2006                |    |   | 2005 |  |    | 2004 | 
|                                 |  |                     |    |   |      |  |    |      | 
|Wholesaler  A                   |  |                     | 11 | % |      |  | 14 | %    |  |  | 24 | %
|Wholesaler  B                   |  |                     | 3  | % |      |  | 7  | %    |  |  | 20 | %
|Wholesaler  C                   |  |                     | 6  | % |      |  | 7  | %    |  |  | 20 | %
|Major retailer  A               |  |                     | 12 | % |      |  | 14 | %    |  |  | 6  | %
|Major retailer  B               |  |                     | 10 | % |      |  | 11 | %    |  |  | 6  | %
|Major retailer/mass merchandiser |  |                     | 19 | % |      |  | 16 | %    |  |  | 7  | %



|    |                  
|--- | -----------------
|11. | Subsequent Events









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##### Table of Contents



Adams Respiratory Therapeutics, Inc.


Notes to Consolidated Financial
Statements  (Continued)


($ in thousands, except per share amounts)




|    |                  
|--- | -----------------
|12. | Quarterly Results

|                                                    |  |               |        |   |                |   |         |               |  |   |                |   |  |      |         |   |      |   |        |      |  |   |         |   |  |   |        |   |  |   |         |  
|--------------------------------------------------- |  | ------------- | ------ | - | -------------- | - | ------- | ------------- |  | - | -------------- | - |  | ---- | ------- | - | ---- | - | ------ | ---- |  | - | ------- | - |  | - | ------ | - |  | - | ------- | -
|                                                    |  | First Quarter |        |   | Second Quarter |   |         | Third Quarter |  |   | Fourth Quarter |  
|                                                    |  |               |        |   |                |   |         |               |  |   |                |  
|                                                    |  | 2006          |        |   | 2005           |   |         | 2006          |  |   | 2005           |   |  | 2006 |         |   | 2005 |   |        | 2006 |  |   | 2005    |  
|                                                    |  |               |        |   |                |   |         |               |  |   |                |   |  |      |         |   |      |   |        |      |  |   |         |  
|                                                    |  | (Unaudited)   |       
|Net Sales                                           |  | $             | 47,017 |   |                | $ | 25,923  |               |  | $ | 63,247         |   |  | $    | 36,098  |   |      | $ | 76,002 |      |  | $ | 59,038  |   |  | $ | 52,839 |   |  | $ | 39,151  |  
|Cost of goods sold                                  |  |               | 8,521  |   |                |   | 6,211   |               |  |   | 13,920         |   |  |      | 7,139   |   |      |   | 16,166 |      |  |   | 11,326  |   |  |   | 10,751 |   |  |   | 6,450   |  
|                                                    |  |               |        |   |                |   |         |               |  |   |                |   |  |      |         |   |      |   |        |      |  |   |         |  
|Gross profit                                        |  |               | 38,496 |   |                |   | 19,712  |               |  |   | 49,327         |   |  |      | 28,959  |   |      |   | 59,836 |      |  |   | 47,712  |   |  |   | 42,088 |   |  |   | 32,701  |  
|Selling, marketing and administrative               |  |               | 15,869 |   |                |   | 7,831   |               |  |   | 29,693         |   |  |      | 22,937  |   |      |   | 28,440 |      |  |   | 21,903  |   |  |   | 24,996 |   |  |   | 25,373  |  
|Product development                                 |  |               | 3,426  |   |                |   | 1,475   |               |  |   | 4,096          |   |  |      | 1,584   |   |      |   | 3,837  |      |  |   | 1,459   |   |  |   | 7,545  |   |  |   | 2,874   |  
|Other, net                                          |  |               | (926   | ) |                |   | (109    | )             |  |   | (1,862         | ) |  |      | (133    | ) |      |   | (80    | )    |  |   | (200    | ) |  |   | (1,439 | ) |  |   | (347    | )
|                                                    |  |               |        |   |                |   |         |               |  |   |                |   |  |      |         |   |      |   |        |      |  |   |         |  
|Income before income taxes                          |  |               | 20,127 |   |                |   | 10,515  |               |  |   | 17,400         |   |  |      | 4,571   |   |      |   | 27,639 |      |  |   | 24,550  |   |  |   | 10,986 |   |  |   | 4,801   |  
|Provision for income taxes                          |  |               | 7,739  |   |                |   | 4,080   |               |  |   | 6,734          |   |  |      | 1,778   |   |      |   | 10,696 |      |  |   | 9,756   |   |  |   | 4,632  |   |  |   | 1,824   |  
|                                                    |  |               |        |   |                |   |         |               |  |   |                |   |  |      |         |   |      |   |        |      |  |   |         |  
|Net income                                          |  |               | 12,388 |   |                |   | 6,435   |               |  |   | 10,666         |   |  |      | 2,793   |   |      |   | 16,943 |      |  |   | 14,794  |   |  |   | 6,354  |   |  |   | 2,977   |  
|Accretion of preferred stock                        |  |               |       |   |                |   | (62,789 | )             |  |   |               |   |  |      | (62,789 | ) |      |   |       |      |  |   | (24,999 | ) |  |   |       |   |  |   | (51,989 | )
|Dividend paid to preferred stockholders             |  |               |       |   |                |   |        |               |  |   |               |   |  |      |        |   |      |   |       |      |  |   |        |   |  |   |       |   |  |   | (30,033 | )
|                                                    |  |               |        |   |                |   |         |               |  |   |                |   |  |      |         |   |      |   |        |      |  |   |         |  
|Net income/(loss) applicable to common stockholders |  | $             | 12,388 |   |                | $ | (56,354 | )             |  | $ | 10,666         |   |  | $    | (59,996 | ) |      | $ | 16,943 |      |  | $ | (10,205 | ) |  | $ | 6,354  |   |  | $ | (79,045 | )
|                                                    |  |               |        |   |                |   |         |               |  |   |                |   |  |      |         |   |      |   |        |      |  |   |         |  
|Income/(loss) per common share  diluted            |  | $             | 0.36   |   |                | $ | (9.77   | )             |  | $ | 0.29           |   |  | $    | (10.00  | ) |      | $ | 0.46   |      |  | $ | (1.67   | ) |  | $ | 0.17   |   |  | $ | (11.20  | )

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##### Table of Contents



Schedule II





Adams Respiratory Therapeutics, Inc.


Valuation and Qualifying Accounts


($ in thousands)




|                                            |  |                                   |      |   |           |   |        |             |  |   |                     |   |  |   |         |  
|------------------------------------------- |  | --------------------------------- | ---- | - | --------- | - | ------ | ----------- |  | - | ------------------- | - |  | - | ------- | -
|                                            |  | Allowance for Accounts Receivable |      |   |          
|                                            |  |                                   |      |   |          
|                                            |  | Reserve for                       |      |   | Reserve   |   |        | Reserve for |  |   | Valuation           |  
|                                            |  | Doubtful                          |      |   | for Cash  |   |        | Trade       |  |   | Allowance for       |  
|                                            |  | Accounts                          |      |   | Discounts |   |        | Promotions  |  |   | Deferred Tax Assets |  
|                                            |  |                                   |      |   |           |   |        |             |  |   |                     |  
|For the year ended June 30, 2004:           |  |                                   |      |   |           |   |        |             |  |   |                     |   |  |   |         |  
|Balance at the beginning of the year        |  | $                                 | 35   |   |           | $ | 49     |             |  | $ |                    |   |  | $ | 25,118  |  
|Additions: Charged to costs and expenses(1) |  |                                   | 182  |   |           |   | 1,526  |             |  |   | 1,155               |   |  |   |        |  
|Deductions from reserves                    |  |                                   | (14  | ) |           |   | (1,432 | )           |  |   | (167                | ) |  |   | (25,118 | )
|                                            |  |                                   |      |   |           |   |        |             |  |   |                     |  
|Balance at the end of period                |  |                                   | 203  |   |           |   | 143    |             |  |   | 988                 |   |  |   |        |  
|                                            |  |                                   |      |   |           |   |        |             |  |   |                     |  
|For year ended June 30, 2005:               |  |                                   |      |   |           |   |        |             |  |   |                     |   |  |   |         |  
|Balance at the beginning of the year        |  |                                   | 203  |   |           |   | 143    |             |  |   | 988                 |   |  |   |        |  
|Additions: Charged to costs and expenses(1) |  |                                   | (4   | ) |           |   | 3,441  |             |  |   | 5,998               |   |  |   |        |  
|Deductions from reserves                    |  |                                   | (33  | ) |           |   | (3,414 | )           |  |   | (4,878              | ) |  |   |        |  
|                                            |  |                                   |      |   |           |   |        |             |  |   |                     |  
|Balance at the end of period                |  |                                   | 166  |   |           |   | 170    |             |  |   | 2,108               |   |  |   |        |  
|                                            |  |                                   |      |   |           |   |        |             |  |   |                     |  
|For year ended June 30, 2006:               |  |                                   |      |   |           |   |        |             |  |   |                     |   |  |   |         |  
|Balance at the beginning of the year        |  |                                   | 166  |   |           |   | 170    |             |  |   | 2,108               |   |  |   |        |  
|Additions: Charged to costs and expenses(1) |  |                                   | (112 | ) |           |   | 5,196  |             |  |   | 6,897               |   |  |   |        |  
|Deductions from reserves                    |  |                                   |     |   |           |   | (4,871 | )           |  |   | (6,209              | ) |  |   |        |  
|                                            |  |                                   |      |   |           |   |        |             |  |   |                     |  
|Balance at the end of period                |  | $                                 | 54   |   |           | $ | 495    |             |  | $ | 2,796               |   |  | $ |        |  
|                                            |  |                                   |      |   |           |   |        |             |  |   |                     |  






|    |                                                                                                              
|--- | -------------------------------------------------------------------------------------------------------------
|(1) | Charges related to cash discounts and trade promotions are
    reflected as reductions of sales to customers.

F-29