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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, DC 20549
 Form 10-K
 þ
    
    Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the year ended December 31, 2006
 o
    
    Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 Commission File Number: 0-13976
 AKORN, INC.
  LOUISIANA
    
    72-0717400(State or other jurisdiction of
    
    (IRS Employer Identification No.)incorporation or organization)
 2500 Millbrook Drive, Buffalo Grove, Illinois 60089
 Registrants telephone number: (847) 279-6100
 SECURITIES REGISTERED UNDER SECTION 12(b) OF THE EXCHANGE ACT:
 Title of each class
    
    Name of each exchange on which registeredCommon Stock, No Par Value
    
    The NASDAQ Stock Market LLC
 SECURITIES REGISTERED UNDER SECTION 12(g) OF THE EXCHANGE ACT:
 o þ
 o þ
  þ o
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##### Table of Contents



Forward-Looking Statements and Factors Affecting Future Results
  
    
    Our ability to comply with all of the requirements of the Food and Drug Administration,
including current Good Manufacturing Practices regulations;
    
    Our ability to obtain regulatory approvals of, commence operations at and obtain business
for our new lyophilization facility;
    
    Our ability to avoid defaults under debt covenants;
    
    Our ability to generate cash from operations sufficient to meet our working capital requirements;
    
    The effects of federal, state and other governmental regulation on our business;
    
    Our success in developing, manufacturing, acquiring and marketing new products;
    
    The success of our strategic partnerships for the development and marketing of new products;
    
    Our ability to bring new products to market and the effects of sales of such products on our financial results;
    
    The effects of competition from generic pharmaceuticals and from other pharmaceutical companies;
    
    Availability of raw materials needed to produce our products; and
    
    Other factors referred to in this Form 10-K and our other Securities and Exchange Commission filings.
  2




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##### 



FORM 10-K TABLE OF CONTENTS
  
 PagePART IItem 1.
    
    Business
    
    
    4Item 1A.
    
    Risk Factors
    
    
    9Item 1B.
    
    Unresolved Staff Comments
    
    
    15Item 2.
    
    Properties
    
    
    15Item 3.
    
    Legal Proceedings
    
    
    16Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    16PART IIItem 5.
    
    Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
    
    
    17Item 6.
    
    Selected Financial Data
    
    
    19Item 7.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    20Item 7A.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    33Item 8.
    
    Financial Statements and Supplementary Data
    
    
    33Item 9.
    
    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    58Item 9A.
    
    Controls and Procedures
    
    
    58Item 9B.
    
    Other Information
    
    
    59PART IIIItem 10.
    
    Directors, Executive Officers and Corporate Governance
    
    
    60Item 11.
    
    Executive Compensation
    
    
    60Item 12.
    
    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    60Item 13.
    
    Certain Relationships and Related Transactions and Director Independence
    
    
    60Item 14.
    
    Principal Accounting Fees and Services
    
    
    60PART IVItem 15.
    
    Exhibits, Financial Statement Schedules
    
    
    61Addendum 1 to License and Supply AgreementGuaranty and Collateral AgreementConsent of Registered Public Accountant302 Certification of Chief Executive Officer302 Certification of Chief Financial Officer906 Certification of Chief Executive Officer906 Certification of Chief Financial Officer
  3




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PART I
 
 Item 1. Business
   Ophthalmic Segment.
 Hospital Drugs & Injectables Segment.
 Contract Services Segment.
 Manufacturing.
 Sales and Marketing.
  Research and Development.
 4




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5




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Patents, Trademarks and Proprietary Rights.
  Employee Relations.
 Competition.
    Suppliers and Customers.
 6




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
    
    AmerisourceBergen Corporation (AmerisourceBergen)
    
    Cardinal Health, Inc. (Cardinal); and
    
    McKesson Drug Company (McKesson).
  2006
    
    2005Gross
    
    Net
    
    Gross Accounts
    
    Gross
    
    Net
    
    Gross AccountsSales
    
    Revenue
    
    Receivable
    
    Sales
    
    Revenue
    
    ReceivableAmerisourceBergen
    
    
    13
    %
    
    
    9
    %
    
    
    12
    %
    
    
    24
    %
    
    
    16
    %
    
    
    28
    %Cardinal
    
    
    19
    %
    
    
    13
    %
    
    
    24
    %
    
    
    28
    %
    
    
    19
    %
    
    
    29
    %McKesson
    
    
    18
    %
    
    
    11
    %
    
    
    17
    %
    
    
    17
    %
    
    
    11
    %
    
    
    19
    %
  Backorders.
 Government Regulation.
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FDA Warning Letter.
 Product Recalls.
 DEA Regulation.


Environment


Foreign Sales


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Item 1A. Risk Factors.
 We have experienced recent operating losses, working capital deficiencies and negative cash flows
from operations, and these losses and deficiencies may continue in the future.
  We have invested significant resources in the development of lyophilization manufacturing
capability, and we may not realize the benefit of these efforts and expenditures .
   We depend on a small number of distributors, the loss of any of which could have a material adverse
effect.
  Certain of our directors are subject to conflicts of interest.
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We may require additional capital to grow our business and such funds may not be available to us.
  Our growth depends on our ability to timely develop additional pharmaceutical products and
manufacturing capabilities.
  We have entered into several strategic business alliances which may not result in marketable
products.
  Our success depends on the development of generic and off-patent pharmaceutical products which are
particularly susceptible to competition, substitution policies and reimbursement policies.
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We can be subject to legal proceedings against us, which may prove costly and time-consuming even
if meritless.
  Our revenues depend on sale of products manufactured by third parties, which we cannot control.
  Dependence on key executive officers.
  We must continue to attract and retain key personnel to be able to compete successfully.
  We are subject to extensive government regulations that increase our costs and could subject us to
fines, prevent us from selling our products or prevent us from operating our facilities.
  FDA regulations.
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We must obtain approval from the FDA for each pharmaceutical product that we market which
requires a regulatory submission.
 We and our third-party manufacturers are subject to periodic inspection by the FDA to assure
regulatory compliance regarding the manufacturing, distribution, and promotion of pharmaceutical
products.
  If the FDA changes its regulatory position, it could force us to delay or suspend our
manufacturing, distribution or sales of certain products.
  We are subject to extensive DEA regulation, which could result in our being fined or otherwise
penalized.
 We may implement product recalls and could be exposed to significant product liability claims; we
may have to pay significant amounts to those harmed and may suffer from adverse publicity as a
result.
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The FDA may authorize sales of some prescription pharmaceuticals on a non-prescription basis, which
would reduce the profitability of our prescription products.
  Our industry is very competitive. Additionally, changes in technology could render our products
obsolete.
  Many of the raw materials and components used in our products come from a single source.
  Our patents and proprietary rights may not adequately protect our products and processes.
  13




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Concentrated ownership of our common stock and our registration of shares for public sale creates a
risk of sudden changes in our share price.
  Exercise of warrants and options may have a substantial dilutive effect on our common stock.
  The terms of our preferred stock may reduce the value of our common stock.
  We experience significant quarterly fluctuation of our results of operations, which may increase
the volatility of our stock price
  Penny Stock rules may make buying or selling our common stock difficult.
  14




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The requirements of being a public company may strain our resources and distract management.
  
 Item 1B. Unresolved Staff Comments.
  
 Item 2. Properties.
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Item 3. Legal Proceedings.
  
 Item 4. Submission of Matters to a Vote of Security Holders.
  16




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PART II
 
 Item 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities.
  High
    
    LowYear Ending December 31, 20071st Quarter (through March 9, 2007)
    
    $
    6.48
    
    
    $
    5.00Year Ended December 31, 20061st Quarter
    
    
    5.55
    
    
    
    3.902nd Quarter
    
    
    5.37
    
    
    
    3.613rd Quarter
    
    
    4.25
    
    
    
    3.014th Quarter
    
    
    6.61
    
    
    
    3.40Year Ended December 31, 20051st Quarter
    
    $
    3.95
    
    
    $
    2.652nd Quarter
    
    
    3.18
    
    
    
    2.203rd Quarter
    
    
    3.80
    
    
    
    2.174th Quarter
    
    
    4.91
    
    
    
    3.12
     17




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EQUITY COMPENSATION PLANS
 Equity Compensation Plans Approved by Stockholders
   Number of securitiesremaining availableNumber of
    
    
    
    
    
    
    for future issuancesecurities to be
    
    
    
    
    
    
    under equityissued upon
    
    
    Weighted-average
    
    
    compensation plansexercise of
    
    
    price of
    
    
    (excludingoutstanding
    
    
    outstanding
    
    
    securitiesoptions, warrants
    
    
    options, warrants
    
    
    reflected in thePlan Category
    
    and rights
    
    
    and rights
    
    
    first column)Equity Compensation plans approved by security holders:
    
    
    3,505,375
    
    
    $
    3.40
    
    
    
    1,177,236Total
    
    
    3,505,375
    
    
    $
    3.40
    
    
    
    1,177,236
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Item 6. Selected Financial Data
  2006
    
    2005
    
    2004
    
    2003
    
    2002OPERATIONS DATA (000s)Revenues
    
    $
    71,250
    
    
    $
    44,484
    
    
    $
    50,708
    
    
    $
    45,491
    
    
    $
    51,419Gross profit
    
    
    26,880
    
    
    
    14,944
    
    
    
    18,202
    
    
    
    12,148
    
    
    
    20,537Operating loss (1)
    
    
    (4,905
    )
    
    
    (7,479
    )
    
    
    (368
    )
    
    
    (6,276
    )
    
    
    (3,565
    )Interest and other expense (2)
    
    
    (1,055
    )
    
    
    (1,113
    )
    
    
    (2,650
    )
    
    
    (6,220
    )
    
    
    (3,148
    )Pretax loss
    
    
    (5,960
    )
    
    
    (8,592
    )
    
    
    (3,018
    )
    
    
    (12,496
    )
    
    
    (6,713
    )Income tax provision (benefit) (3)
    
    
    3
    
    
    
    17
    
    
    
    8
    
    
    
    (171
    )
    
    
    6,239Net loss
    
    
    (5,963
    )
    
    
    (8,609
    )
    
    
    (3,026
    )
    
    
    (12,325
    )
    
    
    (12,952
    )Preferred stock dividends and adjustments (4)
    
    
    (843
    )
    
    
    (4,082
    )
    
    
    (34,436
    )
    
    
    
    
    
    
    Net loss available to common stockholders
    
    $
    (6,806
    )
    
    $
    (12,691
    )
    
    $
    (37,462
    )
    
    $
    (12,325
    )
    
    $
    (12,952
    )Weighted average shares outstanding:Basic
    
    
    73,988
    
    
    
    26,095
    
    
    
    20,817
    
    
    
    19,745
    
    
    
    19,589Diluted
    
    
    73,988
    
    
    
    26,095
    
    
    
    20,817
    
    
    
    19,745
    
    
    
    19,589PER SHAREEquity
    
    $
    0.95
    
    
    $
    1.57
    
    
    $
    2.27
    
    
    $
    0.58
    
    
    $
    0.58Net loss:Basic
    
    
    (0.09
    )
    
    
    (0.49
    )
    
    
    (1.80
    )
    
    
    (0.62
    )
    
    
    (0.66
    )Diluted
    
    
    (0.09
    )
    
    
    (0.49
    )
    
    
    (1.80
    )
    
    
    (0.62
    )
    
    
    (0.66
    )Price: High
    
    
    6.61
    
    
    
    4.91
    
    
    
    4.30
    
    
    
    2.35
    
    
    
    4.00Low
    
    
    3.01
    
    
    
    2.17
    
    
    
    2.00
    
    
    
    0.45
    
    
    
    0.60BALANCE SHEET (000s)Current assets
    
    $
    39,654
    
    
    $
    15,694
    
    
    $
    22,393
    
    
    $
    10,595
    
    
    $
    13,239Net property, plant & equipment
    
    
    33,486
    
    
    
    31,071
    
    
    
    31,893
    
    
    
    33,907
    
    
    
    35,314Total assets
    
    
    82,083
    
    
    
    57,095
    
    
    
    66,922
    
    
    
    59,415
    
    
    
    63,538Current liabilities, including debt in default (5)
    
    
    10,253
    
    
    
    15,460
    
    
    
    11,160
    
    
    
    11,959
    
    
    
    43,803Long-term obligations, less current installments (6)
    
    
    1,516
    
    
    
    602
    
    
    
    8,436
    
    
    
    36,065
    
    
    
    8,383Shareholders equity
    
    
    70,314
    
    
    
    41,033
    
    
    
    47,326
    
    
    
    11,391
    
    
    
    11,352CASH FLOW DATA (000s)From operating activities
    
    $
    2,509
    
    
    $
    (148
    )
    
    $
    (3,461
    )
    
    $
    (1,932
    )
    
    $
    9,357From investing activities
    
    
    (4,377
    )
    
    
    (1,857
    )
    
    
    (838
    )
    
    
    (1,743
    )
    
    
    (5,315
    )From financing activities
    
    
    22,895
    
    
    
    (1,314
    )
    
    
    8,191
    
    
    
    3,529
    
    
    
    (9,033
    )Change in cash and cash equivalents
    
    
    21,027
    
    
    
    (3,319
    )
    
    
    3,892
    
    
    
    (146
    )
    
    
    (4,991
    )
 
 (1)
    
    Operating loss includes the following (in thousands): (a) long-lived asset impairment charges
of (i) $2,037 in 2004, (ii) $2,362 in 2002.(2)
    
    Interest and other expense include the following (in thousands): (a) loss on Exchange
Transaction of $3,102 in 2003 and (b) dividends and discount accretion related to our Series A
Preferred Stock of $1,064 in 2004 and $589 in 2003. See Item 7. Managements Discussion and
Analysis of Financial Condition and Results of Operations  Financial Conditions and
Liquidity. After the July 2004 shareholder approval relating to our Series A Preferred Stock,
such dividends and accretion did not impact net income (loss) but continued to impact earnings
(loss) per share until the Series A Preferred Stock was converted to shares of our common
stock on January 13, 2006.(3)
    
    Income tax provision (benefit) includes (in thousands) a $9,216 charge in 2002 to establish a
full valuation allowance against our net deferred income tax assets. Such net assets continued
to be fully offset by a valuation allowance. 19




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(4)
    
    Pursuant to the July 2004 shareholder approval that resulted in our Series A Preferred Stock
being recharacterized as equity rather than debt, dividends and adjustments related to our
preferred stock, while not impacting net loss, do result in increased losses available to
common stockholders when computing basic and diluted loss per share. A significant portion of
these adjustments for 2004 relate to accreting the carrying value of the preferred stock up to
its stated value. See Item 8. Financial Statements and Supplementary data  Note H,
Preferred Stock.(5)
    
    Current liabilities include (in thousands) $3,250 and $35,565 of debt in default as of
December 31, 2004 and 2002 respectively. The 2002 debt was refinanced in 2003 as part of the
Exchange Transaction while the $3,250 debt was retired in 2005. See Item 7. Managements
Discussion and Analysis of Financial Condition and Results of Operations  Financial
Conditions and Liquidity.(6)
    
    Long-term obligations include (in thousands) $21,132 of Series A Preferred Stock as of
December 31, 2003. Pursuant to the July 2004 shareholder approval relating to our Series A
Preferred Stock, these securities were reclassified into shareholders equity. 
 Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
 RESULTS OF OPERATIONS
    Years EndedDecember 31,2006
    
    2005
    
    2004RevenuesOphthalmic
    
    
    27
    %
    
    
    51
    %
    
    
    59
    %Hospital Drugs & Injectables
    
    
    60
    
    
    
    31
    
    
    
    24Contract Services
    
    
    13
    
    
    
    18
    
    
    
    17Total revenues
    
    
    100
    
    
    
    100
    
    
    
    100Gross profitOphthalmic
    
    
    9
    %
    
    
    18
    %
    
    
    29
    %Hospital Drugs & Injectables
    
    
    26
    
    
    
    13
    
    
    
    6Contract Services
    
    
    3
    
    
    
    3
    
    
    
    1Total Gross Profit
    
    
    38
    
    
    
    34
    
    
    
    36Selling, general and administrative expenses
    
    
    26
    
    
    
    37
    
    
    
    26Amortization and write-downs of intangibles
    
    
    2
    
    
    
    4
    
    
    
    7Research and development expenses
    
    
    17
    
    
    
    10
    
    
    
    4Operating loss
    
    
    (7
    )
    
    
    (17
    )
    
    
    (1
    )Net loss
    
    
    (8
    )%
    
    
    (19
    )%
    
    
    (6
    )%
 COMPARISON OF TWELVE MONTHS ENDED DECEMBER 31, 2006 AND 2005
   20




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COMPARISON OF TWELVE MONTHS ENDED DECEMBER 31, 2005 AND 2004
    21




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FINANCIAL CONDITION AND LIQUIDITY
 Overview
    22




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Facility Expansion
  23




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Credit Facility
        24




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Subordinated Debt
      Other Indebtedness
   25




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Preferred Stock and Warrants
 Series A Preferred Stock
      Series B Preferred Stock
  26




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Warrants
   .
 27




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CONTRACTUAL OBLIGATIONS
  Payment Due  by Period
    
    
    More thanDescription
    
    Total
    
    
    Less than 1 year
    
    
    1-3 years
    
    
    3-5 years
    
    
    5 yearsCurrent and Long Term-Debt
    
    $
    602
    
    
    $
    394
    
    
    $
    208
    
    
    $
    
    
    
    $
    Operating Leases
    
    
    10,635
    
    
    
    1,125
    
    
    
    2,375
    
    
    
    2,416
    
    
    
    4,719Interest Payments on Debt
    
    
    35
    
    
    
    31
    
    
    
    4
    
    
    
    
    
    
    
    Total:
    
    $
    11,272
    
    
    $
    1,550
    
    
    $
    2,587
    
    
    $
    2,416
    
    
    $
    4,719
 SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
 Net Income (Loss)Gross
    
    
    
    
    
    Per Share
    
    Per ShareRevenues
    
    Profit
    
    Amount
    
    Basic
    
    DilutedYear Ended December 31, 2006:1st Quarter
    
    $
    29,730
    
    
    $
    11,733
    
    
    $
    3,126
    
    
    $
    0.05
    
    
    $
    0.042nd Quarter
    
    
    12,475
    
    
    
    4,955
    
    
    
    (1,963
    )
    
    
    (0.03
    )
    
    
    (0.03
    )3rd Quarter
    
    
    14,490
    
    
    
    5,951
    
    
    
    (1,067
    )
    
    
    (0.02
    )
    
    
    (0.02
    )4th Quarter
    
    
    14,555
    
    
    
    4,241
    
    
    
    (6,059
    )
    
    
    (0.07
    )
    
    
    (0.07
    )Year Ended December 31, 2005:1st Quarter
    
    $
    10,181
    
    
    $
    3,343
    
    
    $
    (2,287
    )
    
    $
    (0.13
    )
    
    $
    (0.13
    )2nd Quarter
    
    
    12,578
    
    
    
    4,852
    
    
    
    (67
    )
    
    
    (0.04
    )
    
    
    (0.04
    )3rd Quarter
    
    
    10,985
    
    
    
    3,668
    
    
    
    (2,614
    )
    
    
    (0.14
    )
    
    
    (0.14
    )4th Quarter
    
    
    10,740
    
    
    
    3,081
    
    
    
    (3,641
    )
    
    
    (0.18
    )
    
    
    (0.18
    )
 CRITICAL ACCOUNTING POLICIES
 Revenue Recognition
  Allowance for Chargebacks and Rebates
  28




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Allowance for Product Returns
  29




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Allowance for Doubtful Accounts
  
    
    Identified the relevant factors that might affect the accounting estimate for allowance
for doubtful accounts, including: (a) historical experience with collections and write-offs;
(b) credit quality of customers; (c) the interaction of credits being taken for discounts,
rebates, allowances and other adjustments; (d) balances of outstanding receivables, and
partially paid receivables; and (e) economic and other exogenous factors that might affect
collectibility (e.g., bankruptcies of customers, channel factors, etc.).
    
   Accumulated data on which to base the estimate for allowance for doubtful accounts,
including: (a) collections and write-offs data; (b) information regarding current credit
quality of customers; and (c) information regarding exogenous factors, particularly in
respect of major customers.
    
    Developed assumptions reflecting our judgments as to the most likely circumstances and
outcomes, regarding, among other matters: (a) collectibility of outstanding balances
relating to partial payments; (b) the ability to collect items in dispute (or subject to
reconciliation) with customers; and (c) economic and other exogenous factors that might
affect collectibility of outstanding balances  based upon information available at the
time.
  Allowance for Discounts
  Allowance for Slow-Moving Inventory
  Warranty Liability
  30




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Income Taxes
  Intangibles
  Stock-Based Compensation
  RECENT ACCOUNTING PRONOUNCEMENTS
 Accounting for Certain Hybrid Financial Instruments  An Amendment of FASB Statements No. 133 and
140 Accounting for Derivative Instruments and Hedging
Activities Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities
  31




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Item 7A. Quantitative and Qualitative Disclosures about Market Risk
    
 Item 8. Financial Statements and Supplementary Data
   Report of Independent Registered Public Accounting FirmConsolidated Balance Sheets as of December 31, 2006 and 2005Consolidated Statements of Operations for the years ended December 31, 2006, 2005 and 2004Consolidated Statements of Shareholders Equity for the years ended December 31, 2006, 2005 and 2004Consolidated Statements of Cash Flows for the years ended December 31, 2006, 2005 and 2004Notes to Consolidated Financial Statements
 33




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Report of Independent Registered Public Accounting Firm
 
     Internal Control 
Integrated Framework
  
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Report of Independent Registered Public Accounting Firm on
Internal Control over Financial Reporting
 
        
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AKORN, INC.
 
 CONSOLIDATED BALANCE SHEETS
 (Dollars in Thousands, Except Share Data)
 December 31,2006
    
    
    2005ASSETSCURRENT ASSETSCash and cash equivalents
    
    $
    21,818
    
    
    $
    791Trade accounts receivable (less allowance for doubtful accounts of $3 and $13 at
December 31, 2006 and 2005, respectively)
    
    
    4,781
    
    
    
    3,222Inventories
    
    
    11,734
    
    
    
    10,279Prepaid expenses and other current assets
    
    
    1,321
    
    
    
    1,402TOTAL CURRENT ASSETS
    
    
    39,654
    
    
    
    15,694PROPERTY, PLANT AND EQUIPMENT, NET
    
    
    33,486
    
    
    
    31,071OTHER ASSETSIntangibles, net
    
    
    8,825
    
    
    
    10,210Other
    
    
    118
    
    
    
    120TOTAL OTHER ASSETS
    
    
    8,943
    
    
    
    10,330TOTAL ASSETS
    
    $
    82,083
    
    
    $
    57,095LIABILITIES AND SHAREHOLDERS EQUITYCURRENT LIABILITIESCurrent installments of debt
    
    $
    394
    
    
    $
    7,044Trade accounts payable
    
    
    4,719
    
    
    
    3,046Accrued compensation
    
    
    1,849
    
    
    
    1,519Accrued expenses and other liabilities
    
    
    3,291
    
    
    
    3,851TOTAL CURRENT LIABILITIES
    
    
    10,253
    
    
    
    15,460Long-term debt, less current installments
    
    
    208
    
    
    
    602Warranty liability
    
    
    1,308
    
    
    
     ̄TOTAL LIABILITIES
    
    
    11,769
    
    
    
    16,062COMMITMENTS AND CONTINGENCIESSHAREHOLDERS EQUITYCommon stock, no par value  150,000,000 shares authorized; 85,990,964, and
27,618,745 shares issued and outstanding at December 31, 2006 and 2005, respectively
    
    
    150,250
    
    
    
    67,339Series A Preferred Stock, $1.00 par value 257,172 shares authorized and issued,
241,122 shares outstanding as of December 31, 2005
    
    
    
    
    
    
    27,232Series B Preferred Stock, $1.00 par value 170,000 shares authorized, 141,000 shares
issued, 106,600 outstanding as of December 31, 2005
    
    
    
    
    
    
    10,758Warrants to acquire common stock
    
    
    4,862
    
    
    
    13,696Accumulated deficit
    
    
    (84,798
    )
    
    
    (77,992
    )TOTAL SHAREHOLDERS EQUITY
    
    
    70,314
    
    
    
    41,033TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
    
    $
    82,083
    
    
    $
    57,095
  36




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##### Table of Contents



AKORN, INC.
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 (In Thousands, Except Per Share Data)
 Year Ended December 31,2006
    
    
    2005
    
    
    2004Revenues
    
    $
    71,250
    
    
    $
    44,484
    
    
    $
    50,708Cost of sales
    
    
    44,370
    
    
    
    29,540
    
    
    
    32,506GROSS PROFIT
    
    
    26,880
    
    
    
    14,944
    
    
    
    18,202Selling, general and administrative expenses
    
    
    18,603
    
    
    
    16,405
    
    
    
    13,300Amortization and write down of intangibles
    
    
    1,385
    
    
    
    1,508
    
    
    
    3,409Research and development expenses
    
    
    11,797
    
    
    
    4,510
    
    
    
    1,861OPERATING EXPENSES
    
    
    31,785
    
    
    
    22,423
    
    
    
    18,570OPERATING LOSS
    
    
    (4,905
    )
    
    
    (7,479
    )
    
    
    (368
    )Interest expense
    
    
    (604
    )
    
    
    (2,325
    )
    
    
    (4,218
    )Debt Retirement Gain/(Expense)
    
    
    (391
    )
    
    
    1,212
    
    
    
    Gain related to disputed settlements
    
    
    
    
    
    
    
    
    
    
    1,562Other income/(expense)
    
    
    (60
    )
    
    
    
    
    
    
    6LOSS BEFORE INCOME TAXES
    
    
    (5,960
    )
    
    
    (8,592
    )
    
    
    (3,018
    )Income tax provision
    
    
    3
    
    
    
    17
    
    
    
    8NET LOSS
    
    
    (5,963
    )
    
    
    (8,609
    )
    
    
    (3,026
    )Preferred stock dividends and adjustments
    
    
    (843
    )
    
    
    (4,082
    )
    
    
    (34,436
    )NET LOSS AVAILABLE TO COMMON STOCKHOLDERS
    
    $
    (6,806
    )
    
    $
    (12,691
    )
    
    $
    (37,462
    )NET LOSS PER SHARE:BASIC
    
    $
    (0.09
    )
    
    $
    (0.49
    )
    
    $
    (1.80
    )DILUTED
    
    $
    (0.09
    )
    
    $
    (0.49
    )
    
    $
    (1.80
    )SHARES USED IN COMPUTING NET LOSS PER SHARE:BASIC
    
    
    73,988
    
    
    
    26,095
    
    
    
    20,817DILUTED
    
    
    73,988
    
    
    
    26,095
    
    
    
    20,817
  37




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##### Table of Contents



AKORN, INC.
 
 CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
 FOR THE YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004
 (In Thousands)
 Warrants
    
    RetainedCommon Stock
    
    Series A
    
    Series B
    
    to acquire
    
    EarningsAddl Paid-In-Capital
    
    Preferred
    
    Preferred
    
    Common
    
    (Accum.Shares
    
    Amount
    
    Stock
    
    Stock
    
    Stock
    
    Deficit)
    
    TotalBALANCES AT DECEMBER 31, 2003
    
    
    19,826
    
    
    $
    25,506
    
    
    $
    
    
    
    $
    
    
    
    $
    13,724
    
    
    $
    (27,839
    )
    
    $
    11,391Net Loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,026
    )
    
    
    (3,026
    )Reclassification of Series A Preferred Stock
    
    
    
    
    
    
    
    
    
    
    22,182
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22,182Issuance of Series B Preferred Stock and Warrants, net of issuance costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,914
    
    
    
    3,130
    
    
    
    
    
    
    
    13,044Preferred stock dividends earned
    
    
    
    
    
    
    
    
    
    
    822
    
    
    
    300
    
    
    
    
    
    
    
    (1,122
    )
    
    
    Intrinsic value of beneficial conversion features in convertible preferred stock
    
    
    
    
    
    
    25,826
    
    
    
    (22,862
    )
    
    
    (2,964
    )
    
    
    
    
    
    
    
    
    
    
    Accretion to stated value of preferred stock
    
    
    
    
    
    
    
    
    
    
    27,232
    
    
    
    6,094
    
    
    
    
    
    
    
    (33,326
    )
    
    
    Conversion of preferred stock into common stock
    
    
    2,236
    
    
    
    1,822
    
    
    
    (1,587
    )
    
    
    (235
    )
    
    
    
    
    
    
    
    
    
    
    Exercise of warrants into common stock
    
    
    2,433
    
    
    
    4,807
    
    
    
    
    
    
    
    
    
    
    
    (2,771
    )
    
    
    12
    
    
    
    2,048Intrinsic value of beneficial conversion features in convertible interest
    
    
    
    
    
    
    269
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    269Adjustment of AEG warrant value due to dispute settlement
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    77
    
    
    
    
    
    
    
    77Exercise of stock options
    
    
    594
    
    
    
    1,233
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,233Employee stock purchase plan issuances
    
    
    44
    
    
    
    108
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    108BALANCES AT DECEMBER 31, 2004
    
    
    25,133
    
    
    
    59,571
    
    
    
    25,787
    
    
    
    13,109
    
    
    
    14,160
    
    
    
    (65,301
    )
    
    
    47,326Net Loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8,609
    )
    
    
    (8,609
    )Preferred stock dividends earned
    
    
    
    
    
    
    
    
    
    
    1,563
    
    
    
    783
    
    
    
    
    
    
    
    (2,346
    )
    
    
    Intrinsic value of beneficial conversion features in convertible preferred stock
    
    
    
    
    
    
    1,736
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,736
    )
    
    
    Conversion of preferred stock into common stock
    
    
    1,409
    
    
    
    3,252
    
    
    
    (118
    )
    
    
    (3,134
    )
    
    
    
    
    
    
    
    
    
    
    Exercise of warrants into common stock
    
    
    350
    
    
    
    652
    
    
    
    
    
    
    
    
    
    
    
    (464
    )
    
    
    
    
    
    
    188Intrinsic value of beneficial conversion features in convertible interest
    
    
    
    
    
    
    353
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    353Exercise of stock options
    
    
    693
    
    
    
    1,287
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,287Employee stock purchase plan issuances
    
    
    34
    
    
    
    81
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    81Amortization of Deferred Compensation related to Restricted Stock Awards
    
    
    
    
    
    
    407
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    407BALANCES AT DECEMBER 31, 2005
    
    
    27,619
    
    
    
    67,339
    
    
    
    27,232
    
    
    
    10,758
    
    
    
    13,696
    
    
    
    (77,992
    )
    
    
    41,033Net Loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,963
    )
    
    
    (5,963
    )Preferred stock dividends earned
    
    
    
    
    
    
    
    
    
    
    55
    
    
    
    536
    
    
    
    
    
    
    
    (591
    )
    
    
    Intrinsic value of beneficial conversion features in convertible preferred stock
    
    
    
    
    
    
    252
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (252
    )
    
    
    Conversion of preferred stock into common stock
    
    
    41,275
    
    
    
    38,581
    
    
    
    (27,287
    )
    
    
    (11,294
    )
    
    
    
    
    
    
    
    
    
    
    Exercise of warrants into common stock
    
    
    6,957
    
    
    
    13,503
    
    
    
    
    
    
    
    
    
    
    
    (10,655
    )
    
    
    
    
    
    
    2,848Conversion of convertible notes into common stock
    
    
    3,540
    
    
    
    7,298
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,298Net Proceeds from issuance of common stock and warrants
    
    
    5,312
    
    
    
    19,800
    
    
    
    
    
    
    
    
    
    
    
    1,821
    
    
    
    
    
    
    
    21,621Exercise of stock options
    
    
    1,107
    
    
    
    1,672
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,672Employee stock purchase plan issuances
    
    
    41
    
    
    
    173
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    173Amortization of Deferred Compensation related to Restricted Stock Awards
    
    
    
    
    
    
    719
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    719Restricted Stock Awards withheld for payment of employee tax liability
    
    
    140
    
    
    
    (316
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (316
    )Accrue FAS123R Share Based Payment Expense
    
    
    
    
    
    
    1,229
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,229BALANCES AT DECEMBER 31, 2006
    
    
    85,991
    
    
    $
    150,250
    
    
    $
    
    
    
    $
    
    
    
    $
    4,862
    
    
    $
    (84,798
    )
    
    $
    70,314
  38




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##### Table of Contents



AKORN, INC.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Dollars in Thousands)
 Year Ended December 31,2006
    
    
    2005
    
    
    2004OPERATING ACTIVITIESNet loss
    
    $
    (5,963
    )
    
    $
    (8,609
    )
    
    $
    (3,026
    )Adjustments to reconcile net loss to net cash from operating activities:Depreciation and amortization
    
    
    3,344
    
    
    
    5,239
    
    
    
    4,075Amortization of deferred financing fees
    
    
    28
    
    
    
    74
    
    
    
    1,208Amortization of debt discount
    
    
    1,059
    
    
    
    1,237
    
    
    
    945Impairment of long-lived assets
    
    
    
    
    
    
    
    
    
    
    2,037Non-cash expense related to preferred stock
    
    
    
    
    
    
    
    
    
    
    1,064Prepayments to Strides Arcolab Limited
    
    
    
    
    
    
    (250
    )
    
    
    Gain on retirement of debt
    
    
    
    
    
    
    (1,212
    )
    
    
    Non-cash stock compensation expense
    
    
    1,948
    
    
    
    407
    
    
    
    Gain related to dispute settlements
    
    
    
    
    
    
    
    
    
    
    (1,562
    )Gain on disposal of long-lived assets
    
    
    
    
    
    
    
    
    
    
    (6
    )Changes in operating assets and liabilities:Trade accounts receivable
    
    
    (1,559
    )
    
    
    3,360
    
    
    
    (4,956
    )Inventories
    
    
    (1,455
    )
    
    
    142
    
    
    
    (2,614
    )Prepaid expenses and other current assets
    
    
    81
    
    
    
    (198
    )
    
    
    (1,234
    )Trade accounts payable
    
    
    1,673                 (
    
    
    
    2,351
    )
    
    
    (14
    )Product Warranty
    
    
    1,308
    
    
    
    
    
    
    
    Royalty Liability
    
    
    1,517
    
    
    
    
    
    
    
    Accrued customer liability
    
    
    256                  -
    
    
    
    
    
    
    
    Accrued expenses and other liabilities
    
    
    272
    
    
    
    2,013
    
    
    
    622NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
    
    
    2,509
    
    
    
    (148
    )
    
    
    (3,461
    )INVESTING ACTIVITIESPurchases of property, plant and equipment
    
    
    (4,377
    )
    
    
    (1,782
    )
    
    
    (689
    )Proceeds from sale of investments
    
    
    
    
    
    
    
    
    
    
    2,000Proceeds from sale of long-lived assets
    
    
    
    
    
    
    
    
    
    
    6Purchase of product intangibles and product licenses
    
    
    
    
    
    
    (75
    )
    
    
    (2,155
    )NET CASH USED IN INVESTING ACTIVITIES
    
    
    (4,377
    )
    
    
    (1,857
    )
    
    
    (838
    )FINANCING ACTIVITIESRepayments of long-term debt
    
    
    (3,103
    )
    
    
    (370
    )
    
    
    (6,730
    )Repayment of NeoPharm Debt
    
    
    
    
    
    
    (2,500
    )
    
    
    Net proceeds from common stock and warrant offering
    
    
    21,621
    
    
    
    
    
    
    
    13,044Change in line of credit
    
    
    
    
    
    
    
    
    
    
    (1,500
    )Proceeds from exercise of stock warrants
    
    
    2,848
    
    
    
    188
    
    
    
    2,036Proceeds under stock option and stock purchase plans
    
    
    1,529
    
    
    
    1,368
    
    
    
    1,341NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
    
    
    22,895
    
    
    
    (1,314
    )
    
    
    8,191INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
    
    
    21,027
    
    
    
    (3,319
    )
    
    
    3,892CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR
    
    
    791
    
    
    
    4,110
    
    
    
    218CASH AND CASH EQUIVALENTS AT END OF YEAR
    
    $
    21,818
    
    
    $
    791
    
    
    $
    4,110
  39




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##### Table of Contents



AKORN, INC.
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Note A  Business and Basis of Presentation
 Business:
 Basis of Presentation:
 Note B  Summary of Significant Accounting Policies
 Consolidation:
 Use of Estimates:
 Revenue Recognition:
   Cash Equivalents:
 Accounts Receivable:
 40




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##### Table of Contents



Chargebacks and Rebates:
    Sales Returns:
 41




---



##### Table of Contents



Doubtful Accounts:
 
    
    Identified the relevant factors that might affect the accounting estimate for allowance
for doubtful accounts, including: (a) historical experience with collections and write-offs;
(b) credit quality of customers; (c) the interaction of credits being taken for discounts,
rebates, allowances and other adjustments; (d) balances of outstanding receivables, and
partially paid receivables; and (e) economic and other exogenous factors that might affect
collectibility (e.g., bankruptcies of customers, channel factors, etc.).
    
    Accumulated data on which to base the estimate for allowance for doubtful accounts,
including: (a) collections and write-offs data; (b) information regarding current credit
quality of customers; and (c) information regarding exogenous factors, particularly in
respect of major customers.
    
    Developed assumptions reflecting managements judgments as to the most likely
circumstances and outcomes, regarding, among other matters: (a) collectibility of
outstanding balances relating to partial payments; (b) the ability to collect items in
dispute (or subject to reconciliation) with customers; and (c) economic and other exogenous
factors that might affect collectibility of outstanding balances  based upon information
available at the time.
  Discounts:
 Inventories:
 Intangibles:
 42




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##### Table of Contents



For the year ended 12/31/07
    
    $
    1,355For the year ended 12/31/08
    
    $
    1,354For the year ended 12/31/09
    
    $
    1,354For the year ended 12/31/10
    
    $
    1,354For the year ended 12/31/11
    
    $
    1,313
 Property, Plant and Equipment:
 Net Loss Per Common Share:
 Income Taxes:
 Fair Value of Financial Instruments:
 Stock-Based Compensation:
 43




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##### Table of Contents



Note C  Allowance for Customer Deductions
  Doubtful Accounts Years Ended
    
    
    ReturnsDecember 31,
    
    
    Years Ended December 31,2006
    
    
    2005
    
    
    2004
    
    
    2006
    
    
    2005
    
    
    2004Balance at beginning of year
    
    $
    13
    
    
    $
    435
    
    
    $
    609
    
    
    $
    1,529
    
    
    $
    1,393
    
    
    $
    1,077Provision (recovery)
    
    
    (150
    )
    
    
    74
    
    
    
    (43
    )
    
    
    3,861
    
    
    
    3,122
    
    
    
    1,956Charges
    
    
    140
    
    
    
    (496
    )
    
    
    (131
    )
    
    
    (2,953
    )
    
    
    (2,986
    )
    
    
    (1,640
    )Balance at end of year
    
    $
    3
    
    
    $
    13
    
    
    $
    435
    
    
    $
    2,437
    
    
    $
    1,529
    
    
    $
    1,393
 Discounts
    
    
    Chargebacks and RebatesYears Ended December 31,
    
    
    Years Ended December 31,2006
    
    
    2005
    
    
    2004
    
    
    2006
    
    
    2005
    
    
    2004Balance at beginning of year
    
    $
    244
    
    
    $
    234
    
    
    $
    94
    
    
    $
    7,634
    
    
    $
    5,406
    
    
    $
    4,804Provision
    
    
    1,595
    
    
    
    1,003
    
    
    
    925
    
    
    
    26,295
    
    
    
    24,391
    
    
    
    16,915Charges
    
    
    (1,603
    )
    
    
    (993
    )
    
    
    (785
    )
    
    
    (25,559
    )
    
    
    (22,163
    )
    
    
    (16,313
    )Balance at end of year
    
    $
    236
    
    
    $
    244
    
    
    $
    234
    
    
    $
    8,370
    
    
    $
    7,634
    
    
    $
    5,406
 Note D  Inventories
  December 31,2006
    
    
    2005Finished goods
    
    $
    2,923
    
    
    $
    4,914Work in process
    
    
    1,293
    
    
    
    1,702Raw materials and supplies
    
    
    7,518
    
    
    
    3,663$
    11,734
    
    
    $
    10,279
  Years Ended December 31,2006
    
    
    2005
    
    
    2004Balance at beginning of year
    
    $
    916
    
    
    $
    660
    
    
    $
    917Provision
    
    
    652
    
    
    
    530
    
    
    
    1,290Charges
    
    
    (1,058
    )
    
    
    (274
    )
    
    
    (1,547
    )Balance at end of year
    
    $
    510
    
    
    $
    916
    
    
    $
    660
 Note E  Investment in Novadaq Technologies
  Note F  Property, Plant and Equipment
  December 31,2006
    
    
    2005Land
    
    $
    396
    
    
    $
    396Buildings and leasehold improvements
    
    
    18,071
    
    
    
    9,393Furniture and equipment
    
    
    37,826
    
    
    
    27,866Automobiles
    
    
    55
    
    
    
    55
 44




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##### Table of Contents



December 31,2006
    
    
    200556,348
    
    
    
    37,710Accumulated depreciation
    
    
    (28,637)
    )
    
    
    (26,879
    )27,711
    
    
    
    10,831Construction in progress
    
    
    5,775
    
    
    
    20,240$
    33,486
    
    
    $
    31,071
  Note G  Financing Arrangements
  December 31,2006
    
    
    2005Convertible subordinated debentures
    
    $
    
    
    
    $
    5,000Mortgage payable
    
    
    602
    
    
    
    9382003 Subordinated Notes
    
    
    
    
    
    
    2,767602
    
    
    
    8,705Less unamortized discount on debt
    
    
    
    
    
    
    (1,059
    )Less current installments
    
    
    (394
    )
    
    
    (7,044
    )Long-term debt
    
    $
    208
    
    
    $
    602
  Year ending December 31:2007
    
    $
    3942008
    
    
    208Total
    
    $
    602
   45




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46




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47




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Note H  Preferred Stock
   48




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49




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##### Table of Contents



Note I  Leasing Arrangements
   Year ending December, 312007
    
    $
    1,1252008
    
    
    1,1662009
    
    
    1,2092010 and thereafter
    
    
    7,135Total
    
    $
    10,635
 Note J  Stock Options, Employee Stock Purchase Plan and Restricted Stock
     50




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##### Table of Contents



2005
    
    2004Net income (loss) as reported
    
    $
    (8,609
    )
    
    $
    (3,026
    )Add: stock-based employee compensation expense included in reported net income
    
    
    407
    
    
    
    Deduct: total stock-based employee compensation expense determined under
fair-value-based method for all awards
    
    
    (1,441
    )
    
    
    (3,223
    )Pro forma net income (loss)
    
    
    (9,643
    )
    
    
    (6,259
    )Deduct: preferred stock dividends and adjustments
    
    
    (4,082
    )
    
    
    (34,436
    )Pro forma net loss available for common stockholders
    
    $
    (13,725
    )
    
    $
    (40,695
    )Basic and diluted loss per share of common stockShares used in Computing Net Loss Per Share
    
    
    26,095
    
    
    
    20,817As reported
    
    $
    (0.49
    )
    
    $
    (1.80
    )Pro forma
    
    $
    (0.53
    )
    
    $
    (1.95
    )
  Weighted AverageNumber of
    
    Weighted
    
    RemainingShares
    
    Average
    
    Contractual Term
    
    Aggregate(in thousands)
    
    Exercise Price
    
    (Years)
    
    Intrinsic ValueOutstanding at January 1, 2006
    
    
    3,706
    
    
    $
    2.54Granted
    
    
    1,037
    
    
    $
    4.71Exercised
    
    
    (1,300
    )
    
    $
    2.06Forfeited
    
    
    (288
    )
    
    $
    3.91Outstanding at December 31, 2006
    
    
    3,155
    
    
    $
    3.22
    
    
    
    2.9
    
    
    $
    9,560Vested or expected to vest at December 31, 2006
    
    
    3,040
    
    
    $
    3.18
    
    
    
    0.3
    
    
    $
    9,334Exercisable at December 31, 2006
    
    
    2,130
    
    
    $
    2.69
    
    
    
    2.4
    
    
    $
    7,583
   51




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2005
    
    20042006
    
    (SFAS 123
    
    (SFAS 123(SFAS 123(R))
    
    Pro Forma)
    
    Pro Forma)Expected Volatility
    
    
    45% - 62
    %
    
    
    59% - 83
    %
    
    
    95
    %Expected Life (in years)
    
    
    3.5 - 3.7
    
    
    
    5.0
    
    
    
    5.0Risk-free interest rate
    
    
    4.6% - 5.0
    %
    
    
    3.9% - 4.4
    %
    
    
    3.4
    %Dividend yield
    
    
    
    
    
    
    
    
    
    
    Fair value per stock option
    
    $
    1.89
    
    
    $
    1.70
    
    
    $
    2.05
     Number of Shares
    
    Weighted Average(in thousands)
    
    Grant Date Fair ValueNonvested at December 31, 2005
    
    
    208
    
    
    $
    2.61Granted
    
    
    350
    
    
    $
    5.05Vested
    
    
    (206
    )
    
    $
    2.61Canceled
    
    
    (2
    )
    
    $
    2.61Nonvested at December 31, 2006
    
    
    350
    
    
    $
    5.05
 Note K  Income Taxes
  52




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Current
    
    
    Deferred
    
    
    TotalYear ended December 31, 2006Federal
    
    $
    
    
    
    $
    
    
    
    $
    State
    
    
    3
    
    
    
    
    
    
    
    3$
    3
    
    
    $
    
    
    
    $
    3Year ended December 31, 2005Federal
    
    $
    15
    
    
    $
    
    
    
    $
    15State
    
    
    2
    
    
    
    
    
    
    
    2$
    17
    
    
    $
    
    
    
    $
    17Year ended December 31, 2004Federal
    
    $
    6
    
    
    $
    
    
    
    $
    6State
    
    
    2
    
    
    
    
    
    
    
    28
    
    
    
    
    
    
    
    8
  Years Ended December 31,2006
    
    
    2005
    
    
    2004Computed expected tax expense (benefit)
    
    $
    (2,027
    )
    
    $
    (2,922
    )
    
    $
    (1,027
    )Change in income taxes resulting from:State income taxes, net of federal income tax
    
    
    (287
    )
    
    
    (414
    )
    
    
    (145
    )Nondeductible preferred stock accretion and other permanent differences
    
    
    (543
    )
    
    
    161
    
    
    
    926Valuation allowance change
    
    
    2,860
    
    
    
    3,192
    
    
    
    254Income tax expense (benefit)
    
    $
    3
    
    
    $
    17
    
    
    $
    8
  December 31,
    
    
    December 31,2006
    
    
    2005Deferred income tax assets:Other accrued expenses
    
    $
    839
    
    
    $
    826Intangible assets
    
    
    649
    
    
    
    750Net operating loss carry forward
    
    
    15,756
    
    
    
    13,475Other
    
    
    3,730
    
    
    
    3,12820,974
    
    
    
    18,179Valuation allowance
    
    
    (20,192
    )
    
    
    (17,332
    )782
    
    
    
    847Deferred income tax liabilities:Property, plant and equipment, net
    
    
    (782
    )
    
    
    (847
    )Net
    
    $
    
    
    
    $
    
  Note L  Retirement Plan
  53




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Note M  Segment Information






Years ended December 31,2006
    
    
    2005
    
    
    2004REVENUESOphthalmic
    
    $
    19,528
    
    
    $
    22,659
    
    
    $
    29,812Hospital Drugs & Injectables
    
    
    42,489
    
    
    
    13,719
    
    
    
    12,341Contract Services
    
    
    9,233
    
    
    
    8,106
    
    
    
    8,555Total revenues
    
    $
    71,250
    
    
    $
    44,484
    
    
    $
    50,708GROSS PROFITOphthalmic
    
    $
    6,069
    
    
    $
    8,069
    
    
    $
    14,486Hospital Drugs and Injectables
    
    
    18,114
    
    
    
    5,740
    
    
    
    3,288Contract Services
    
    
    2,697
    
    
    
    1,135
    
    
    
    428Total gross profit
    
    
    26,880
    
    
    
    14,944
    
    
    
    18,202Operating expenses
    
    
    31,785
    
    
    
    22,423
    
    
    
    18,570Operating loss
    
    
    (4,905
    )
    
    
    (7,479
    )
    
    
    (368
    )Interest, Debt Retirement gain/(expense) & Other income (expense)
    
    
    (1,055
    )
    
    
    (1,113
    )
    
    
    (2,650
    )Loss before income taxes
    
    $
    (5,960
    )
    
    $
    (8,592
    )
    
    $
    (3,018
    )




Note N  Commitments and Contingencies




54




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Note O  Supplemental Cash Flow Information (in thousands)
 Year Ended December 31,2006
    
    2005
    
    2004Interest and taxes paid:Interest (net of amounts capitalized)
    
    $
    593
    
    
    
    419
    
    
    $
    434Income taxes
    
    
    2
    
    
    
    72
    
    
    
    2
  Note P  Recent Accounting Pronouncements
 Accounting for Certain Hybrid Financial Instruments  An Amendment of FASB Statements No. 133 and
140 Accounting for Derivative Instruments and Hedging
Activities Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities
   55




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Note Q  Business Alliances
     57




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##### Table of Contents



Note R  Customer and Supplier Concentration
  2006
    
    2005
    
    2004Gross
    
    
    
    
    
    
    
    
    
    Gross
    
    
    
    
    
    
    
    
    
    GrossGross
    
    Net
    
    Accts
    
    Gross
    
    Net
    
    Accts.
    
    Gross
    
    Net
    
    AcctsSales
    
    Revenue
    
    Receivable
    
    Sales
    
    Revenue
    
    Receivable
    
    Sales
    
    Revenue
    
    ReceivableAmerisource
    
    
    13
    %
    
    
    9
    %
    
    
    12
    %
    
    
    24
    %
    
    
    16
    %
    
    
    28
    %
    
    
    14
    %
    
    
    10
    %
    
    
    17
    %Cardinal
    
    
    19
    %
    
    
    13
    %
    
    
    24
    %
    
    
    28
    %
    
    
    19
    %
    
    
    29
    %
    
    
    25
    %
    
    
    20
    %
    
    
    51
    %McKesson
    
    
    18
    %
    
    
    11
    %
    
    
    17
    %
    
    
    17
    %
    
    
    11
    %
    
    
    19
    %
    
    
    18
    %
    
    
    16
    %
    
    
    6
    %
    
 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
  
 Item 9A. Controls and Procedures.
 Evaluation of Disclosure Controls and Procedures
  58




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Managements Report on Internal Control Over Financial Reporting
  Attestation Report of the Registered Public Accounting Firm
  Changes in Internal Control Over Financial Reporting
  
 Item 9B. Other Information.
  59




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PART III
 
 Item 10. Directors, Executive Officers and Corporate Governance.
  
 Item 11. Executive Compensation.
  
 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters.
  
 Item 13. Certain Relationships and Related Transactions and Director Independence.
  
 Item 14. Principal Accounting Fees and Services.
  60




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##### Table of Contents



PART IV
 
 Item 15. Exhibits, Financial Statement Schedules
 (a)
    
    (1) Financial Statements. The consolidated financial statements listed on the index to Item
8 of this Annual Report on Form 10-K are filed as a part of this Annual Report.
 (2)
    
    Financial Statement Schedules.All financial statement schedules have been omitted since
the information is either not applicable or required or is included in the financial
statements or notes thereof.(3)
    
    Exhibits. Those exhibits marked with a (*) refer to exhibits filed herewith. The other
exhibits are incorporated herein by reference, as indicated in the following list. Those
exhibits marked with a () refer to management contracts or compensatory plans or
arrangements. Portions of the exhibits marked with a (W) are the subject of a Confidential
Treatment Request Under 17 C.F.R. §§ 200.80(b)(4), 200.83 and 240.24b-2.
 Exhibit No.
    
    Description3.1
    
    Restated Articles of Incorporation of Akorn, Inc. dated September 16, 2004, incorporated by reference
to Exhibit 3.1 to Akorn, Inc.s Registration Statement on Form S-1 filed on September 21, 2004.3.2
    
    Amended and Restated By-laws of Akorn, Inc., incorporated by reference to Exhibit 3.2 to Akorn, Inc.s
Registration Statement on Form S-1 filed on June 14, 2005.3.3
    
    Amendment to Bylaws of Akorn, Inc., incorporated by reference to Exhibit 3.1 to Akorn, Inc.s report
on Form 8-K filed on March 31, 2006.3.4
    
    Amendment to Bylaws of Akorn, Inc., incorporated by reference to Exhibit 3.1 to Akorn, Inc.s report
on Form 8-K filed on December 14, 2006.4.1
    
    First Amendment dated October 7, 2003 to Registration Rights Agreement dated July 12, 2001 between
Akorn, Inc. and The John N. Kapoor Trust dated 9/20/89, incorporated by reference to Exhibit 4.1 to
Akorn, Inc.s report on Form 8-K filed on October 24, 2003.4.2
    
    Form of Warrant Certificate, incorporated by reference to Exhibit 4.2 to Akorn, Inc.s report on Form
8-K filed on October 24, 2003.4.3
    
    Form of Warrant Agreement dated October 7, 2003 between Akorn, Inc. and certain investors,
incorporated by reference to Exhibit 4.3 to Akorn, Inc.s report on Form 8-K filed on October 24,
2003.4.4
    
    Warrant Agreement dated October 7, 2003 between Akorn, Inc. and The John N. Kapoor Trust dated
9/20/89, incorporated by reference to Exhibit 4.4 to Akorn, Inc.s report on Form 8-K filed on October
24, 2003.4.5
    
    Warrant Agreement dated October 7, 2003 between Akorn, Inc. and Arjun C. Waney, incorporated by
reference to Exhibit 4.5 to Akorn, Inc.s report on Form 8-K filed on October 24, 2003.4.6
    
    Warrant Agreement dated October 7, 2003 between Akorn, Inc. and The John N. Kapoor Trust dated
9/20/89, incorporated by reference to Exhibit 4.6 to Akorn, Inc.s report on Form 8-K filed on October
24, 2003.4.7
    
    Warrant Agreement dated October 7, 2003 between Akorn, Inc. and Arjun C. Waney, incorporated by
reference to Exhibit 4.7 to Akorn, Inc.s report on Form 8-K filed on October 24, 2003.4.8
    
    Warrant Agreement dated October 7, 2003 between Akorn, Inc. and Argent Fund Management Ltd.,
incorporated by reference to Exhibit 4.8 to Akorn, Inc.s report on Form 8-K filed on October 24,
2003.
 61




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##### Table of Contents



Exhibit No.
    
    Description4.9
    
    Registration Rights Agreement dated October 7, 2003 among Akorn, Inc. and certain investors,
incorporated by reference to Exhibit 4.9 to Akorn, Inc.s report on Form 8-K filed on October 24,
2003.4.10
    
    Form of Subscription Agreement between Akorn, Inc. and certain investors, incorporated by reference to
Exhibit 4.1 to Akorn, Inc.s report on Form 8-K filed on August 24, 2004.4.11
    
    Form of Common Stock Purchase Warrant between Akorn, Inc. and certain investors, incorporated by
reference to Exhibit 4.2 to Akorn, Inc.s report on Form 8-K filed on August 24, 2004.4.12
    
    Warrant Purchase and Registration Agreement dated June 18, 2003 between Akorn, Inc. and AEG Partners
LLC, incorporated by reference to Exhibit 4.1 to Akorn, Inc.s report on Form 8-K filed on August 27,
2004.4.13
    
    Stock Registration Rights Agreement dated November 15, 1990 between Akorn, Inc. and The John N. Kapoor
Trust dated 9/20/89, incorporated by reference to Exhibit 4.12 to Akorn, Inc.s Registration Statement
on Form S-1 filed on September 21, 2004.4.14
    
    Stock Purchase Agreement dated November 15, 1990 between Akorn, Inc. and The John N. Kapoor Trust
dated 9/20/89, incorporated by reference to Exhibit 4.13 to Akorn, Inc.s Registration Statement on
Form S-1 filed on September 21, 2004.4.15
    
    Form of Securities Purchase Agreement dated March 1, 2006, between Akorn, Inc. and certain investors
incorporated by reference to Exhibit 4.1 to Akorn, Inc.s report on Form 8-K filed on March 7, 2006.4.16
    
    Form of Warrant issued in connection with the Securities Purchase Agreement dated March 1, 2006
incorporated by reference to Exhibit 4.2 to Akorn, Inc.s report on Form 8-K filed March 7, 2006.
(All warrants are dated March 8, 2006. Please see Exhibit 99.1 of Akorn, Inc.s report on Form 8-K
filed March 14, 2006, which is hereby incorporated by reference, for a schedule setting forth the
other material details for each of the warrants.)4.17
    
    Securities Purchase Agreement dated September 13, 2006, between Akorn, Inc. and Serum Institute of
India, incorporated by reference to Exhibit 4.1 to Akorn Inc.s report on Form 8-K filed September 14,
2006.10.1
    
    Amended and Restated Akorn, Inc. 1988 Incentive Compensation Program, incorporated by reference to
Exhibit 10.2 to Akorn, Inc.s Registration Statement on Form S-1 filed on September 21, 2004.10.2
    
    1991 Akorn, Inc. Stock Option Plan for Directors, incorporated by reference to Exhibit 10.3 to Akorn,
Inc.s Registration Statement on Form S-1 filed on September 21, 2004.10.3
    
    Letter of Commitment to Akorn, Inc. from John. N. Kapoor dated April 17, 2001, incorporated by
reference to Exhibit 10.4 to Akorn, Inc.s report on Form 8-K filed on April 25, 2001 (Commission file
No. 000-13976).10.4
    
    Convertible Bridge Loan and Warrant Agreement dated as of July 12, 2001, by and between Akorn, Inc.
and The John N. Kapoor Trust dated 9/20/89, incorporated by reference to Exhibit 10.1 to Akorn, Inc.s
report on Form 8-K filed on July 26, 2001 (Commission file No. 000-13976).10.5
    
    The Tranche A Common Stock Purchase Warrant, dated July 12, 2001, incorporated by reference to Exhibit
10.2 to Akorn, Inc.s report on Form 8-K filed on July 26, 2001 (Commission file No. 000-13976).10.6
    
    The Tranche B Common Stock Purchase Warrant, dated July 12, 2001, incorporated by reference to Exhibit
10.3 to Akorn, Inc.s report on Form 8-K filed on July 26, 2001 (Commission file No. 000-13976).
 62




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##### Table of Contents



Exhibit No.
    
    Description10.7
    
    Registration Rights Agreement dated July 12, 2001, by and between Akorn, Inc. and The John N. Kapoor
Trust dated 9/20/89, incorporated by reference to Exhibit 10.4 to Akorn, Inc.s report on Form 8-K
filed on July 26, 2001 (Commission file No. 000-13976).10.8
    
    Allonge to Revolving Note ($2 million) dated December 20, 2001 by and between Akorn, Inc. and The John
N. Kapoor Trust dated 9/20/89, incorporated by reference to Exhibit 10.14 to Akorn, Inc.s
Registration Statement on Form S-1 filed on September 21, 2004.10.9
    
    Allonge to Revolving Note ($3 million) dated December 20, 2001 by and between Akorn, Inc. and The John
N. Kapoor Trust dated 9/20/89, incorporated by reference to Exhibit 10.15 to Akorn, Inc.s
Registration Statement on Form S-1 filed on September 21, 2004.
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Exhibit No.
    
    Description10.10
    
    First Amendment to Convertible Bridge Loan and Warrant Agreement dated December 20, 2001 by and
between Akorn, Inc. and The John N. Kapoor Trust dated 9/20/89, incorporated by reference to Exhibit
10.16 to Akorn, Inc.s Registration Statement on Form S-1 filed on September 21, 2004.10.11
    
    Supply Agreement dated January 4, 2002, by and between Akorn, Inc. and Novadaq Technologies, Inc.,
incorporated by reference to Exhibit 10.22 to Akorn, Inc.s report on Form 10-K for fiscal year ended
December 31, 2001 filed on April 16, 2002.10.12
    
    Mutual Termination and Settlement Agreements by and between Akorn, Inc. and The Johns Hopkins
University/Applied Physics Laboratory dated. July 3, 2002, incorporated by reference to Exhibit 10.23
to Akorn, Inc.s report on Form 10-K for fiscal year ended December 31, 2001 filed on October 7, 2002.10.13
    
    Second Amendment to Convertible Bridge Loan and Warrant Agreement dated August 31, 2002 by and between
Akorn, Inc. and The John N. Kapoor Trust dated 9/20/89, incorporated by reference to Exhibit 10.19 to
Akorn, Inc.s Registration Statement on Form S-1 filed on September 21, 2004.10.14
    
    Amendment to Engagement Letter by and among Akorn, Inc. and AEG Partners LLC dated as of November 21,
2002 incorporated by reference to Exhibit 10.40 to Akorn, Inc.s report on Form 10-K for the fiscal
year ended December 31, 2002, filed on May 21, 2003.10.15
    
    Third Amendment to Convertible Bridge Loan and Warrant Agreement dated December 31, 2002 by and
between Akorn, Inc. and The John N. Kapoor Trust dated 9/20/89, incorporated by reference to Exhibit
10.22 to Akorn, Inc.s Registration Statement on Form S-1 filed on September 21, 2004.10.16
    
    Offer Letter dated January 22, 2003 from Akorn, Inc. to Arthur S. Przybyl, incorporated by reference
to Exhibit 10.41 to Akorn, Inc.s report on Form 10-K for the fiscal year ended December 31, 2003,
filed on May 21, 2003.10.17
    
    Indemnification Agreement dated May 15, 2003 by and between Akorn, Inc. and Arthur S. Przybyl,
incorporated by reference to Exhibit 10.42 to Akorn, Inc.s report on Form 10-K for the fiscal year
ended December 31, 2002, filed on May 21, 2003.10.18
    
    Credit Agreement dated October 7, 2003 among Akorn, Inc., Akorn New Jersey, Inc., the lenders party
thereto and LaSalle Bank National Association, as Administrative Agent, incorporated by reference to
Exhibit 10.1 to Akorn, Inc.s report on Form 8-K filed on October 24, 2003.10.19
    
    Form of Indemnity Agreement dated October 7, 2003 between Akorn, Inc. and each of its directors,
incorporated by reference to Exhibit 10.1 to Akorn, Inc.s report on Form 10-Q for quarter ended
September 30, 2003, filed on November 19, 2003.10.20
    
    Form of Subordination and Intercreditor Agreement dated October 7, 2003 among Akorn, Inc., Akorn (New
Jersey), Inc., LaSalle Bank and NeoPharm, incorporated by reference to Exhibit 10.4 to Akorn, Inc.s
report on Form 10-Q for quarter ended September 30, 2003, filed on November 19, 2003.10.21
    
    Form of Fourth Amendment to Convertible Bridge Loan and Warrant Agreement dated October 7, 2003
between Akorn, Inc. and The John N. Kapoor Trust dated 9/20/89, incorporated by reference to Exhibit
10.5 to Akorn, Inc.s report on Form 10-Q for quarter ended September 30, 2003, filed on November 19,
2003.10.22
    
    Limited Waiver Letter dated October 7, 2003 from The John N. Kapoor Trust dated 9/20/89, incorporated
by reference to Exhibit 10.34 to Akorn, Inc.s Registration Statement on Form S-1 filed on September
21, 2004.10.23
    
    Form of Acknowledgment of Subordination dated October 7, 2003 between Akorn, Inc. and The John N.
Kapoor Trust dated 9/20/89, incorporated by reference to Exhibit 10.6 to Akorn, Inc.s report on Form
10-Q for quarter ended September 30, 2003, filed on November 19, 2003.
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Exhibit No.
    
    Description10.24
    
    Form of Subordination and Intercreditor Agreement dated October 7, 2003 among Akorn, Inc., Akorn (New
Jersey), Inc., LaSalle Bank and The John N. Kapoor Trust dated 9/20/89, incorporated by reference to
Exhibit 10.7 to Akorn, Inc.s report on Form 10-Q for quarter ended September 30, 2003, filed on
November 19, 2003.10.25
    
    Form of Subordination and Intercreditor Agreement dated October 7, 2003 among Akorn, Inc., Akorn (New
Jersey), Inc., LaSalle Bank and The John N. Kapoor Trust dated 9/20/89, incorporated by reference to
Exhibit 10.8 to Akorn, Inc.s report on Form 10-Q for quarter ended September 30, 2003, filed on
November 19, 2003.10.26
    
    Form of Subordination and Intercreditor Agreement dated October 7, 2003 among Akorn, Inc., Akorn (New
Jersey), Inc., LaSalle Bank and Arjun C. Waney, incorporated by reference to Exhibit 10.9 to Akorn,
Inc.s report on Form 10-Q for quarter ended September 30, 2003, filed on November 19, 2003.10.27
    
    Form of Subordination and Intercreditor Agreement dated October 7, 2003 among Akorn, Inc., Akorn (New
Jersey), Inc., LaSalle Bank and Argent Fund Management Ltd, incorporated by reference to Exhibit 10.10
to Akorn, Inc.s report on Form 10-Q for quarter ended September 30, 2003, filed on November 19, 2003.10.28
    
    Akorn, Inc. 2003 Stock Option Plan, incorporated by reference to Exhibit 10.35 to Akorn, Inc.s report
on Form 10-K for the fiscal year ended December 31, 2003, filed on March 30, 2004.10.29
    
    Form of Akorn, Inc. Non-Qualified Stock Option Agreement, incorporated by reference to Exhibit 10.36
to Akorn, Inc.s report on Form 10-K for the fiscal year ended December 31, 2003, filed on March 30,
2004.10.30
    
    Form of Akorn, Inc. Incentive Stock Option Agreement, incorporated by reference to Exhibit 10.37 to
Akorn, Inc.s report on Form 10-K for the fiscal year ended December 31, 2003, filed on March 30,
2004.10.31
    
    Offer letter dated June 1, 2004 from Akorn, Inc. to Jeffrey A. Whitnell, incorporated by reference to
Exhibit 10.42 to Akorn, Inc.s report on Form 10-K for the fiscal year ended December 31, 2004, filed
March 30, 2005.10.32
    
    Engagement Letter dated August 5, 2004 between Leerink Swann & Company and Akorn, Inc., incorporated
by reference to Exhibit 10.1 to Akorn, Inc.s report on Form 8-K filed on August 24, 2004.10.33
    
    Waiver and Consent dated August 23, 2004, among LaSalle Bank National Association, the financial
institutions party thereto, Akorn, Inc. and Akorn (New Jersey), Inc., incorporated by reference to
Exhibit 10.2 to Akorn, Inc.s report on Form 8-K filed on August 24, 2004.10.34
    
    Consent and Agreement of Holders of Series A 6.0% Participating Convertible Preferred Stock of Akorn,
Inc. dated as of August 17, 2004, incorporated by reference to Exhibit 10.3 to Akorn, Inc.s report on
Form 8-K filed on August 24, 2004.10.35
    
    The AEG Stock Purchase Warrant, dated August 31, 2004, incorporated by reference to Exhibit 4.1 to
Akorn, Inc.s report on Form 8-K filed on September 9, 2004.10.36
    
    Limited Liability Company Agreement dated September 22, 2004 between Akorn, Inc. and Strides Arcolab
Limited, incorporated by reference to Exhibit 10.1 to Akorn, Inc.s report on Form 8-K filed on
September 27, 2004.10.37
    
    OEM Agreement dated September 22, 2004 between Akorn-Strides, LLC and Strides, incorporated by
reference to Exhibit 10.2 to Akorn, Inc.s report on Form 8-K filed on September 27, 2004.10.38
    
    Sales and Marketing Agreement dated September 22, 2004 between Akorn, Inc. and Akorn-Strides, LLC,
incorporated by reference to Exhibit 10.3 to Akorn, Inc.s report on Form 8-K filed on September 27,
2004.
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Exhibit No.
    
    Description10.39
    
    Promissory Note dated September 22, 2004 executed by Akorn-Strides, LLC for the benefit of Akorn,
Inc., incorporated by reference to Exhibit 10.4 to Akorn, Inc.s report on Form 8-K filed on September
27, 2004.10.40
    
    Capital Contribution Agreement dated September 22, 2004 executed by Strides Arcolab Limited for the
benefit of Akorn-Strides, LLC, incorporated by reference to Exhibit 10.5 to Akorn, Inc.s report on
Form 8-K filed on September 27, 2004.10.41
    
    Waiver Letter dated September 28, 2004 from The John N. Kapoor Trust dated 9/20/89, incorporated by
reference to Exhibit 10.1 to Akorn, Inc.s report on Form 8-K filed on September 30, 2004.
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Exhibit No.
    
    Description10.42
    
    First Amendment to Credit Agreement dated August 13, 2004 among Akorn, Inc., Akorn New Jersey, Inc.,
Dr. John N. Kapoor, The John N. Kapoor Trust dated 9/20/90, the lenders party thereto and LaSalle Bank
National Association, as Administrative Agent, incorporated by reference to Exhibit 10.1 to Akorn,
Inc.s Report on Form 10-Q for the period ended June 30, 2004, filed on August 13, 2004.10.43
    
    Second Amendment to Credit Agreement dated August 26, 2004 among Akorn, Inc., Akorn New Jersey, Inc.,
Dr. John N. Kapoor, The John N. Kapoor Trust dated 9/20/90, the lenders party thereto and LaSalle Bank
National Association, as Administrative Agent, incorporated by reference to Exhibit 10.1 to Akorn,
Inc.s report on Form 8-K filed on August 31, 2004.10.44
    
    Third Amendment to Credit Agreement dated October 8, 2004 among Akorn, Inc., Akorn New Jersey, Inc.,
the lenders party thereto and LaSalle Bank National Association, as Administrative Agent, incorporated
by reference to Exhibit 10.53 to Akorn, Inc.s Pre-effective Amendment to Registration Statement on
Form S-1 filed October 13, 2004.10.45
    
    Waiver and Consent dated October 8, 2004, among LaSalle Bank National Association, the financial
institutions party thereto, Akorn, Inc. and Akorn (New Jersey), Inc., incorporated by reference to
Exhibit 10.54 to Akorn, Inc.s Pre-effective Amendment to Registration Statement on Form S-1 filed
October 13, 200410.46
    
    License and Supply Agreement November, 11 2004, between Hameln Pharmaceuticals Gmbh and Akorn, Inc.
incorporated by reference to Exhibit 10.1 to Akorn, Inc.s report on Form 8-K filed on November 17,
2004.10.47
    
    Offer letter dated November 15, 2004, from Akorn, Inc. to Jeffrey A. Whitnell, for position of Senior
Vice President incorporated by reference to Exhibit 10.58 to Akorn, Inc.s report on Form 10-K filed
on March 30, 2005.10.48
    
    Amended and Restated Akorn, Inc. 2003 Stock Option Plan incorporated by reference to Exhibit 10.59 to
Akorn, Inc.s report on Form 10-K filed on March 30, 2005.10.49
    
    Amended and Restated Employee Stock Purchase Plan incorporated by reference to Exhibit 10.58 to Akorn,
Inc.s Registration Statement on Form S-1 filed May 10, 2005.10.50
    
    Waiver and Consent to Credit Agreement dated May 13, 2005 between Akorn, LaSalle Bank, the financial
institutions party thereto and Akorn (New Jersey), Inc. incorporated by reference to Exhibit 10.1 to
the Companys report on Form 8-K filed on May 19, 2005.10.51
    
    Note Repayment Agreement dated May 16, 2005, by and between NeoPharm, Inc. and Akorn, Inc.
incorporated by reference to Exhibit 10.63 to Akorn, Inc.s Registration Statement on Form S-1 filed
on June 14, 2005.10.52
    
    Fourth Amendment to the Credit Agreement among Akorn, Inc., LaSalle Bank, the financial institutions
party thereto and Akorn (New Jersey), Inc., incorporated by reference to Exhibit 10.1 to Akorn, Inc.s
report on Form 8-K filed on October 5, 2005.10.53
    
    Master Letter of Credit Agreement among Akorn, Inc., LaSalle Bank, the financial institutions party
thereto and Akorn (New Jersey), Inc., incorporated by reference to Exhibit 10.2 to Akorn, Inc.s
report on Form 8-K filed on October 5, 2005.10.54
    
    Solicitation/Contract/Order for Commercial Items issued by the HHS to Akorn, Inc. on December 30, 2005.10.55
    
    Executive Bonus Agreement by and between Akorn, Inc. and Arthur S. Przybyl dated December 27, 2005
incorporated by reference to Exhibit 99.1 to the Companys report on Form 8-K filed January 3, 2006.10.56
    
    Executive Bonus Agreement by and between Akorn, Inc. and Jeffrey A. Whitnell dated December 27, 2005
incorporated by reference to Exhibit 99.2 to the Companys report on Form 8-K filed January 3, 2006.
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Exhibit No.
    
    Description10.57
    
    Amendment, Waiver and Consent to Credit Agreement dated March 1, 2006, among LaSalle Bank, the
Lenders, Akorn, Inc. and Akorn (New Jersey) incorporated by reference to Exhibit 10.1 to Akorn, Inc.s
report on Form 8-K filed March 7, 2006.10.58
    
    Waiver and Consent to Credit Agreement dated March 20, 2006 among Akorn, Inc., LaSalle Bank, the
financial institutions party thereto and Akorn (New Jersey), Inc., incorporated by reference to
Exhibit 10.1 to Akorn, Inc.s report on Form 8-K filed March 24, 2006.10.59
    
    Waiver and Consent to Credit Agreement dated March 31, 2006 among Akorn, Inc., LaSalle Bank, the
financial institutions party thereto and Akorn (New Jersey), Inc., incorporated by reference to
Exhibit 10.1 to Akorn, Inc.s report on Form 8-K filed March 31, 2006.10.60
    
    Executive Employment Agreement dated April 24, 2006 between Akorn, Inc., and Arthur S. Przybyl
incorporated by reference to Exhibit 10.1 to Akorn, Inc.s report on Form 8-K filed April 28, 2006.10.61W
    
    Executive Bonus Agreement dated April 27, 2006 between Akorn, Inc., and Arthur S. Przybyl incorporated
by reference to Exhibit 10.2 to Akorn, Inc.s report on Form 8-K filed April 28, 2006.10.62W
    
    Executive Bonus Agreement dated April 27, 2006 between Akorn, Inc., and Jeffrey A. Whitnell
incorporated by reference to Exhibit 10.3 to Akorn, Inc.s report on Form 8-K filed April 28,
2006.10.63
    
    Waiver and Consent to Credit Agreement dated September 13, 2006, among LaSalle Bank National
Association, the financial institutions party thereto, Akorn, Inc. and Akorn (New Jersey), Inc.
incorporated by reference to Exhibit 10.1 to Akorn Inc.s report on Form 8-K filed September 14, 2006.10.64
    
    Akorn, Inc. Director Compensation Agreement dated October 26, 2006, incorporated by reference to
Exhibit 10.2 to Akorn, Inc.s report on Form 10-Q filed November 9, 2006.10.65W
    
    Development and Exclusive Distribution Agreement dated November 7, 2006 between Akorn, Inc. and Serum
Institute of India, Ltd. incorporated by reference to Exhibit 10.1 to Akorn Inc.s report on Form 8-K
filed November 14, 2006.10.66W
    
    Development Funding Agreement dated November 7, 2006 between Akorn, Inc. and Serum Institute of India,
Ltd. incorporated by reference to Exhibit 10.2 to Akorn Inc.s report on Form 8-K filed November 14,
2006.10.67
    
    First Amendment to OEM Agreement dated December 8, 2004 between Akorn-Strides, LLC and Strides Arcolab
Limited incorporated by reference to Exhibit 10.2 to Akorn Inc.s report on Form 8-K filed December
12, 2006.10.68
    
    Second Amendment to OEM Agreement dated December 31, 2004 between Akorn-Strides, LLC and Strides
Arcolab Limited incorporated by reference to Exhibit 10.3 to Akorn Inc.s report on Form 8-K filed
December 12, 2006.10.69W
    
    Third Amendment to OEM Agreement dated October 26, 2005 between Akorn-Strides, LLC and Strides Arcolab
Limited incorporated by reference to Exhibit 10.4 to Akorn Inc.s report on Form 8-K filed December
12, 2006.10.70
    
    Fourth Amendment to OEM Agreement dated February 1, 2006 between Akorn-Strides, LLC and Strides
Arcolab Limited incorporated by reference to Exhibit 10.5 to Akorn Inc.s report on Form 8-K filed
December 12, 2006.10.71W
    
    Fifth Amendment to OEM Agreement dated November 28, 2006 between Akorn-Strides, LLC and Strides
Arcolab Limited incorporated by reference to Exhibit 10.1 to Akorn Inc.s report on Form 8-K filed
December 12, 2006.10.72
    
    Office Lease dated December 21, 2006, between Akorn, Inc. and Duke Realty Limited Partnership
incorporated by reference to Exhibit 10.1 to Akorn Inc.s report on Form 8-K filed December 28, 2006.
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Exhibit No.
    
    Description10.73
    
    Amendment to Credit Agreement dated March 5, 2007 between Akorn, Inc., LaSalle Bank, the financial
institutions party thereto and Akorn (New Jersey), Inc. incorporated by reference to Exhibit 10.1 to
Akorn Inc.s report on Form 8-K filed March 6, 2006.10.74*
    
    Addendum 1 to License and Supply Agreement dated November, 11 2004, between Hameln Pharmaceuticals
Gmbh and Akorn, Inc.10.75*
    
    Guaranty and Collateral Agreement dated October 7, 2003, between Akorn, Inc., LaSalle Bank, the
grantors party thereto and Akorn (New Jersey), Inc.21.1
    
    Subsidiaries of Akorn, Inc., incorporated by reference to Exhibit 21.1 to Akorn, Inc.s Pre-effective
Amendment to Registration Statement on Form S-1 filed October 13, 2004.23.1*
    
    Consent of Registered Public Accountant31.1*
    
    Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.2*
    
    Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32.1*
    
    Certification of the Chief Executive Officer pursuant to 18 USC 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 USC Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.(b)
    
    See (a)3 above.(c)
    
    See (a)1 above.
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SIGNATURES
  AKORN, INC.By:
    /s/ ARTHUR S. PRZYBYLArthur S. PrzybylChief Executive Officer   Signature
    
    Title
    
    Date/s/ ARTHUR S. PRZYBYL

Arthur S. Przybyl
    
    Chief Executive Officer
(Principal Executive Officer)
    
    March 14, 2007/s/ JEFFREY A. WHITNELL

Jeffrey A. Whitnell
    
    Chief Financial Officer
(Principal Financial Officer and Principal Accounting Officer)
    
    March 14, 2007/s/ DR. JOHN KAPOOR

Dr. John Kapoor
    
    Director, Board Chairman
    
    March 14, 2007/s/ JERRY N. ELLIS

Jerry N. Ellis
    
    Director
    
    March 14, 2007/s/ JERRY TREPPEL

Jerry Treppel
    
    Director
    
    March 14, 2007/s/ RONALD M. JOHNSON

Ronald M. Johnson
    
    Director
    
    March 14, 2007
 70