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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, 2005
 o
    
    Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
  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:
 SECURITIES REGISTERED UNDER SECTION 12(g) OF THE EXCHANGE ACT:
 £ R
 £ R
  R £
 £
  £ £ R
 £ R




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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.
    
    
    8Item 1B.
    
    Unresolved Staff Comments.
    
    
    16Item 2.
    
    Properties.
    
    
    16Item 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.
    
    
    31Item 8.
    
    Financial Statements and Supplementary Data.
    
    
    32Item 9.
    
    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
    
    
    55Item 9A.
    
    Controls and Procedures.
    
    
    55Item 9B.
    
    Other Information.
    
    
    55PART IIIItem 10.
    
    Directors and Executive Officers of the Registrant.
    
    
    56Item 11.
    
    Executive Compensation.
    
    
    56Item 12.
    
    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
    
    
    56Item 13.
    
    Certain Relationships and Related Transactions.
    
    
    56Item 14.
    
    Principal Accounting Fees and Services.
    
    
    56PART IVItem 15.
    
    Exhibits, Financial Statement Schedules.
    
    
    57Solicitation/Contract/Order for Commercial ItemsConsent of Registered Public Accountant302 Certification of Chief Executive Officer302 Certification of Chief Financial Officer906 Certification of Chief Executive Officer906 Certificcation of Chief Financial Officer
  3




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PART I
 
 Item 1. Business
   Ophthalmic Segment.
 Injectable 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.
  
    
    AmerisourceBergen Corporation (AmerisourceBergen)
    
    Cardinal Health, Inc. (Cardinal); and
    
    McKesson Drug Company (McKesson).
 6




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2005
    

2004Gross
    
    
    
    
    
    Gross Accounts
    
    Gross
    
    
    
    
    
    Gross AccountsSales
    
    Revenue
    
    Receivable
    
    Sales
    
    Revenue
    
    ReceivableAmerisourceBergen
    
    
    24
    %
    
    
    16
    %
    
    
    28
    %
    
    
    14
    %
    
    
    10
    %
    
    
    17
    %Cardinal
    
    
    28
    %
    
    
    19
    %
    
    
    29
    %
    
    
    25
    %
    
    
    20
    %
    
    
    51
    %McKesson
    
    
    17
    %
    
    
    11
    %
    
    
    19
    %
    
    
    18
    %
    
    
    16
    %
    
    
    6
    %
  Backorders.
 Government Regulation.
  FDA Warning Letter.
  7




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Product Recalls.
  DEA Regulation.
  Environment
 Foreign Sales
 
 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 .
 8




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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.
  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.
  9




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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.
   10




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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.
 11




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We must obtain approval from the FDA for each pharmaceutical product that we market.
 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 sterile
pharmaceutical products.
    If the FDA changes its regulatory position, it could force us to delay or suspend
indefinitely, our manufacturing, distribution or sales of certain products.
  12




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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.
     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.
  13




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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.
  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 the conversion of subordinated debt and preferred stock may have a
substantial dilutive effect on our common stock.
  The terms of our preferred stock may reduce the value of our common stock.
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.
 Our obligations to pay dividends on our preferred stock decrease the returns available to our
common shareholders.
  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.
  The requirements of being a public company may strain our resources and distract management.
  15




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Item 1B. Unresolved Staff Comments.
  
 Item 2. Properties.
      
 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, 20061st Quarter (through March 10, 2006)
    
    $
    5.07
    
    
    $
    3.90Year Ended December 31, 20051st Quarter
    
    $
    3.95
    
    
    $
    2.652nd Quarter
    
    
    3.18
    
    
    
    2.203rd Quarter
    
    
    3.80
    
    
    
    2.174th Quarter
    
    
    4.91
    
    
    
    3.12Year Ended December 31, 20041st Quarter
    
    $
    3.75
    
    
    $
    2.002nd Quarter
    
    
    3.78
    
    
    
    2.003rd Quarter
    
    
    3.76
    
    
    
    2.304th Quarter
    
    
    4.30
    
    
    
    3.00
     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:
    
    
    3,706,475
    
    
    $
    2.45
    
    
    
    2,382,875Total
    
    
    3,706,475
    
    
    $
    2.45
    
    
    
    2,382,875
 18




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Item 6. Selected Financial Data
  Year Ended December 31,2005
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    2001OPERATIONS DATA (000s)Revenues
    
    $
    44,484
    
    
    $
    50,708
    
    
    $
    45,491
    
    
    $
    51,419
    
    
    $
    41,545Gross profit
    
    
    14,944
    
    
    
    18,202
    
    
    
    12,148
    
    
    
    20,537
    
    
    
    6,398Operating loss (1)
    
    
    (7,479
    )
    
    
    (368
    )
    
    
    (6,276
    )
    
    
    (3,565
    )
    
    
    (21,074
    )Interest and other expense (2)
    
    
    (1,113
    )
    
    
    (2,650
    )
    
    
    (6,220
    )
    
    
    (3,148
    )
    
    
    (3,852
    )Pretax loss
    
    
    (8,592
    )
    
    
    (3,018
    )
    
    
    (12,496
    )
    
    
    (6,713
    )
    
    
    (24,926
    )Income tax provision (benefit) (3)
    
    
    17
    
    
    
    8
    
    
    
    (171
    )
    
    
    6,239
    
    
    
    (9,780
    )Net loss
    
    
    (8,609
    )
    
    
    (3,026
    )
    
    
    (12,325
    )
    
    
    (12,952
    )
    
    
    (15,146
    )Preferred stock dividends and adjustments (4)
    
    
    (4,082
    )
    
    
    (34,436
    )
    
    
    
    
    
    
    
    
    
    
    Net loss available to common stockholders
    
    $
    (12,691
    )
    
    $
    (37,462
    )
    
    $
    (12,325
    )
    
    $
    (12,952
    )
    
    $
    (15,146
    )Weighted average shares outstanding:Basic
    
    
    26,095
    
    
    
    20,817
    
    
    
    19,745
    
    
    
    19,589
    
    
    
    19,337Diluted
    
    
    26,095
    
    
    
    20,817
    
    
    
    19,745
    
    
    
    19,589
    
    
    
    19,337PER SHAREEquity
    
    $
    1.57
    
    
    $
    2.27
    
    
    $
    0.58
    
    
    $
    0.58
    
    
    $
    1.23Net loss:Basic
    
    
    (0.49
    )
    
    
    (1.80
    )
    
    
    (0.62
    )
    
    
    (0.66
    )
    
    
    (0.78
    )Diluted
    
    
    (0.49
    )
    
    
    (1.80
    )
    
    
    (0.62
    )
    
    
    (0.66
    )
    
    
    (0.78
    )Price: High
    
    
    4.91
    
    
    
    4.30
    
    
    
    2.35
    
    
    
    4.00
    
    
    
    6.44Low
    
    
    2.17
    
    
    
    2.00
    
    
    
    0.45
    
    
    
    0.60
    
    
    
    1.03BALANCE SHEET (000s)Current assets
    
    $
    15,694
    
    
    $
    22,393
    
    
    $
    10,595
    
    
    $
    13,239
    
    
    $
    28,580Net property, plant & equipment
    
    
    31,071
    
    
    
    31,893
    
    
    
    33,907
    
    
    
    35,314
    
    
    
    33,518Total assets
    
    
    57,095
    
    
    
    66,922
    
    
    
    59,415
    
    
    
    63,538
    
    
    
    84,546Current liabilities, including debt in default (5)
    
    
    15,460
    
    
    
    11,160
    
    
    
    11,959
    
    
    
    43,803
    
    
    
    52,937Long-term obligations, less current installments (6)
    
    
    602
    
    
    
    8,436
    
    
    
    36,065
    
    
    
    8,383
    
    
    
    7,779Shareholders equity
    
    
    41,033
    
    
    
    47,326
    
    
    
    11,391
    
    
    
    11,352
    
    
    
    23,830CASH FLOW DATA (000s)From operating activities
    
    $
    (148
    )
    
    $
    (3,461
    )
    
    $
    (1,932
    )
    
    $
    9,357
    
    
    $
    (444
    )From investing activities
    
    
    (1,857
    )
    
    
    (838
    )
    
    
    (1,743
    )
    
    
    (5,315
    )
    
    
    (4,126
    )From financing activities
    
    
    (1,314
    )
    
    
    8,191
    
    
    
    3,529
    
    
    
    (9,033
    )
    
    
    9,118Change in cash and cash equivalents
    
    
    (3,319
    )
    
    
    3,892
    
    
    
    (146
    )
    
    
    (4,991
    )
    
    
    4,548
 
 (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 and (iii) $2,132 in 2001, and (b) restructuring
charges of $1,117 in 2001.(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 do not impact net income (loss) but will continue to impact
earnings (loss) per share.(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.(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, $35,565 and $44,800 of debt in default as
of December 31, 2004, 2002 and 2001, respectively. The 2002 and 2001 debt was refinanced in
2003 as part of the Exchange Transaction. See Item 7. Managements Discussion and Analysis of
Financial Condition and Results of Operations  Financial Conditions and Liquidity. 19




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(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 31,2005
    
    
    2004
    
    
    2003RevenuesOphthalmic
    
    
    51
    %
    
    
    59
    %
    
    
    57
    %Injectable
    
    
    31
    
    
    
    24
    
    
    
    27Contract Services
    
    
    18
    
    
    
    17
    
    
    
    16Total revenues
    
    
    100
    
    
    
    100
    
    
    
    100Gross profitOphthalmic
    
    
    18
    %
    
    
    29
    %
    
    
    18
    %Injectable
    
    
    13
    
    
    
    6
    
    
    
    9Contract Services
    
    
    3
    
    
    
    1
    
    
    
    0Total Gross Profit
    
    
    34
    
    
    
    36
    
    
    
    27Selling, general and administrative expenses
    
    
    37
    
    
    
    26
    
    
    
    35Amortization and write-downs of intangibles.
    
    
    4
    
    
    
    7
    
    
    
    3Research and development expenses
    
    
    10
    
    
    
    4
    
    
    
    3Operating loss
    
    
    (17
    )
    
    
    (1
    )
    
    
    (14
    )Net loss
    
    
    (19
    )%
    
    
    (6
    )%
    
    
    (27
    )%
 COMPARISON OF TWELVE MONTHS ENDED DECEMBER 31, 2005 AND 2004
      20




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COMPARISON OF TWELVE MONTHS ENDED DECEMBER 31, 2004 AND 2003
       21




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FINANCIAL CONDITION AND LIQUIDITY
 Overview
     22




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.
  Facility Expansion
   Credit Facility
  23




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Subordinated Debt
   24




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.
 Other Indebtedness
   Preferred Stock and Warrants
 Series A Preferred Stock
   25




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Series B Preferred Stock
    26




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Warrants
   .
 CONTRACTUAL OBLIGATIONS
  Payment Due  by PeriodMore thanDescription
    
    Total
    
    
    Less than 1 year
    
    
    1-3 years
    
    
    3-5 years
    
    
    5 yearsCurrent and Long Term-Debt
    
    $
    8,705
    
    
    $
    8,103
    
    
    $
    602
    
    
    $
    
    
    
    $
    Operating Leases
    
    
    4,122
    
    
    
    1,580
    
    
    
    2,340
    
    
    
    202
    
    
    
    Accrued Interest on Debt
    
    
    2,514
    
    
    
    2,514
    
    
    
    
    
    
    
    
    
    
    
    Interest Payments on Debt (1)
    
    
    915
    
    
    
    879
    
    
    
    36
    
    
    
    
    
    
    
    Total:
    
    $
    16,256
    
    
    $
    13,076
    
    
    $
    2,978
    
    
    $
    202
    
    
    $
    
 
 (1)
    
    Interest payments on debt are estimated based on rates in effect as of December 31, 2005 27




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SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
 Net Income (Loss)Gross
    
    
    
    
    
    
    Per Share
    
    
    Per ShareRevenues
    
    
    Profit
    
    
    Amount
    
    
    Basic
    
    
    DilutedYear 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
    )Year Ended December 31, 2004:1st Quarter
    
    $
    11,660
    
    
    $
    4,018
    
    
    $
    (1,217
    )
    
    $
    (0.06
    )
    
    $
    (0.06
    )2nd Quarter
    
    
    11,076
    
    
    
    3,319
    
    
    
    (3,583
    )
    
    
    (0.18
    )
    
    
    (0.18
    )3rd Quarter
    
    
    15,388
    
    
    
    6,774
    
    
    
    2,587
    
    
    
    (1.49
    )
    
    
    (1.49
    )4th Quarter
    
    
    12,584
    
    
    
    4,091
    
    
    
    (813
    )
    
    
    (0.09
    )
    
    
    (0.09
    )
 CRITICAL ACCOUNTING POLICIES
 Revenue Recognition
  Allowance for Chargebacks and Rebates
    28




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Allowance for Product Returns
  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
 29




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Allowance for Slow-Moving Inventory
  Income Taxes
  Intangibles
  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
  30




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Item 7A. Quantitative and Qualitative Disclosures about Market Risk
     31




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Item 8. Financial Statements and Supplementary Data
   
 32




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Report of Independent Registered Public Accounting Firm
 
     
 33




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AKORN, INC.
 CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands, Except Share Data)
 December 31,2005
    
    
    2004ASSETSCURRENT ASSETSCash and cash equivalents
    
    $
    791
    
    
    $
    4,110Trade accounts receivable (less allowance for
doubtful accounts of $13 and $435 at December
31, 2005 and 2004, respectively)
    
    
    3,222
    
    
    
    6,582Inventories
    
    
    10,279
    
    
    
    10,421Prepaid expenses and other current assets
    
    
    1,402
    
    
    
    1,280TOTAL CURRENT ASSETS
    
    
    15,694
    
    
    
    22,393PROPERTY, PLANT AND EQUIPMENT, NET
    
    
    31,071
    
    
    
    31,893OTHER ASSETSIntangibles, net
    
    
    10,210
    
    
    
    11,618Other
    
    
    120
    
    
    
    1,018TOTAL OTHER ASSETS
    
    
    10,330
    
    
    
    12,636TOTAL ASSETS
    
    $
    57,095
    
    
    $
    66,922LIABILITIES AND SHAREHOLDERS EQUITYCURRENT LIABILITIESCurrent installments of debt and debt in default
    
    $
    7,044
    
    
    $
    3,590Trade accounts payable
    
    
    3,046
    
    
    
    5,397Accrued compensation
    
    
    1,519
    
    
    
    499Accrued expenses and other liabilities
    
    
    3,851
    
    
    
    1,674TOTAL CURRENT LIABILITIES
    
    
    15,460
    
    
    
    11,160Long-term debt, less current installments
    
    
    602
    
    
    
    6,790Other long-term liabilities
    
    
    
    
    
    
    1,646TOTAL LIABILITIES
    
    
    16,062
    
    
    
    19,596COMMITMENTS AND CONTINGENCIESSHAREHOLDERS EQUITYCommon stock, no par value  150,000,000
shares authorized; 27,618,745, and 25,132,684
shares issued and outstanding at December 31,
2005 and 2004, respectively
    
    
    67,339
    
    
    
    59,571Series A Preferred Stock, $1.00 par value
257,172 shares authorized and issued, 241,122
and 242,172 shares outstanding as of December
31, 2005 and 2004, respectively
    
    
    27,232
    
    
    
    25,787Series B Preferred Stock, $1.00 par value
170,000 shares authorized, 141,000 shares
issued and 106,600 and 138,500 outstanding as
of December 31, 2005 and 2004, respectively
    
    
    10,758
    
    
    
    13,109Warrants to acquire common stock
    
    
    13,696
    
    
    
    14,160Accumulated deficit
    
    
    (77,992
    )
    
    
    (65,301
    )TOTAL SHAREHOLDERS EQUITY
    
    
    41,033
    
    
    
    47,326TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
    
    $
    57,095
    
    
    $
    66,922
  34




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##### Table of Contents



AKORN, INC.
 CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Data)
 Year Ended December 31,2005
    
    
    2004
    
    
    2003Revenues
    
    $
    44,484
    
    
    $
    50,708
    
    
    $
    45,491Cost of sales
    
    
    29,540
    
    
    
    32,506
    
    
    
    33,343GROSS PROFIT
    
    
    14,944
    
    
    
    18,202
    
    
    
    12,148Selling, general and administrative expenses
    
    
    16,405
    
    
    
    13,300
    
    
    
    15,544Amortization and write down of intangibles
    
    
    1,508
    
    
    
    3,409
    
    
    
    1,415Research and development expenses
    
    
    4,510
    
    
    
    1,861
    
    
    
    1,465OPERATING EXPENSES
    
    
    22,423
    
    
    
    18,570
    
    
    
    18,424OPERATING LOSS
    
    
    (7,479
    )
    
    
    (368
    )
    
    
    (6,276
    )Interest expense
    
    
    (2,325
    )
    
    
    (4,218
    )
    
    
    (3,157
    )Loss on Exchange Transaction
    
    
    
    
    
    
    
    
    
    
    (3,102
    )Gain related to disputed settlements
    
    
    
    
    
    
    1,562
    
    
    
    Other income, net
    
    
    1,212
    
    
    
    6
    
    
    
    39LOSS BEFORE INCOME TAXES
    
    
    (8,592
    )
    
    
    (3,018
    )
    
    
    (12,496
    )Income tax provision (benefit)
    
    
    17
    
    
    
    8
    
    
    
    (171
    )NET LOSS
    
    
    (8,609
    )
    
    
    (3,026
    )
    
    
    (12,325
    )Preferred stock dividends and adjustments
    
    
    (4,082
    )
    
    
    (34,436
    )
    
    
    NET LOSS AVAILABLE TO COMMON STOCKHOLDERS
    
    $
    (12,691
    )
    
    $
    (37,462
    )
    
    $
    (12,325
    )NET LOSS PER SHARE:BASIC
    
    $
    (0.49
    )
    
    $
    (1.80
    )
    
    $
    (0.62
    )DILUTED
    
    $
    (0.49
    )
    
    $
    (1.80
    )
    
    $
    (0.62
    )SHARES USED IN COMPUTING NET LOSS PER SHARE:BASIC
    
    
    26,095
    
    
    
    20,817
    
    
    
    19,745DILUTED
    
    
    26,095
    
    
    
    20,817
    
    
    
    19,745
  35




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##### Table of Contents



AKORN, INC.
 CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003
(In Thousands)
 Warrants
    
    
    RetainedSeries A
    
    
    Series B
    
    
    to acquire
    
    
    EarningsCommon Stock
    
    
    Preferred
    
    
    Preferred
    
    
    Common
    
    
    (AccumulatedShares
    
    
    Amount
    
    
    Stock
    
    
    Stock
    
    
    Stock
    
    
    Deficit)
    
    
    TotalBALANCES AT DECEMBER 31, 2002
    
    
    19,657
    
    
    $
    25,350
    
    
    $
    
    
    
    $
    
    
    
    $
    1,516
    
    
    $
    (15,514
    )
    
    $
    11,352Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (12,325
    )
    
    
    (12,325
    )Exchange Transaction Warrants:Issued to preferred stockholders
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,188
    
    
    
    
    
    
    
    9,188Issued to bank note guarantors
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,166
    
    
    
    
    
    
    
    1,166Issued to subordinated note holders
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    336
    
    
    
    
    
    
    
    336Due to consultants
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,518
    
    
    
    
    
    
    
    1,518Exercise of stock options
    
    
    42
    
    
    
    40
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    40Employee stock purchase plan issuances
    
    
    127
    
    
    
    116
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    116BALANCES 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
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    269Adjust 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 Comp related to
Restricted Stock Awards
    
    
    
    
    
    
    407
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    407BALANCES AT DECEMBER 31, 2005
    
    
    27,619
    
    
    $
    67,339
    
    
    $
    27,232
    
    
    $
    10,758
    
    
    $
    13,696
    
    
    $
    (77,992
    )
    
    $
    41,033
  36




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##### Table of Contents



AKORN, INC.
 CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
 Year Ended December 31,2005
    
    
    2004
    
    
    2003OPERATING ACTIVITIESNet loss
    
    $
    (8,609
    )
    
    $
    (3,026
    )
    
    $
    (12,325
    )Adjustments to reconcile net loss to net cash from operating activities:Depreciation and amortization
    
    
    5,239
    
    
    
    4,075
    
    
    
    3,783Amortization of deferred financing fees
    
    
    74
    
    
    
    1,208
    
    
    
    345Amortization of debt discount
    
    
    1,237
    
    
    
    945
    
    
    
    509Impairment of long-lived assets
    
    
    
    
    
    
    2,037
    
    
    
    Non-cash net loss on Exchange Transaction
    
    
    
    
    
    
    
    
    
    
    1,518Non-cash expense related to preferred stock
    
    
    
    
    
    
    1,064
    
    
    
    589Prepayments to Strides Arcolab Limited
    
    
    (250
    )
    
    
    
    
    
    
    Gain on retirement of debt
    
    
    (1,212
    )
    
    
    
    
    
    
    Non-cash stock compensation expense
    
    
    407
    
    
    
    
    
    
    
    Gain related to dispute settlements
    
    
    
    
    
    
    (1,562
    )
    
    
    Gain on disposal of long-lived assets
    
    
    
    
    
    
    (6
    )
    
    
    (36
    )Changes in operating assets and liabilities:Trade accounts receivable
    
    
    3,360
    
    
    
    (4,956
    )
    
    
    (350
    )Income taxes recoverable
    
    
    
    
    
    
    
    
    
    
    625Inventories
    
    
    142
    
    
    
    (2,614
    )
    
    
    2,594Prepaid expenses and other assets
    
    
    (198
    )
    
    
    (1,234
    )
    
    
    257Trade accounts payable
    
    
    (2,351
    )
    
    
    (14
    )
    
    
    (217
    )Accrued expenses and other liabilities
    
    
    2,013
    
    
    
    622
    
    
    
    776NET CASH USED IN OPERATING ACTIVITIES
    
    
    (148
    )
    
    
    (3,461
    )
    
    
    (1,932
    )INVESTING ACTIVITIESPurchases of property, plant and equipment
    
    
    (1,782
    )
    
    
    (689
    )
    
    
    (1,819
    )Proceeds from sale of investments
    
    
    
    
    
    
    2,000
    
    
    
    Proceeds from sale of long-lived assets
    
    
    
    
    
    
    6
    
    
    
    76Purchase of product intangibles and product licenses
    
    
    (75
    )
    
    
    (2,155
    )
    
    
    NET CASH USED IN INVESTING ACTIVITIES
    
    
    (1,857
    )
    
    
    (838
    )
    
    
    (1,743
    )FINANCING ACTIVITIESProceeds under stock option and stock purchase plans
    
    
    1,368
    
    
    
    1,341
    
    
    
    156Repayments of long-term debt
    
    
    (370
    )
    
    
    (6,730
    )
    
    
    (6,352
    )Proceeds from issuance of long-term debt
    
    
    
    
    
    
    
    
    
    
    9,166Repayment of NeoPharm Debt
    
    
    (2,500
    )
    
    
    
    
    
    
    Net proceeds from Series B Preferred Stock issuance
    
    
    
    
    
    
    13,044
    
    
    
    Change in line of credit
    
    
    
    
    
    
    (1,500
    )
    
    
    1,500Costs incurred in Exchange Transaction
    
    
    
    
    
    
    
    
    
    
    (941
    )Proceeds from exercise of stock warrants
    
    
    188
    
    
    
    2,036
    
    
    
    NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES
    
    
    (1,314
    )
    
    
    8,191
    
    
    
    3,529(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
    
    
    (3,319
    )
    
    
    3,892
    
    
    
    (146
    )CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR
    
    
    4,110
    
    
    
    218
    
    
    
    364CASH AND CASH EQUIVALENTS AT END OF YEAR
    
    $
    791
    
    
    $
    4,110
    
    
    $
    218
  37




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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:
 38




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##### Table of Contents



Chargebacks and Rebates:
    Product Returns:
 Doubtful Accounts:
 39




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##### Table of Contents




    
    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:
  40




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##### Table of Contents



For the year ended 12/31/06
    
    $
    1,385For 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
    
    $
    1,354
 Property, Plant and Equipment:
 Net Loss Per Common Share:
 Stock Based Compensation:
  2005
    
    
    2004
    
    
    2003Net loss, as reported
    
    $
    (8,609
    )
    
    $
    (3,026
    )
    
    $
    (12,325
    )Add stock based employee compensation expense, included in reported net loss
    
    
    407
    
    
    
    
    
    
    
    Deduct total stock-based employee compensation expense determined under
fair-value-based method for all awards
    
    
    (1,441
    )
    
    
    (3,233
    )
    
    
    (1,969
    )Pro forma net loss
    
    
    (9,643
    )
    
    
    (6,259
    )
    
    
    (14,294
    )Add preferred stock dividends and adjustments
    
    
    (4,082
    )
    
    
    (34,436
    )
    
    
    Pro forma net loss available for common stockholders
    
    $
    (13,725
    )
    
    $
    (40,695
    )
    
    $
    (14,294
    )Basic and diluted loss per common share of stockAs reported
    
    $
    (0.49
    )
    
    $
    (1.80
    )
    
    $
    (0.62
    )Pro forma
    
    $
    (0.53
    )
    
    $
    (1.95
    )
    
    $
    (0.72
    )
 Income Taxes:
 Fair Value of Financial Instruments:
 41




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##### Table of Contents



Note C  Allowance for Customer Deductions
  Doubtful Accounts Years Ended
    
    
    ReturnsDecember 31,
    
    
    Years Ended December 31,2005
    
    
    2004
    
    
    2003
    
    
    2005
    
    
    2004
    
    
    2003Balance at beginning of year
    
    $
    435
    
    
    $
    609
    
    
    $
    1,200
    
    
    $
    1,393
    
    
    $
    1,077
    
    
    $
    1,166Provision (recovery)
    
    
    74
    
    
    
    (43
    )
    
    
    (471
    )
    
    
    3,122
    
    
    
    1,956
    
    
    
    2,085Charges
    
    
    (496
    )
    
    
    (131
    )
    
    
    (120
    )
    
    
    (2,986
    )
    
    
    (1,640
    )
    
    
    (2,174
    )Balance at end of year
    
    $
    13
    
    
    $
    435
    
    
    $
    609
    
    
    $
    1,529
    
    
    $
    1,393
    
    
    $
    1,077
 Discounts
    
    
    Chargebacks and RebatesYears Ended December 31,
    
    
    Years Ended December 31,2005
    
    
    2004
    
    
    2003
    
    
    2005
    
    
    2004
    
    
    2003Balance at beginning of year
    
    $
    234
    
    
    $
    94
    
    
    $
    172
    
    
    $
    5,406
    
    
    $
    4,804
    
    
    $
    4,302Provision
    
    
    1,003
    
    
    
    925
    
    
    
    689
    
    
    
    24,391
    
    
    
    16,915
    
    
    
    12,836Charges
    
    
    (993
    )
    
    
    (785
    )
    
    
    (767
    )
    
    
    (22,163
    )
    
    
    (16,313
    )
    
    
    (12,334
    )Balance at end of year
    
    $
    244
    
    
    $
    234
    
    
    $
    94
    
    
    $
    7,634
    
    
    $
    5,406
    
    
    $
    4,804
 Note D  Inventories
  December 31,2005
    
    
    2004Finished goods
    
    $
    4,914
    
    
    $
    5,194Work in process
    
    
    1,702
    
    
    
    1,380Raw materials and supplies
    
    
    3,663
    
    
    
    3,847$
    10,279
    
    
    $
    10,421
  Years Ended December 31,2005
    
    
    2004
    
    
    2003Balance at beginning of year
    
    $
    660
    
    
    $
    917
    
    
    $
    1,206Provision
    
    
    530
    
    
    
    1,290
    
    
    
    940Charges
    
    
    (274
    )
    
    
    (1,547
    )
    
    
    (1,229
    )Balance at end of year
    
    $
    916
    
    
    $
    660
    
    
    $
    917
 Note E  Investment in Novadaq Technologies
  42




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##### Table of Contents



Note F  Property, Plant and Equipment
  December 31,2005
    
    
    2004Land
    
    $
    396
    
    
    $
    396Buildings and leasehold improvements
    
    
    9,393
    
    
    
    9,325Furniture and equipment
    
    
    27,866
    
    
    
    27,516Automobiles
    
    
    55
    
    
    
    5537,710
    
    
    
    37,292Accumulated depreciation
    
    
    (26,879
    )
    
    
    (24,337
    )10,831
    
    
    
    12,955Construction in progress
    
    
    20,240
    
    
    
    18,938$
    31,071
    
    
    $
    31,893
  Note G  Financing Arrangements
  December 31,2005
    
    
    2004Credit Agreement with LaSalle Bank:Line of Credit
    
    $
    
    
    
    $
    Convertible subordinated debentures
    
    
    5,000
    
    
    
    5,000Mortgage payable
    
    
    938
    
    
    
    1,307Promissory note to NeoPharm, Inc.
    
    
    
    
    
    
    3,2502003 Subordinated Notes
    
    
    2,767
    
    
    
    2,7678,705
    
    
    
    12,324Less unamortized discount on debt
    
    
    (1,059
    )
    
    
    (1,944
    )Less current installments and debt in default
    
    
    (7,044
    )
    
    
    (3,590
    )Long-term debt
    
    $
    602
    
    
    $
    6,790
  Year ending December 31:2006
    
    $
    8,1032007
    
    
    3942008
    
    
    2082009
    
    
    Total
    
    $
    8,705
  43




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44




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45




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Note H  Preferred Stock
    46




---



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47




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##### Table of Contents



Note I  Leasing Arrangements
   Year ending December, 312006
    
    $
    1,5802007
    
    
    1,5852008
    
    
    7552009 and thereafter
    
    
    202Total
    
    $
    4,122
 Note J  Stock Options, Employee Stock Purchase Plan and Restricted Stock
    Year Ended December 31,2005
    
    

2004
    
    

2003Weighted
    
    
    
    
    
    
    Weighted
    
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    
    Average
    
    
    
    
    
    
    AverageExercise
    
    
    
    
    
    
    Exercise
    
    
    
    
    
    
    ExerciseShares
    
    
    Price
    
    
    Shares
    
    
    Price
    
    
    Shares
    
    
    PriceOutstanding at beginning of period
    
    
    4,363
    
    
    $
    2.46
    
    
    
    3,478
    
    
    $
    2.30
    
    
    
    2,997
    
    
    $
    2.93Granted
    
    
    606
    
    
    $
    3.00
    
    
    
    1,832
    
    
    $
    2.79
    
    
    
    1,102
    
    
    $
    1.09Exercised
    
    
    (689
    )
    
    $
    3.12
    
    
    
    (597
    )
    
    $
    2.55
    
    
    
    (42
    )
    
    $
    0.93Expired/Canceled
    
    
    (574
    )
    
    $
    3.74
    
    
    
    (350
    )
    
    $
    2.62
    
    
    
    (579
    )
    
    $
    3.83Outstanding at end of period
    
    
    3,706
    
    
    $
    2.54
    
    
    
    4,363
    
    
    $
    2.46
    
    
    
    3,478
    
    
    $
    2.30Options exercisable at end of period
    
    
    2,865
    
    
    $
    2.31
    
    
    
    3,118
    
    
    $
    2.37
    
    
    
    2,076
    
    
    $
    2.72Options available for future grant
    
    
    2,383
    
    
    
    
    
    
    
    2,802
    
    
    
    
    
    
    
    1,077Weighted average fair value of options granted during the period
    
    
    
    
    
    $
    1.70
    
    
    
    
    
    
    $
    2.18
    
    
    
    
    
    
    $
    1.16
   48




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##### Table of Contents



Options Outstanding
    
    Options ExercisableNumber
    
    
    
    
    
    
    
    
    
    NumberOutstanding
    
    Weighted Average
    
    
    
    
    
    Exercisable atDecember 31,
    
    Remaining
    
    Weighted Average
    
    December 31,
    
    Weighted AverageRange of Exercise Prices
    
    2005
    
    Contractual Life
    
    Exercise Price
    
    2005
    
    Exercise Price$0.50  $0.75
    
    
    132
    
    
    2.4 years
    
    $
    0.71
    
    
    
    104
    
    
    $
    0.70$0.76  $1.00
    
    
    401
    
    
    1.9 years
    
    $
    0.93
    
    
    
    341
    
    
    $
    0.94$1.01  $2.00
    
    
    986
    
    
    2.8 years
    
    $
    1.88
    
    
    
    982
    
    
    $
    1.88$2.01  $3.50
    
    
    1,675
    
    
    2.7 years
    
    $
    2.81
    
    
    
    1,050
    
    
    $
    2.66$3.51  $4.00
    
    
    366
    
    
    2.3 years
    
    $
    3.64
    
    
    
    279
    
    
    $
    3.61$4.01  $5.00
    
    
    51
    
    
    4.9 years
    
    $
    4.28
    
    
    
    14
    
    
    $
    4.26$5.01  $6.00
    
    
    95
    
    
    .1 years
    
    $
    5.31
    
    
    
    95
    
    
    $
    5.313,706
    
    
    
    
    
    
    
    
    
    
    
    2,865
    Note K  Income Taxes
  Current
    
    
    Deferred
    
    
    TotalYear ended December 31, 2005Federal
    
    $
    15
    
    
    $
    
    
    
    $
    15State
    
    
    2
    
    
    
    
    
    
    
    2$
    17
    
    
    $
    
    
    
    $
    17Year ended December 31, 2004Federal
    
    $
    6
    
    
    $
    
    
    
    $
    6State
    
    
    2
    
    
    
    
    
    
    
    2$
    8
    
    
    $
    
    
    
    $
    8Year ended December 31, 2003Federal
    
    $
    
    
    
    $
    
    
    
    $
    State
    
    
    (171
    )
    
    
    
    
    
    
    (171
    )(171
    )
    
    
    
    
    
    
    (171
    )
 49




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##### Table of Contents



Years Ended December 31,2005
    
    
    2004
    
    
    2003Computed expected tax expense (benefit)
    
    $
    (2,922
    )
    
    $
    (1,027
    )
    
    $
    (4,191
    )Change in income taxes resulting from:State income taxes, net of federal income tax
    
    
    (414
    )
    
    
    (145
    )
    
    
    (765
    )Nondeductible preferred stock accretion and other permanent differences
    
    
    161
    
    
    
    926
    
    
    
    Valuation allowance change
    
    
    3,192
    
    
    
    254
    
    
    
    4,816Other, net
    
    
    
    
    
    
    
    
    
    
    (31
    )Income tax expense (benefit)
    
    
    17
    
    
    $
    8
    
    
    $
    (171
    )
  December 31,
    
    
    December 31,2005
    
    
    2004Deferred income tax assets:Other accrued expenses
    
    $
    826
    
    
    $
    268Intangible assets
    
    
    750
    
    
    
    1,168Net operating loss carry forwards.
    
    
    13,475
    
    
    
    11,655Other
    
    
    3,128
    
    
    
    3,576Subtotal
deferred income tax assets
    
    
    18,179
    
    
    
    16,667Valuation allowance
    
    
    (17,332
    )
    
    
    (14,140
    )847
    
    
    
    2,527Deferred income tax liabilities:Property, plant and equipment, net
    
    
    (847
    )
    
    
    (2,527
    )Subtotal
deferred income tax liabilities
    
    
    (847
    )
    
    
    (2,527
    )Net
    
    $
    
    
    
    $
    
  Note L  Retirement Plan
  Note M  Segment Information
  50




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##### Table of Contents



Years ended December 31,2005
    
    
    2004
    
    
    2003RevenuesOphthalmic
    
    $
    22,659
    
    
    $
    29,812
    
    
    $
    26,056Injectable
    
    
    13,719
    
    
    
    12,341
    
    
    
    12,155Contract Services
    
    
    8,106
    
    
    
    8,555
    
    
    
    7,280Total revenues
    
    $
    44,484
    
    
    $
    50,708
    
    
    $
    45,491Gross profit/(loss)Ophthalmic
    
    $
    8,069
    
    
    $
    14,486
    
    
    $
    7,967Injectable
    
    
    5,740
    
    
    
    3,288
    
    
    
    4,309Contract Services
    
    
    1,135
    
    
    
    428
    
    
    
    (128
    )Total gross profit
    
    
    14,944
    
    
    
    18,202
    
    
    
    12,148Operating expenses
    
    
    22,423
    
    
    
    18,570
    
    
    
    18,424Total operating loss
    
    
    (7,479
    )
    
    
    (368
    )
    
    
    (6,276
    )Interest and other expense, net
    
    
    (1,113
    )
    
    
    (2,650
    )
    
    
    (6,220
    )Loss before income taxes
    
    $
    (8,592
    )
    
    $
    (3,018
    )
    
    $
    (12,496
    )
  Note N  Commitments and Contingencies
      51




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##### Table of Contents



Note O  Supplemental Cash Flow Information (in thousands)
 Year Ended December 31,2005
    
    2004
    
    2003Interest and taxes paid:Interest (net of amounts capitalized)
    
    $
    419
    
    
    $
    434
    
    
    $
    2,289Income taxes
    
    
    72
    
    
    
    2
    
    
    
    Exchange Transaction:Warrants in exchange for consulting services
    
    
    
    
    
    
    
    
    
    
    1,518Debt extinguished with other securities
    
    
    
    
    
    
    
    
    
    
    32,257Preferred stock issued to extinguish debt
    
    
    
    
    
    
    
    
    
    
    20,874Subordinated debt issued to extinguish debt
    
    
    
    
    
    
    
    
    
    
    2,046Warrants issued to extinguish debt
    
    
    
    
    
    
    
    
    
    
    9,337
 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
  52




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Note Q  Business Alliances
  53




---



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Note R  Customer and Supplier Concentration
  2005
    
    2004
    
    2003Gross
    
    
    
    
    
    Gross Acct.
    
    Gross
    
    
    
    
    
    Gross Acct.
    
    GrossSales
    
    Revenue
    
    Receivables
    
    Sales
    
    Revenue
    
    Receivables
    
    Sales
    
    RevenueAmerisource
    
    
    24
    %
    
    
    16
    %
    
    
    28
    %
    
    
    14
    %
    
    
    10
    %
    
    
    17
    %
    
    
    19
    %
    
    
    15
    %Cardinal
    
    
    28
    %
    
    
    19
    %
    
    
    29
    %
    
    
    25
    %
    
    
    20
    %
    
    
    51
    %
    
    
    19
    %
    
    
    14
    %McKesson
    
    
    17
    %
    
    
    11
    %
    
    
    19
    %
    
    
    18
    %
    
    
    16
    %
    
    
    6
    %
    
    
    16
    %
    
    
    15
    %
    54




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##### Table of Contents



Note S  Subsequent Events
   
 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
  
 Item 9A. Controls and Procedures.
    
 Item 9B. Other Information.
  55




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##### Table of Contents



PART III
 
 Item 10. Directors and Executive Officers of the Registrant.
  
 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.
  
 Item 14. Principal Accounting Fees and Services.
  56




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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.
 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, 2005.4.1
    
    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,
2003.4.9
    
    Registration Rights Agreement dated October 7, 2003 among Akorn, Inc. and certain investors,
incorporated by reference to Exhibit 4.9 to Akorn, Inc.s report on Form 8-K filed on October 24,
2003.4.10
    
    Form of Subscription Agreement between Akorn, Inc. and certain investors, incorporated by reference to
Exhibit 4.1 to Akorn, Inc.s report on Form 8-K filed on August 24, 2004.4.11
    
    Form of Common Stock Purchase Warrant between Akorn, Inc. and certain investors, incorporated by
reference to 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.
 57




---



##### Table of Contents



Exhibit No.
    
    Description4.15
    
    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.)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, 2001.10.4
    
    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, 2001.10.5
    
    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, 2001.10.6
    
    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, 2001.10.7
    
    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, 2001.10.8
    
    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.
 58




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##### Table of Contents



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, 2003.10.24
    
    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.
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Exhibit No.
    
    Description10.26
    
    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,
2004.10.39
    
    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, 2004.10.46
    
    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, 2006.10.57
    
    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.
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Exhibit No.
    
    Description21.1
    
    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 Accountant24.1
    
    Power of Attorney (incorporated by reference to the signature page to this Form 10-K)31.1*
    
    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 POWER OF ATTORNEY
    Signature
    
    Title
    
    Date/s/ ARTHUR S. PRZYBYL

Arthur S. Przybyl
    
    Chief Executive Officer
(Principal Executive Officer)
    
    March 30, 2006/s/ JEFFREY A. WHITNELL

Jeffrey A. Whitnell
    
    Chief Financial Officer
(Principal Financial Officer and Principal
Accounting Officer)
    
    March 30, 2006/s/ DR. JOHN KAPOOR

Dr. John Kapoor
    
    Director, Board Chairman
    
    March 30, 2006/s/ JERRY N. ELLIS

Jerry N. Ellis
    
    Director
    
    March 30, 2006/s/ JERRY TREPPEL

Jerry Treppel
    
    Director
    
    March 30, 2006/s/ RONALD M. JOHNSON

Ronald M. Johnson
    
    Director
    
    March 30, 2006
 63