UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(X) Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended March 31, 1995
( ) Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from _______ to _______
Commission File Number: 0-13976
AKORN, INC.
(Exact Name of Registrant as Specified in its Charter)
LOUISIANA 72-0717400
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
100 Akorn Drive
Abita Springs, Louisiana 70420
(Address of Principal Executive Offices) (Zip Code)
(504) 893-9300
(Issuer's telephone number)
Check whether the issuer (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the past 12 months (or for such shorter period that
the Registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes X No
At May 5, 1995 there were 14,885,217 shares of common stock, no
par value, outstanding.
Transitional Small Business Disclosure Format. Yes No X
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
The following financial statements are provided on the page
numbers indicated below:
Condensed Consolidated Balance Sheets -
March 31, 1995 and June 30, 1994 2
Condensed Consolidated Statements of Income -
Three months and nine months ended March
31, 1995 and 1994 4
Consolidated Statements of Shareholders' Equity -
Nine months ended March 31, 1995 and 1994 5
Condensed Consolidated Statements of Cash Flows -
Nine months ended March 31, 1995 and 1994 6
Notes to Condensed Consolidated Financial
Statements 7
Item 2. Management's Discussion and Analysis
or Plan of Operation
The information called for by this item is provided on page 9.
<PAGE>
AKORN, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
March 31, June 30,
1995 1994<FN1>
___________________ ____________________
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 726,942 $ 1,914,735
Short-term investments 1,412,249 1,735,040
Accounts receivable
(less allowance for bad debts of
$238,559 and $247,296 at March 31
and June 30, respectively) 4,594,638 4,793,522
Inventory 6,477,659 4,721,637
Deferred income taxes 546,822 550,715
Prepaid expenses and other assets 715,914 455,873
____________________ ___________________
TOTAL CURRENT ASSETS 14,474,224 14,171,522
PROPERTY, PLANT AND EQUIPMENT 12,069,990 11,752,313
Accumulated depreciation (6,621,625) (5,982,874)
____________________ ___________________
5,448,365 5,769,439
Construction in progress 4,209,349 479,883
____________________ ___________________
9,657,714 6,249,322
____________________ ___________________
OTHER ASSETS 1,035,455 800,367
TOTAL ASSETS $ 25,167,393 $21,221,211
===================== ===================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
March 31, June 30,
1995 1994<FN1>
_____________________ __________________
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS'
EQUITY
CURRENT LIABILITIES
Short-term borrowings $ 343,000 $ -
Current installments of long-term
debt and capital lease obligations 383,708 119,002
Accounts payable 1,844,534 2,516,629
Accrued reorganization costs 505,908 933,836
Income taxes payable 353,524 711,146
Accrued expenses and other liabilities 2,616,480 2,270,101
____________________ _________________
TOTAL CURRENT LIABILITIES 6,047,154 6,550,714
LONG-TERM DEBT AND
CAPITAL LEASE OBLIGATIONS 3,513,222 798,896
PRE-FUNDED DEVELOPMENT COSTS 384,501 900,000
OTHER LONG-TERM LIABILITIES 1,010,104 628,545
SHAREHOLDERS' EQUITY
Common stock, no par value--
authorized 20,000,000 shares;
issued 15,115,673 shares
at March 31, and June 30;
outstanding 14,885,217 and 14,798,217
shares at March 31 and June 30,
respectively 13,701,845 13,701,845
Treasury stock, at cost--
230,456 and 317,456 shares
at March 31 and June 30,
respectively (329,939) (503,939)
Retained earnings (deficit) 840,506 (822,806)
Unrealized loss on noncurrent
marketable equity securities - (32,044)
___________________ ___________________
TOTAL SHAREHOLDERS' EQUITY 14,212,412 12,343,056
___________________ ___________________
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 25,167,393 $21,221,211
=================== ===================
</TABLE>
<FN1> Condensed from audited consolidated financial statements.
See notes to condensed consolidated financial statements.
<PAGE>
AKORN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended Nine months ended
March 31, March 31,
1995 1994 1995 1994
______________ _______________ _______________ _______________
<S> <C> <C> <C> <C>
Net sales $ 7,502,580 $ 7,268,144 $ 24,427,958 $ 19,771,845
Cost of sales 4,791,289 4,238,393 14,484,222 11,686,927
______________ _______________ _______________ ________________
GROSS PROFIT 2,711,291 3,029,751 9,943,736 8,084,918
Selling, general and
administrative expenses 1,936,062 2,008,526 6,654,320 5,902,514
Research and development 211,254 252,796 561,618 619,230
______________ ________________ ________________ _________________
2,147,316 2,261,322 7,215,938 6,521,744
______________ ________________ ________________ _________________
OPERATING INCOME 563,975 768,429 2,727,798 1,563,174
Interest expense - (17,809) - (131,986)
Interest and other
income (expense) (237,834) 27,682 (186,176) 78,303
_______________ _______________ _________________ _________________
(237,834) 9,873 (186,176) (53,683)
_______________ _______________ _________________ __________________
INCOME BEFORE
INCOME TAXES 326,141 778,302 2,541,622 1,509,491
Income taxes 97,842 151,600 922,206 286,870
_______________ ________________ _________________ __________________
NET INCOME $ 228,299 $ 626,702 $ 1,619,416 $ 1,222,621
=============== ================ ================= ==================
Per Share:
NET INCOME $ .01 $ .04 $ .10 $ .08
=============== ================ ================= ==================
WEIGHTED AVERAGE
SHARES OUTSTANDING 15,519,988 15,548,388 15,447,119 15,318,378
=============== ================ ================= ==================
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE>
AKORN, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(UNAUDITED)
<TABLE> Unrealized
<CAPTION> Loss
on Noncurrent
Common Stock Retained Marketable
Shares Earnings Treasury Equity
Outstanding Amount (Deficit) Stock Securities Total
_______________ ______________ ______________ ___________ ______________ ______________
<S> <C> <C> <C> <C> <C>
Nine Months Ended March 31, 1995:
Balances at July 1, 1994 14,798,217 $ 13,701,845 $ (822,806) $ (503,939) $ (32,044) $ 12,343,056
Net income for the nine months
ended March 31 1,619,416 1,619,416
Additional unrealized loss on noncurrent
marketable equity securities (275,661) (275,661)
Write-down of noncurrent
marketable equity securities to market
value 307,705 307,705
Exercise of stock options 34,917 8,824 69,834 78,658
Shares issued from treasury in
connection with the Company's
Employee Stock Purchase Plan 52,083 35,072 104,166 139,238
______________ _______________ ______________ ____________ _____________ _______________
Balances at March 31, 1995 14,885,217 $ 13,701,845 $ 840,506 $ (329,939) $ - $ 14,212,412
============== =============== ============== ============ ============= ===============
Nine Months Ended March 31, 1994:
Balances at July 1, 1993 12,781,317 $ 10,701,845 $ (3,561,768) $ (641,573) $ - $ 6,498,504
Net income for the nine months
ended March 31 1,222,621 1,222,621
Exercise of stock options and
warrants 2,010,000 3,000,000 (700) 20,000 3,019,300
Shares issued from treasury in
connection with the Company's
Employee Stock Purchase Plan 43,509 13,760 87,018 100,778
_______________ _______________ ______________ ____________ ____________ _______________
Balances at March 31, 1994 14,834,826 $ 13,701,845 $ (2,326,087) $ (534,555) $ - $ 10,841,203
=============== =============== ============== ============ ============ ===============
See notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
AKORN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended March 31,
1995 1994
______________ _______________
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 1,619,416 $ 1,222,621
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization 731,077 500,430
Realized loss on noncurrent marketable
equity securities 307,705 -
Changes in operating assets and liabilities:
Inventory (1,756,022) (538,806)
Other (1,513,317) 360,110
_______________ ______________
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES (611,141) 1,544,355
INVESTING ACTIVITIES
Purchases of property, plant and equipment (4,047,143) (809,552)
Net maturities (purchases) of investments 322,791 (1,384,878)
Product licensing costs (376,729) (363,650)
_______________ ______________
NET CASH USED IN INVESTING ACTIVITIES (4,101,081) (2,558,080)
FINANCING ACTIVITIES
Repayment of long-term debt (905,341) (68,064)
Proceeds from sale of stock 217,896 1,520,078
Proceeds from issuance of long-term debt 3,900,000 -
Pre-funded development costs (15,499) -
Reductions in capital lease obligations (15,627) (462,346)
Short-term borrowings 343,000 -
_______________ ______________
NET CASH PROVIDED BY
FINANCING ACTIVITIES 3,524,429 989,668
DECREASE IN CASH
AND CASH EQUIVALENTS (1,187,793) (24,057)
Cash and cash equivalents at beginning
of period 1,914,735 957,108
_______________ ______________
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 726,942 $ 933,051
=============== ==============
SUPPLEMENTAL DISCLOSURE
OF CASH FLOW INFORMATION:
Interest paid, net of amount capitalized $ - $ 172,430
=============== ==============
Income taxes paid $ 1,092,750 $ -
=============== ==============
SUPPLEMENTAL DISCLOSURE
OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Conversion of debt to common stock $ - $ 1,600,000
=============== =============
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE>
AKORN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial
statements include the accounts of Akorn, Inc. (the "Company")
and its wholly owned subsidiaries, Spectrum Scientific
Pharmaceuticals, Inc. , Walnut Pharmaceuticals, Inc. and Akorn
Manufacturing, Inc., formerly Taylor Pharmacal Company.
Intercompany transactions and balances have been eliminated in
consolidation.
These financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial
information and with the instructions to Form 10-QSB.
Accordingly, they do not include all the information and
footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management,
all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included.
Operating results for the nine-month period ended March 31, 1995
are not necessarily indicative of the results that may be
expected for the year ending June 30, 1995. For further
information, refer to the consolidated financial statements and
footnotes for the year ended June 30, 1994, included in the
Company's Annual Report on Form 10-KSB.
NOTE B - INCOME TAXES
The Internal Revenue Service (IRS) is currently examining the
Company's federal income tax returns for 1988 through 1993.
Based on discussions with Company management, it appears that the
IRS may seek adjustments to these returns which could result in
additional interest and income tax expense of $300,000 to
$500,000. The Company has adequate reserves such that if
proposed and sustained, these adjustments would not have a
material impact on the consolidated financial statements.
NOTE C - EARNINGS PER SHARE
Earnings per share are based upon the weighted average number of
common shares outstanding. The computation of the weighted
average number of shares outstanding for all periods presented
includes the dilutive effect of stock options and warrants using
the treasury stock method.
NOTE D - INVENTORY
The components of inventory are as follows:
March 31, June 30,
1995 1994
______________ _____________
Finished goods $ 4,245,999 $ 2,553,051
Work in process 976,450 883,152
Raw materials and supplies 1,255,210 1,285,434
______________ _____________
$ 6,477,659 $ 4,721,637
The inventories are reported net of reserves for unsaleable items
of $286,653 and $282,531 as of March 31, 1995 and June 30, 1994,
respectively.
<PAGE>
NOTE E - INVESTMENTS
The Company adopted Statement of Financial Standards No. 115
(SFAS 115), "Accounting for Certain Investments in Debt and
Equity Securities" effective July 1, 1994. This Statement
requires certain securities to be classified into one of three
reporting categories (held-to-maturity, available-for-sale or
trading). The Company has completed a review of its securities
relative to SFAS 115 and has classified its short-term
investments as held-to-maturity. Therefore, in accordance with
SFAS 115, these investments are being reported at amortized
cost. The Company has defined its noncurrent investments as
available-for-sale, requiring that they be carried at fair value
with any unrealized gain or loss reflected as a component of
shareholders' equity.
At March 31, 1995, the cost of the Company's noncurrent
marketable equity securities exceeded the market value by
$307,705. Given the significant decline in market value since
June 30, 1994, and Management's assessment that a significant
reversal was not imminent, the loss was determined to be
permanent. Therefore, the unrealized loss previously charged to
shareholders' equity was reversed, and the Company recorded a
realized loss to recognize the decline in value. This loss is
included in interest and other income (expense) in the 1995
statements of income.
NOTE F - LONG TERM DEBT
On September 30, 1994, the Company finalized its loan agreement
with a commercial bank to obtain $6.3 million of credit
financing. Under the terms of the agreement, the Company will
receive financing under a three-part credit facility: (1) $3.5
million Revolver/Term construction loan, (2) $1.3 million Term
loan, and (3) $1.5 million Line of Credit. As of March 31, 1995,
the Company had received $1.3 million in financing under its Term
loan and advances of $2.6 million under its Revolver/Term
construction loan. In addition, $343,000 was borrowed under the
Line of Credit as of March 31, 1995. The Company is utilizing the
monies advanced under its Revolver/Term construction loan to fund
the expansion of its manufacturing facilities in Decatur,
Illinois. The $1.3 million Term loan was used for refinancing
approximately $900,000 in existing debt and also to refinance the
early payout of a capital lease on the Decatur manufacturing
facility. Interest incurred during the construction period is
being capitalized as part of the cost of the expansion project.
During the nine months and quarter ended March 31, 1995, the
Company capitalized $179,499 and $135,774, respectively, in
interest costs.
NOTE G - LITIGATION
The Company is involved in various litigation and claims arising
in the normal course of business. The Company's management
believes that any liability the Company may have in these matters
would not have a material effect on the consolidated financial
statements.
NOTE H - CHANGE IN ACCOUNTING ESTIMATE
During the quarter ended March 31, 1995, an evaluation by the
Company resulted in a change in the estimated liability related
to aged customer credits. This change resulted in a reduction of
selling general and administrative expenses of approximately
$330,000 ($231,000 or 1 cent per share, net of tax).
<PAGE>
AKORN, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION
RESULTS OF OPERATIONS
Net Sales
The Company experienced nominal sales growth of 3% in the quarter
ended March 31, 1995 compared to the same period in 1994, with
sales of $7.5 million versus $7.3 million. For the first nine
months of fiscal 1995, sales of $24.4 million were 24% higher
than the comparable fiscal 1994 amount of $19.8 million.
The decline in sales growth for the third quarter as compared to
the first six months of fiscal 1995 is due to several factors.
First, there was the anticipated loss of AK-Con-A, Akorn's
leading allergy product. As previously announced, AK-Con-A was
recently converted to over-the-counter (OTC) from prescription
status by the Food and Drug Administration (FDA). Currently, the
Company is awaiting approval to begin marketing this product
under its new status, which presently is anticipated for some
time in fiscal 1996.
Upon receiving FDA approval, the new OTC version will be marketed
through a joint venture, which should restore profits on the
product to previous levels. Sales of AK-Con-A, which continued
through October 1994, were approximately $2 million for fiscal
1995. Until approval of the OTC version is obtained and
marketing through the joint venture commences, the loss of AK-
Con-A will continue to have an effect on sales growth
comparisons.
Second, sales and earnings were also affected by the temporary
shutdown of Akorn's Decatur, Illinois manufacturing facility as
required by the previously announced $4.5 million expansion
project. The shutdown was about a week longer than originally
anticipated, affecting both sales and overhead absorption for the
quarter. The facilities returned to full production in January
1995, at which time the effect of the shutdown ended.
Third, sales and earnings during the quarter were hurt by
continued cost increases implemented by our primary suppliers of
private-labeled products. These suppliers are also Akorn's
primary competitors in the generic market place, and this has
made Akorn substantially less competitive. In the short-term,
the Company is combating higher product costs by sourcing from
alternative non-competing suppliers under more favorable
agreements. Longer-term, the Company's goal to manufacture all
of its products in-house will eliminate reliance on other
manufacturers and make Akorn more competitive.
Gross Profit
Consolidated gross profit declined 11% to $2.7 million in the
quarter ended March 31, 1995 compared to $3.0 million for the
same period of the previous year, with gross margins declining
six percentage points. For the first nine months of fiscal 1995,
gross profit of $9.9 million was 23% higher than the comparable
fiscal 1994 amount of $8.1 million, while gross margins remained
stable.
The loss of higher-margin AK-Con-A sales, decreased overhead
absorption in manufacturing and higher product costs imposed by
suppliers were the primary reasons for the decline in gross
profit and margins for the quarter. The current quarter effect
from the shutdown of the Decatur facilities will not continue.
However, gross margins are expected to remain lower than those
experienced in the first half of fiscal 1995 due to the loss of
AK-Con-A and increased competition from our suppliers.
<PAGE>
Selling, General and Administrative Expenses
Selling, general and administrative (S,G&A) expenses declined 4%
during the quarter ended March 31, 1995, as compared to the same
period in 1994. For the first nine months of fiscal 1995, S,G&A
expenses were 13% higher than the comparable period in fiscal
1994. During the quarter ended March 31, 1995, the Company,
based on evaluations made by management, changed the estimated
liability related to aged customer credits. This resulted in a
reduction in S,G&A expenses of approximately $330,000. Without
this change in estimate, the Company would have realized S,G&A
expenses of approximately $2.3 million or 13% more than the
comparable period in fiscal 1994.
In response to a slowing in sales growth during the quarter ended
March 31, 1995, the Company took steps to eliminate approximately
$1 million to $1.5 million of S,G&A and other manufacturing
operating expenses on an annualized basis. The future
reductions, which were accomplished primarily through downsizing
the workforce, will be somewhat offset by increases in
depreciation and interest expense associated with the Company's
expanded manufacturing facilities. During the quarter,
approximately $100,000 of nonrecurring severance costs were
recognized in connection with the downsizing.
The percentage of S,G&A expenses to sales, excluding the effects
of the change in estimate and severance payments noted above,
remained relatively stable during the quarter and nine months of
fiscal 1995 as compared to the prior year. The Company
anticipates that the percentage of S,G&A to sales will decline as
a result of the reductions made in the third quarter. The
Company continues to monitor the required level of S,G&A expenses
in relation to sales performance.
Research and Development
Research and development expense remained relatively stable for
the quarter and first nine months of fiscal 1995 as the Company's
R & D group continued to pursue Abbreviated New Drug Application
(ANDA) approvals on new products.
R & D activities continue to be focused also on the transfer of
ANDA approvals from the Company's former manufacturing facilities
in California to its manufacturing facilities in Decatur,
Illinois ("site transfers"). The cost of these site transfers
have been previously accrued and do not have an effect on R & D
expense.
The Company also has begun the development of a non-steroidal
anti-inflammatory drug for ophthalmic use licensed from Pfizer,
Inc. (Pfizer). It is anticipated that the majority of these
development costs, which are expected to be funded substantially
by monies obtained from Pfizer, will be incurred over the next 18
months. Based on the current mix of products in the Company's
R&D pipeline, management expects fiscal 1995 R&D expenses to be
comparable to fiscal 1994 amounts and expects an increase in R&D
expenses for fiscal 1996.
Interest and Other Income/Expense
Interest costs incurred during the quarter and nine-month period
ended March 31, 1995 have been capitalized as part of the cost of
construction related to the Company's expansion project at its
Decatur manufacturing facilities. The Company will continue to
capitalize interest expense until the newly constructed clean
room and other expansion related items are fully validated and
operational. This is currently expected to be completed in the
fourth quarter of fiscal 1995. On September 30, 1994 the Company
signed a $6.3 million financing package with a commercial bank to
finance the construction and provide working capital funding. As
a result, interest expense will increase significantly in fiscal
1996.
During the quarter ended March 31, 1995, the Company determined
that a $308,000 decline in the fair market value of an equity
investment was other than temporary. The determination was based
on the significant deterioration in value since June 30, 1994 and
the current evaluation that a price recovery was not imminent.
<PAGE>
The original investment, in the amount of $350,000, had been made
in a business from which the Company was considering licensing
technology for ophthalmic use.
This loss resulted in the Company reporting net interest and
other expense of $238,000 for the quarter ended March 31, 1995
compared to net interest and other income of $10,000 for the
comparable period in fiscal 1994. This loss also resulted in net
interest and other expense of $186,000 for the nine months ended
March 31, 1995 compared to net expense of $54,000 in the
comparable prior year period. Net interest income increased in
the fiscal 1995 periods as a result of increases in funds
available for investment and increases in interest rates on
short-term securities.
Income Taxes
The effective tax rates for the quarters ended March 31, 1995 and
1994 were 30.0% and 19.5%, respectively. For the first nine
months of fiscal 1995 and 1994, the effective tax rates were
36.3% and 19.0%, respectively.
The increased effective tax rate for fiscal 1995 is attributable
to the lack of available net operating loss carryforwards, the
benefits of which were utilized to reduce income tax expense in
1994. The decline in the effective rate for the quarter ended
March 31, 1995 as compared to the effective rate for the nine
months then ended reflects changes associated with lower
anticipated income levels for the fiscal year and minor
adjustments related to filed tax returns.
Net Income
Net income for the quarter ended March 31, 1995 declined to
$228,000 or 1 cent per share compared to the prior year amount of
$627,000 or 4 cents per share, primarily as a result of the
factors noted above coupled with higher income tax rates. Net
income for the first nine months of fiscal 1995 of $1.6 million
or 10 cents per share was 32% greater than the comparable prior
year amount of $1.2 million or 8 cents per share. This increase
for the nine-month period resulted primarily from the growth
experienced in the first six months of fiscal 1996 associated
with the Company's temporary selling advantage for its allergy
product line. Weighted average shares used in the calculation of
per share amounts were relatively unchanged from year to year.
Financial Condition and Liquidity
The net cash used in operating activities for the nine months
ended March 31, 1995 was $611,000 compared to net cash provided
of approximately $1.5 million for the corresponding period in
1994. While the Company's profitability has increased operating
cash flows in the first nine months of fiscal 1995, significant
investments in inventory were made as a result of new product
introductions and to meet minimum purchasing requirements on some
supply contracts. This increase in inventory is not expected to
continue for the remainder of fiscal 1995.
In addition to the inventory build up, final estimated tax
payments for the fiscal year-ended June 30, 1994 were made during
the first quarter of fiscal 1995.
The Company invested $4.0 million in new property, plant and
equipment during the nine-month period ended March 31, 1995,
primarily related to the expansion of the Company's manufacturing
facilities, compared to $810,000 during the same period in 1994.
On September 30, 1994, the Company entered into a $6.3 million
credit facility with a commercial bank. The credit facility
includes the following:
- a $1.3 million Term loan for the payout of existing debt
and reimbursement for the early payout of a capital lease on the
Taylor manufacturing facility.
<PAGE>
- a $3.5 million Revolver/Term construction loan to
finance the expansion of the Taylor facilities.
- a $1.5 million Line of Credit for working capital
purposes.
The entire Term loan was drawn in October 1994 and, as of March
31, 1995, $2.6 million had been drawn on the Revolver/Term
construction loan. Of these proceeds, approximately $900,000 was
used to pay down other existing debt facilities.
The construction project at the Decatur facilities allows for new
high-speed ophthalmic production, as well as new capabilities for
suspensions, ointments and unit-dose products. The total cost of
the expansion project, including additional equipment, is
expected to be between $5 million and $5.5 million. The
expansion is to be financed by (1) the $3.5 million construction
loan noted above, (2) capital lease arrangements totalling
$700,000, (3) reimbursements, up to approximately $600,000, from
Pfizer Inc. under a previously announced cross- licensing
agreement and (4) internal sources.
Working capital increased $806,000 during the nine-month period
ended March 31, 1995. This increase in working capital is
primarily reflected in the growth in inventory noted above which
is not expected to continue. This growth in inventory was funded
from internal sources and from borrowings under the Company's
Line of Credit.
The most significant short-term needs, exclusive of working
capital requirements, continue to be primarily for the payout of
previously reserved costs associated with the site transfer of
ANDAs, which are expected to be approximately $400,000 over the
next twelve months.
In addition, the Company has been notified by the Internal
Revenue Service (IRS) that, in connection with the examination of
tax returns for the period of 1988 through 1993, the IRS may
propose adjustments that could result in additional current
income taxes and interest payable of $1 million to $1.5 million.
The Company accrued reasonable estimates related to the income
statement effects of such exposure and as a result there should
be no significant effects on the Company's reported earnings
should these adjustments be proposed and sustained. Should the
disputed adjustments be settled within the range noted above,
Management anticipates that the obligations would be paid in
deferred payments over an extended period.
Existing working capital, net cash provided by operating
activities and the Company's line of credit are expected to be
sufficient to provide for these short-term needs.
Under a previously announced cross-licensing agreement with
Pfizer, Akorn is required to pay a performance penalty of
$1,020,000, should the Company be unsuccessful in obtaining
approval, by December 31, 1996, of a product in development which
was licensed to Pfizer. Given the current status of the product,
Management believes that the likelihood that approval will not be
obtained in this time frame is remote. Accordingly, no financial
statement reserves related to the potential penalty have been
accrued.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Certain legal proceedings in which the registrant, Akorn, Inc.
(the "Company"), is involved are described in Item 3 to the
Company's Form 10-KSB for the fiscal year ended June 30, 1994 and
in Note N to the consolidated financial statements included in
that report.
Item 2. Changes in Securities
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(11.1) Computation of Earnings per Share
(99.1) Press release issued by Akorn, Inc. on May
1, 1995 announcing its third quarter 1995
financial results.
(b) Reports on Form 8-K
None
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
AKORN, INC.
/s/ Barry D. LeBlanc
_______________________________
Barry D. LeBlanc
President and Chief Executive Officer
(Duly Authorized Officer)
/s/ Eric M. Wingerter
_______________________________
Eric M. Wingerter
Vice President - Finance and Administration
(Principal Financial Officer)
Date: May 5, 1995
<PAGE>
EXHIBIT INDEX
Sequentially
Exhibit Numbered
Number Description Pages
(11.1) Computation of Earnings per Share
(99.1) Press release issued by Akorn, Inc. on May 1, 1995
announcing its third quarter 1995 financial results.
Akorn, Inc.
Exhibit 11.1
COMPUTATION OF NET INCOME PER SHARE
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
Three Months Ended March 31, Nine Months Ended March 31,
_____________________________ ____________________________
1995 1994 1995 1994
____________ _____________ ____________ ______________
<S> <C> <C> <C> <C>
Earnings
Income applicable to
common stock $ 228 $ 627 $ 1,619 $ 1,223
============ ============= ============ =============
Shares
Weighted average number of shares
outstanding 14,838 14,824 14,819 14,804
Additional shares assuming
conversion of options and warrants 682 724 628 514
_____________ ______________ _____________ _____________
Pro forma shares 15,520 15,548 15,447 15,318
============= ============== ============= =============
Net income per share $ .01 $ .04 $ .10 $ .08
============= ============== ============= =============
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDING MARCH 31, 1995 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> MAR-31-1995
<CASH> 726,942
<SECURITIES> 1,412,249
<RECEIVABLES> 4,833,197
<ALLOWANCES> (238,559)
<INVENTORY> 6,477,659
<CURRENT-ASSETS> 14,474,224
<PP&E> 16,279,339
<DEPRECIATION> (6,621,625)
<TOTAL-ASSETS> 25,167,393
<CURRENT-LIABILITIES> 6,047,154
<BONDS> 3,513,222
<COMMON> 13,701,845
0
0
<OTHER-SE> 510,567
<TOTAL-LIABILITY-AND-EQUITY> 25,167,393
<SALES> 24,427,958
<TOTAL-REVENUES> 24,427,958
<CGS> 14,484,222
<TOTAL-COSTS> 14,484,222
<OTHER-EXPENSES> 7,215,938
<LOSS-PROVISION> 20,000
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,541,622
<INCOME-TAX> 922,206
<INCOME-CONTINUING> 1,619,416
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,619,416
<EPS-PRIMARY> .10
<EPS-DILUTED> 0
</TABLE>
EXHIBIT 99.1
<TABLE>
<CAPTION>
<C> <C> <C> <C>
AT AKORN: AT FRB:
Barry LeBlanc Eric Wingerter Jenifer Estabrook Kathy Brunson
President & CEO VP-Finance General Information Analyst Contact
(504) 893-9300 (312) 640-6787 (312) 640-6696
FOR IMMEDIATE RELEASE
MONDAY, MAY 1, 1995
AKORN ANNOUNCES THIRD-QUARTER RESULTS;
CITES TEMPORARY FACTORS IN SLOWER GROWTH;
REITERATES CONFIDENCE IN STRATEGY;
COMMENTS ON OUTLOOK
ABITA SPRINGS, LA, May 1, 1995 -- Akorn, Inc. (Nasdaq: AKRN)
today announced third-quarter fiscal 1995 results, which included
a marginal increase in sales and a decline in net income per
share to 1 cent from 4 cents. Results for the nine months ended
March 31, 1995, were highlighted by a 75 percent rise in
operating income and a 32 percent increase in net income.
"We had some challenges this quarter which resulted in
slower growth than we've experienced in the recent past," Barry
D. LeBlanc, president and chief executive officer said. "Three
key factors contributed to the decline from expected results for
the quarter: the conversion of our leading allergy product to
over-the-counter status, the temporary closure of our
manufacturing facility due to construction, and cost increases on
some products that we currently do not manufacture. We feel
third-quarter performance, however, does not signal a downward
trend as Akorn's growth strategy is still solid."
Review of Results
Net sales for the quarter ended March 31, 1995, were $7.5
million, up 3 percent from last year's $7.3 million. Akorn's
third-quarter net income was $228,000, or 1 cent per share,
compared with $626,000, or 4 cents per share, in the prior-year
period.
"The decline in revenue growth was attributable to several
factors," LeBlanc explained. "First, there was the anticipated
loss of AK-Con-A, our leading allergy product. AK-Con-A was
recently converted to over-the-counter from prescription status
by the Food and Drug Administration (FDA). Currently, we are
awaiting approval to begin marketing the drug under its new
status."
LeBlanc continued, "Second, sales and earnings were also
affected by the temporary shutdown of our Decatur, Illinois
manufacturing facility as required by the previously announced
$4.5 million expansion project. The shutdown was about a week
longer than originally anticipated, affecting both sales and
overhead absorption for the quarter. We view this as a short-
-more-
<PAGE>
Akorn, Inc.
Add -1-
term sacrifice for a long-term gain, however, as the expanded
manufacturing capacity will help make our products more cost
effective. Additionally, the renovated facility gives Akorn new
capability to produce suspensions, ointments and unit-dose
products."
"Third," LeBlanc said, "earnings during the quarter were
hurt by continued cost increases implemented by some of our
suppliers, which have made us less competitive in the generic
marketplace. In the short-term we are combating higher product
cost by sourcing from alternative suppliers under more favorable
agreements. Longer-term, our goal to manufacture all of our
products in-house will eliminate reliance on other manufacturers
and make us more competitive."
Gross profit for the quarter ended March 31, 1995, declined
11 percent to $2.7 million from $3.0 million in the year-ago
period, with gross margins declining 6 percent to 36.1 percent.
According to the company, loss of the highly profitable AK-Con-A
sales, lower overhead absorption and increased product costs lead
to the decline in gross margin.
In addition, Akorn experienced two items that virtually
offset each other in the third quarter. A change in estimate
related to the accounting for aged customer credits reduced
selling, general and administrative expense (SG&A) by
approximately $300,000. However, a loss of approximately the
same amount relating to a decline in the value of a long-term
strategic investment was recorded under "other expenses." The
investment was made in conjunction with discussions the company
was having regarding the licensing of technology for ophthalmic
use.
Akorn's earnings have been fully taxed since the beginning
of this fiscal year. The effective rate for the quarter ended
March 31, 1995, was 30 percent, compared with an effective rate
of 20 percent in fiscal 1994. As a result, comparisons of pre-
tax earnings are more favorable than those of net earnings.
Net sales for the nine months ended March 31, 1995, were
$24.4 million, 24 percent greater than the year-ago's $19.7
million. Nine-month net income was approximately $1.6 million,
or 10 cents per share, 32 percent greater than the $1.2 million,
or 8 cents per share, for the nine-month period of fiscal 1994.
Gross profit for the nine months ended March 31, 1995, was
$9.9 million, an increase of 23 percent over the prior-year
amount of $8.1 million. Gross margins remained relatively
unchanged during the nine-month period ended March 31, 1995,
compared with the prior-year period.
Operating Highlights
Commenting on third-quarter results, LeBlanc said, "While
our results for the quarter are below desirable levels, the
factors contributing to the decline are temporary and manageable
and will be sufficiently addressed by the strategies we have had
in place for the last three years."
"The loss of AK-Con-A as an over-the-counter product was
anticipated. Upon receiving FDA approval, the product will be
marketed under its new status through a joint venture, which
should restore profits on the product to previous levels. We had
timed our joint venture to begin generating income this quarter,
allowing for a seamless transition and virtually no effect on
earnings. However, due to delays beyond our control, this did
not occur and approval is now anticipated sometime in fiscal
1996."
LeBlanc continued, "The lower contract revenues and lower
overhead absorption are also temporary as our facilities are now
back to full production with expanded and more cost-efficient
capabilities."
LeBlanc noted, "To combat the rising costs of products we
do not currently manufacture, Akorn continues its efforts to
obtain FDA approval for the in-house manufacture of all our
pharmaceutical products. Currently, we have six abbreviated new
drug applications (ANDAs), representing seven dosage strengths,
filed. Our R&D efforts are proceeding nicely, and it is just a
matter of time until approvals are obtained. In the meantime,
-more-
<PAGE>
Akorn, Inc.
Add -2-
Akorn has signed, and continues to pursue, agreements with
alternative suppliers to hold down product costs."
Outlook
"In response to these temporary challenges and after
evaluating the current mix of Akorn's product line, we took steps
in the end of the third quarter to eliminate approximately $1 to
$1.5 million of SG&A and other operating costs on an annual
basis," LeBlanc stated. "We should begin to see the effects of
these reductions in the fourth quarter. Expected reductions will
be somewhat offset, however, by higher depreciation and interest
associated with the manufacturing expansion project."
LeBlanc continued, "Based on recent challenges and
management's efforts to combat them, we expect earnings in the
fourth quarter to be 3 cents to 4 cents on sales of approximately
$9 million. Anticipated year-end sales of $33 to $34 million
will represent a 15 to 20 percent increase over fiscal 1994.
Expected earnings of $2 to $2.5 million, or 13 to 15 cents per
share, will fall slightly below fiscal 1994 numbers, which were
not fully taxed."
LeBlanc concluded, "Akorn continues to pursue what
management believes is its most important growth strategy for the
near term -- the in-licensing of products from other companies,
which provides almost immediate sales and earnings. Our low-
cost, three-pronged distribution system -- field sales force,
telemarketing force and direct-mail (catalog) effort -- positions
us as a marketing alternative in the health-care area of
ophthalmology for major pharmaceutical companies. We have been
very successful in the past and we are confident that our
strategy will continue to contribute significantly to our growth.
Longer term, we will work to fill our pipeline of ANDAs to
optimize margins by accomplishing our goal to manufacture all of
our ophthalmic pharmaceutical products in-house."
Akorn Inc. manufactures, markets and distributes ophthalmic
products, including an extensive line of therapeutic and
diagnostic pharmaceuticals and over-the-counter products.
Financial tables follow .....
<PAGE>
AKORN, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(in thousands, except per share amounts)
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended March 31, Nine Months Ended March 31,
1995 1994 % Chg 1995 1994 % Chg
_____________________________ _______________________________
<S> <C> <C> <C> <C> <C> <C>
Net sales $7,503 $7,268 3.2% $24,428 $19,772 23.5%
Cost of sales 4,792 4,238 13.1% 14,484 11,687 23.9%
________________ __________________
Gross profit 2,711 3,030 -10.5% 9,944 8,085 23.0%
Selling, general and administrative 1,936 2,009 -3.6% 6,655 5,902 12.8%
Research and development 211 253 -16.6% 562 619 -9.2%
________________ __________________
Operating income 564 768 -26.6% 2,727 1,564 74.4%
Interest & other, net (238) 10 n.m.* (186) (54) n.m.
________________ __________________
Pretax income 326 778 -58.1% 2,541 1,510 68.3%
Income taxes 98 152 -35.5% 922 287 221.3%
________________ __________________
Net income $228 $626 -63.6% $1,619 $1,223 32.4%
================ ==================
Per share $0.01 $0.04 -63.5% $0.10 $0.08 31.3%
================ ==================
Shares outstanding 15,520 15,548 -0.2% 15,447 15,318 0.8%
================ ==================
* n.m.: not meaningful
</TABLE>
<PAGE>
AKORN, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
March 31, June 30,
1995 1994
_________ ________
<S> <C> <C>
Assets
Cash and investments $2,139 $3,650
Accounts receivable, net 4,595 4,794
Inventories 6,478 4,722
Other current assets 1,262 1,006
_______ _______
Total current assets 14,474 14,172
Property, plant and equipment, net 9,658 6,249
Other assets 1,035 800
_______ _______
Total assets $25,167 $21,221
======= =======
Liabilities and shareholders' equity
Trade accounts payable $1,845 $2,517
Income taxes payable 354 711
Accrued payroll and commissions 622 876
Accrued reorganization costs 506 934
Other accrued expenses 2,720 1,513
_______ _______
Total current liabilities 6,047 6,551
Long-term debt and capital leases 3,513 799
Pre-funded development costs 385 900
Other long-term liabilities 1,010 628
Shareholders' equity 14,212 12,343
_______ _______
Total liabilities and shareholders' equity $25,167 $21,221
======= =======
For additional information regarding Akorn free of charge via fax,
dial 1-800-PRO-INFO and enter "AKRN."
</TABLE>
