BUSINESS COMBINATIONS

6 Months Ended

Jun. 30, 2011

BUSINESS COMBINATIONS [Abstract]

BUSINESS COMBINATIONS

NOTE N - BUSINESS COMBINATIONS

On May 3, 2011, the Company purchased all the outstanding shares of stock of Advanced Vision Research, Inc. (“AVR”) for $26,011,000 in cash, net of cash held by AVR.  The purchase price is subject to adjustment based on a working capital guarantee contained in the purchase agreement.  In addition, Akorn has agreed to reimburse AVR Business Trust, Advanced Vision Research, Inc., Advanced Vision Pharmaceuticals, LLC , and the Shareholders of AVR Business Trust (collectively, the “Sellers”) for any incremental income tax expense they should incur related to the parties making an Internal Revenue Code Section 338(h)(10) election.  The Company paid $734,000 to the Sellers at closing, which amount represents the initial estimate of the Sellers' incremental income tax expense burden.

The acquisition of AVR is a strategic extension of the Company's Ophthalmic business where it intends to leverage its existing sales infrastructure that markets products to ophthalmologists, optometrists, and retailers nationwide and it also expects to attain cost savings and synergies as the Company integrates the AVR business into its existing operations.

AVR markets a line of over-the-counter eye care products under the TheraTears® brand name, generating annual sales of approximately $20 million.  Akorn has been a contract manufacturer and supplier to AVR of certain TheraTears® products since 2008.  For the six months ended June 30, 2011 and 2010, the Company generated revenues of $607,000 and $1,151,000 from the sale of TheraTears® products to AVR.  Subsequent to the acquisition on May 3, 2011, the AVR subsidiary contributed $3,735,000 in revenues and $199,000 in net income for the quarter ended June 30, 2011.

The following table sets forth the preliminary allocation of purchase price for AVR.  The figures presented below are subject to resolution of working capital adjustments, calculation of the amount due the Sellers to cover their incremental tax burden as discussed above and completion of fair value analyses for intangibles (amounts in thousands):

PURCHASE PRICE:
Cash paid at closing,	$	26,011
Estimated additional consideration due		904
Assumed liabilities		3,376
Total purchase price	$	30,291
ALLOCATION OF PURCHASE PRICE:
Accounts receivable, net	$	611
Inventories, net		4,376
Prepaid expenses and other current assets		805
Property and equipment		250
Goodwill		14,749
Other intangible assets		9,500
Total allocation of purchase price	$	30,291

Goodwill represents expected synergies and intangible assets that do not qualify for separate recognition. For income tax purposes, the Company will be able to deduct the goodwill resulting from the acquisition ratably over 15 years.  Goodwill will not be amortized for book purposes but will be subject to impairment testing.  Acquired other intangible assets consist of product rights for TheraTears® products and is expected to be amortized over 30 years.

The unaudited pro forma results presented below reflect the consolidated results of operations of the Company as if the acquisition of AVR had taken place on at the beginning of each period presented below.  The pro forma results include amortization associated with the acquired intangible assets and interest on funds used for the acquisition.  To better reflect the combined operating results, material non-recurring charges directly attributable to the transaction have been excluded.  In addition, the unaudited pro forma financial information does not reflect the impact of any actual or anticipated synergies expected to result from the transaction. Accordingly, the unaudited pro forma financial information is not necessarily indicative of results of operations as they would have been had the transaction been effected on the assumed date.

	THREE MONTHS ENDED					SIX MONTHS ENDED
	JUNE 30,					JUNE 30,
	2011		2010			2011		2010
Revenues	$	33,707	$	24,690		$	63,943	$	49,502
Net income (loss)		17,790		(9,925	)		24,425		(6,128	)
Income (loss) per diluted share	$	0.17	$	(0.11	)	$	0.23	$	(0.07	)