UNCONSOLIDATED JOINT VENTURE

6 Months Ended

Jun. 30, 2011

UNCONSOLIDATED JOINT VENTURE

UNCONSOLIDATED JOINT VENTURE

NOTE O - UNCONSOLIDATED JOINT VENTURE

On September 22, 2004, the Company entered into a 50/50 joint venture agreement (the “Joint Venture Agreement”) with Strides Arcolab Limited (“Strides”), a pharmaceutical manufacturer based in India, for the development, manufacturing and marketing of various generic pharmaceutical products for sale in the United States.  The joint venture, known as Akorn-Strides LLC (the “Joint Venture Company”), launched its first commercialized product during 2008.  Under the Joint Venture Agreement, Strides has been primarily responsible for developing and manufacturing the products, while the Company has been responsible for marketing and selling the products.  To supplement Strides' manufacturing capabilities, the Company began manufacturing one Joint Venture Company product in the second quarter of 2010.  For its sales and marketing efforts, the Company earns revenue from the Joint Venture Company in the form of a fee calculated as a percentage of the Joint Venture Company's monthly net sales revenue.

On December 29, 2010, the Joint Venture Company entered into an Asset Purchase Agreement with Pfizer, Inc. (“Pfizer”) to sell the rights to all of its ANDAs to Pfizer for $63,200,000 in cash.  In accordance with an amendment to the Joint Venture Agreement, the proceeds were split unevenly, with the Company receiving $35,000,000 and Strides receiving $28,200,000.  The Asset Purchase Agreement included an initial closing date of December 29, 2010 and a final closing date of May 1, 2011.  The ANDAs for dormant and in-development products were transferred on the initial closing date, while the ANDAs for actively-marketed products were transferred to Pfizer on the final closing date.  The Joint Venture Company recognized a gain of $63,097,000 from the sale, of which $38,937,000 was recognized in the fourth quarter of 2010 and the remaining $24,160,000 was recognized in the second quarter of 2011.  Having sold all of its ANDAs, the Joint Venture Company discontinued product sales in the second quarter of 2011 and its operations are expected to be phased down in the coming months.

The following tables set forth condensed statements of income of the Joint Venture Company for the quarters and six-month periods ended June 30, 2011 and 2010, as well as condensed balance sheets as of June 30, 2011 and December 31, 2010.

CONDENSED STATEMENTS OF INCOME

(IN THOUSANDS)

	Three months ended				Six months ended
	June 30,				June 30,
	2011		2010		2011		2010
Revenues	$	1,668	$	3,368	$	6,332	$	8,143
Cost of sales		884		2,380		3,534		5,706
Gross profit		784		988		2,798		2,437
Operating expenses		131		250		497		768
Operating income		653		738		2,301		1,669
Gain from Pfizer ANDA Sale		24,160		-		24,160		-
Income before income taxes		24,813		738		26,461		1,669
Income tax provision		-		-		-		3
Net income	$	24,813	$	738	$	26,461	$	1,666
Allocation of net income to members:
Akorn, Inc.		13,706		369		14,530		833
Strides		11,107		369		11,931		833
Total	$	24,813	$	738	$	26,461	$	1,666

CONDENSED BALANCE SHEETS

(IN THOUSANDS)

	June 30,		December 31,
	2011		2010
Assets:
Cash	$	1,972	$	1,205
Trade accounts receivable, net		42		2,701
Inventories, net		-		2,239
Total assets	$	2,014	$	6,145
Liabilities and members' equity:
Trade accounts payable	$	9	$	75
Accounts payable – members		182		1,870
Deferred gain on Pfizer ANDA Sale		-		24,160
Total liabilities		191		26,105
Members' equity (deficit), net of advances		1,823		(19,960	)
Total liabilities & members' equity	$	2,014	$	6,145