AKORN : Management's Discussion and Analysis of Financial Condition and Results of Operations. (form 10-Q)

The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with the unaudited condensed
consolidated financial statements and the related notes thereto included
elsewhere in this Quarterly Report on Form 10-Q and the audited consolidated
financial statements and notes thereto and management's discussion and analysis
of financial condition and results of operations included in our Annual Report
on Form 10-K for the year ended December 31, 2019, that was filed with the SEC
on February 26, 2020.
                                      [45]
--------------------------------------------------------------------------------

FORWARD-LOOKING STATEMENTS AND FACTORS AFFECTING FUTURE RESULTS

Certain statements in this Form 10-Q are forward-looking in nature and are
intended to be "forward-looking statements" within the meaning of Section 27A of
the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). These
statements relate to future events or future financial performance. In some
cases, you can identify forward-looking statements by terminology such as "may,"
"should," "will," "would," "could," "expects," "plans," "intends,"
"anticipates," "believes," "estimates," "predicts," "potential," "continue" or
the negative of such terms or other comparable terminology. Any forward-looking
statements, including statements regarding our intent, beliefs or expectations
are not guarantees of future performance.
These statements are subject to risks and uncertainties and actual results,
levels of activity, performance or achievements and may differ materially from
those in the forward-looking statements as a result of various factors,
including:
•our ability to continue as a going concern;
•our substantial level of indebtedness and related debt service obligations and
restrictions, including those imposed by covenants in the Second Amendment to
Standstill Agreement and Third Amendment to Credit Agreement (the "Second
Amended Standstill Agreement") to that certain Loan Agreement, dated as of April
17, 2014, among us and certain of our subsidiaries, the lenders thereunder and
Wilmington Savings Fund Society, FSB, as successor administrative agent;
•our ability to execute upon the sale process contemplated by the Second Amended
Standstill Agreement;
•volatility and recent declines in the price of our common stock, including the
potential impact of any delisting of our stock from the NASDAQ Global Select
Market;
•the impact of the coronavirus (COVID-19) pandemic on our business, financial
condition, and results of operations;
•legal proceedings and governmental investigations, any of which may result in
substantial losses, government enforcement actions, damage to our business and
reputation and place a strain on our internal resources;
•our ability to timely and efficiently develop, launch and market our products;
•our reliance on third parties, including suppliers, manufacturers and
wholesalers;
•our ability to attract and retain key personnel;
•significant disruptions or failures in our information technology systems and
network infrastructures that could have a material adverse effect on our
business;
•ongoing oversight and review of our products and facilities by regulatory and
governmental agencies, including periodic audits by the U.S. Food and Drug
Administration and the results thereof;
•increased competition;
•our failure to comply with the complex reporting and payment obligations under
Medicare, Medicaid and other government programs may result in litigation or
sanctions; and
•our ability to protect our patents and proprietary rights and to defend against
claims of third parties that we infringe their proprietary rights.
For more detailed information on the risks and uncertainties associated with our
business activities, see "Risk Factors" in our Annual Report on Form 10-K for
the fiscal year ended December 31, 2019, as filed with the SEC on February 26,
2020, and in Part II Item 1A herein. You should not place undue reliance on any
forward-looking statements. You should read this report completely with the
understanding that our actual results may differ materially from what we expect.
Unless required by law, we undertake no obligation to update publicly any
forward-looking statements, whether as a result of new information, future
events or otherwise.

                                      [46]
--------------------------------------------------------------------------------

OVERVIEW

We, together with our wholly owned subsidiaries, are a specialty pharmaceutical
company that develops, manufactures and markets generic and branded prescription
pharmaceuticals, branded and private-label OTC consumer health products and
animal health pharmaceuticals. We are an industry leader in the development,
manufacturing and marketing of specialized generic pharmaceutical products. As
such, we specialize in difficult-to-manufacture sterile and non-sterile dosage
forms including, but not limited to, ophthalmics, injectables, oral liquids,
otics, topicals, inhalants and nasal sprays.

We have identified two reportable segments:

•Prescription Pharmaceuticals, we manufacture and market generic and branded
prescription pharmaceuticals including ophthalmics, injectables, oral liquids,
otics, topical, inhalants, and nasal sprays.
•Consumer Health, we manufacture and market branded and private-label animal
health and OTC products.

During the first quarter of 2020 and through the filing date of this Form 10-Q,
we made a number of announcements regarding the Second Amended Standstill
Agreement (as defined below) and our obligation to conduct the Sale Process.
Additionally, as discussed in our Condensed Consolidated Financial Statements
and Notes thereto and elsewhere in this Quarterly Report on Form 10-Q, the
Company conducted an evaluation as to its ability to continue as a going
concern. These are addressed in the "Recent Developments" section below.

Net Revenue & Gross Profit:

Net revenue was $204.7 million for the three month period ended March 31, 2020,
representing an increase of $38.8 million, or 23.4%, as compared to net revenue
of $165.9 million for the three month period ended March 31, 2019.

Consolidated gross profit for the quarter ended March 31, 2020, was $94.5 million, or 46.2% of net revenue, compared to $53.5 million, or 32.3% of net revenue, in the corresponding prior year quarter.

Impact of COVID-19 Pandemic:

The emergence of COVID-19 around the world, and particularly in the United
States, presents significant risks to the Company, not all of which the Company
is able to fully evaluate or foresee at the current time. We have adopted a
series of precautionary measures in an effort to protect our employees and
mitigate the potential spread of COVID-19. The majority of our office and
management personnel are working remotely, and some of our employees engaged in
manufacturing, production and distribution facilities have been restricted by
the Company and/or by governmental order from coming to work. At the same time,
we have worked to continue our critical business functions and support
uninterrupted access to our medicines. For example, we have instituted
additional safety precautions, including increased sanitization of our
facilities, to help protect the health and safety of our employees who work in
our manufacturing facilities and laboratories, as they continue to manufacture
and deliver important medicines for patients.

While the COVID-19 pandemic did not materially adversely affect the Company's
financial results and business operations in the Company's first quarter ended
March 31, 2020, the pandemic had a negative effect on the capital markets and
availability of funds for potential bidders in our sales process, and economic
and health conditions in the United States and across most of the globe have
changed rapidly since the end of the quarter. Demand for the Company's products
has not been significantly altered by the impact of COVID-19 during the three
month period ended March 31, 2020, but that could change depending on the
duration and severity of the COVID-19 pandemic, the length of time it takes for
normal economic and operating conditions to resume, additional governmental
actions that may be taken and/or extensions of time for restrictions that have
been imposed to date, and numerous other uncertainties.

The COVID-19 pandemic could affect the Company's sale process and any interest
of potential bidders as well as operations in the second quarter and beyond.
This may have far reaching impacts on the Company's business, operations, and
financial results and conditions, directly and indirectly, including without
limitation impacts on the health of the Company's management and employees,
manufacturing, distribution, marketing and sales operations, customer and
consumer behaviors, and on the overall economy. The scope and nature of these
impacts, most of which are beyond the Company's control, continue to evolve and
the outcomes are uncertain.

Due to the above circumstances and as described generally in this Form 10-Q, the
Company's results of operations for the three month period ended March 31, 2020
are not necessarily indicative of the results to be expected for the full fiscal
year. Management cannot predict the full impact of the COVID-19 pandemic on the
Company's sales channels, supply chain, manufacturing and distribution nor to
economic conditions generally, including the effects on consumer spending. The
ultimate extent of the effects of
                                      [47]
--------------------------------------------------------------------------------

the COVID-19 pandemic on the Company is highly uncertain and will depend on future developments, and such effects could exist for an extended period of time even after the pandemic ends.

For additional information about risks and uncertainties related to the COVID-19
pandemic that may impact our business, our financial condition or our results of
operations, see Part II, Item 1A "Risk Factors" in this Form 10-Q.

Recent Developments:

Update on Sale Process
As previously disclosed, on February 12, 2020, Akorn, Inc., together with
certain of its subsidiaries (collectively, the "Company Loan Parties"), an ad
hoc group of Lenders (the "Ad Hoc Group") and certain other Lenders (together
with the Ad Hoc Group, the "Standstill Lenders") entered into a Second Amendment
to Standstill Agreement and Third Amendment to Credit Agreement (the "Second
Amended Standstill Agreement") to the Company's Loan Agreement, dated as of
April 17, 2014 (as amended, supplemented or otherwise modified, the "Term Loan
Agreement"), among the Company Loan Parties, the lenders thereunder (the
"Lenders") and Wilmington Savings Fund Society, FSB, as successor administrative
agent (the "Administrative Agent"). Pursuant to the terms of the Second Amended
Standstill Agreement, the duration of the "Standstill Period" was extended from
February 7, 2020 until the earliest of the delivery of a notice of termination
of the Standstill Period by the Standstill Lenders upon the occurrence of a
default under the Term Loan Agreement, or a breach of, or non-compliance with
certain provisions of the Second Amended Standstill Agreement. Among other
things, the Second Amended Standstill Agreement also (i) provides that, during
the extended Standstill Period, neither the Administrative Agent nor the Lenders
may exercise their default-related rights and remedies with respect to specified
events of default under the Term Loan Agreement, and (ii) provides that the
Company will market and conduct a sale process (the "Sale Process") for
substantially all of its assets in accordance with certain milestones, which
milestones depend upon whether the bids submitted and then in effect in
connection with the Sale Process are sufficient to pay all obligations under the
Term Loan Agreement.
As of March 28, 2020, there were no bids in the Sale Process sufficient to pay
all obligations under the Term Loan Agreement and an immediate Event of Default
under the Term Loan Agreement occurred ("Toggle Event"). As a result, as of
April 1, 2020, the alternative milestones for the Sale Process set forth in the
Second Amended Standstill Agreement apply, which provide that, among other
things, the Company shall commence one or more cases under Chapter 11 ("Chapter
11 Cases") of title 11 of the U.S. Code (the "Bankruptcy Code") on or before May
1, 2020. The Company did not satisfy the milestone requirement to commence the
Chapter 11 Cases on or before May 1, 2020 and continues to engage in discussions
with the Standstill Lenders regarding the Sale Process and the Chapter 11 Cases.
Refer to "- Financial Condition and Liquidity - Liquidity Considerations" and
Note 18 - Subsequent Events for more information regarding the Second Amended
Standstill Agreement, the Sale Process, the Toggle Event and the Chapter 11
Cases. Please see Note 8 - Financing Arrangements, for further detail of our
debt obligations as of and for the three month period ended March 31, 2020.
Going Concern
In connection with the preparation of the financial statements as of and for the
three month period ended March 31, 2020, the Company conducted an evaluation as
to whether there were conditions and events, considered in the aggregate, which
raised substantial doubt as to the entity's ability to continue as a going
concern within one year after the date of the issuance the date of the financial
statements. As of March 31, 2020, the Company had cash and cash equivalents of
$72.2 million, working capital deficit of $(494.7) million and accumulated
deficit of $(590.7) million. The Company had a loss from operations of $(246.9)
million and a net loss of $(256.7) million for the three month period ended
March 31, 2020.
As further described above, on February 12, 2020, Akorn, Inc., certain of its
subsidiaries and the Standstill Lenders entered into the Second Amendment to
Standstill Agreement and Third Amendment to Credit Agreement and, as of April 1,
2020, the alternative milestones for the Sale Process set forth in the Second
Amended Standstill Agreement apply.
We evaluated the impact of the Second Amended Standstill Agreement, including
the alternative milestones detailed in the therein, on the Company's ability to
continue as a going concern. Accordingly, the impact of toggling to the
alternative milestones and the recurring losses from operations and net working
capital deficiency create substantial doubt about our ability to continue as a
going concern within one year after the date the accompanying financial
statements are filed.
Refer to "-Financial Condition and Liquidity-Liquidity Considerations" and Note
18 - Subsequent Events for more information regarding the Second Amended
Standstill Agreement, the Sale Process, the Toggle Event and the Chapter 11
Cases. Please see Note 2 - Summary of Significant Accounting Policies, for
further discussion of the Company's ability to continue as a going concern and
Note 8 - Financing Arrangements, for further detail of our debt obligations as
of and for the three month period ended March 31, 2020.
                                      [48]
--------------------------------------------------------------------------------

Noncompliance with Nasdaq's Minimum Bid Price
On April 27, 2020, the Company received written notice from the staff of the
Listing Qualifications Department of The Nasdaq Stock Market ("Nasdaq") that the
Company was not in compliance with Nasdaq's Listing Rule 5450(a)(1), as the
closing bid price of the Company's common stock had been below $1.00 per share
for 30 consecutive business days (the "Minimum Bid Price Requirement").
Nasdaq also notified the Company that, due to the global market impact caused by
COVID-19, Nasdaq has tolled the compliance period for the Minimum Bid Price
Requirement through June 30, 2020. The compliance period for the Minimum Bid
Price Requirement will be reinstated on July 1, 2020. As a result, the Company
will have 180 calendar days from July 1, 2020, or until December 28, 2020, to
regain compliance.
The Company may regain compliance with the Minimum Bid Price Requirement if the
closing bid price of its common stock is $1.00 per share or more for a minimum
of ten consecutive business days at any time prior to December 28, 2020. If the
Company is not in compliance by December 28, 2020, the Company may be eligible
for additional time. The Company's failure to regain compliance during this
period, including any extensions that may be granted by Nasdaq, could result in
delisting.
The notification of noncompliance had no immediate effect on the listing or
trading of the Company's common stock, which continues to trade on The Nasdaq
Global Select Market under the symbol AKRX. No determination regarding the
Company's response has been made at this time. There can be no assurance that
the Company will be able to regain compliance with the Minimum Bid Price
Requirement or will otherwise be in compliance with other Nasdaq listing
criteria.
                                      [49]
--------------------------------------------------------------------------------

RESULTS OF OPERATIONS

The following table sets forth the amounts and percentages of total revenue for
certain items from our condensed consolidated statements of comprehensive (loss)
and our segment reporting information for the three month periods ended
March 31, 2020 and 2019 (dollar amounts in thousands):

                                                                                               Three Months Ended
                                                                                                    March 31,
                                                                                  2020                                                  2019
                                                                                            % of                                     % of
                                                                      Amount               Revenue              Amount             Revenue

Revenues, net:

 Prescription Pharmaceuticals                                      $  179,244                  87.6  %       $ 148,015                 89.2  %
  Consumer Health                                                      25,449                  12.4  %          17,856                 10.8  %
Total revenues, net                                                   204,693                 100.0  %         165,871                100.0  %
Gross profit:
Prescription Pharmaceuticals                                           77,159                  43.0  %          45,443                 30.7  %
Consumer Health                                                        17,385                  68.3  %           8,070                 45.2  %
Total gross profit                                                     94,544                  46.2  %          53,513                 32.3  %
Operating expenses:
Selling, general and administrative expenses                           65,056                  31.8  %          72,498                 43.7  %
Research and development expenses                                       9,811                   4.8  %           8,714                  5.3  %
  Amortization of intangibles                                           6,142                   3.0  %          11,065                  6.7  %
  Impairment of intangibles                                                 -                     -  %          10,354                  6.2  %
  Goodwill Impairment                                                 267,923                 130.9  %          15,955                  9.6  %
  Litigation rulings, settlements and contingencies                    (7,470)                 (3.6) %             410                  0.2  %
Operating (loss)                                                   $ (246,918)               (120.6) %       $ (65,483)               (39.5) %

Non-operating expenses:

  Amortization of deferred financing costs                             (8,629)                 (4.2) %          (1,304)                (0.8) %
  Interest expense, net                                               (24,364)                (11.9) %         (14,327)                (8.6) %
  Other non-operating(expense)/income, net                               (261)                 (0.1) %             353                  0.2  %
Total non-operating expenses                                          (33,254)                (16.2) %         (15,278)                (9.2) %
Net (loss) before income taxes                                       (280,172)               (136.9) %         (80,761)               (48.7) %
Income tax (benefit)/provision                                        (23,445)                (11.5) %           1,420                  0.9  %
Net (loss)                                                         $ (256,727)               (125.4) %       $ (82,181)               (49.5) %

THREE MONTHS ENDED MARCH 31, 2020 COMPARED TO THREE MONTHS ENDED MARCH 31, 2019

Net revenue was $204.7 million for the three month period ended March 31, 2020,
representing an increase of $38.8 million, or 23.4%, as compared to net revenue
of $165.9 million for the three month period ended March 31, 2019. The increase
in net revenue in the period was primarily due to increases of $23.0 million,
$9.0 million, and $6.8 million in discontinued products revenue, organic revenue
and new products, respectively. The $23.0 million increase in discontinued
products revenue was driven by approximately $35.9 million of net revenue from a
sale of remaining inventory of an
                                      [50]
--------------------------------------------------------------------------------

unapproved product that has since been discontinued. The $9.0 million increase
in organic revenue was due to approximately $21.6 million, or 14.2% of favorable
price variance primarily due to 2019 price increases on certain exclusive
products partially offset by $12.5 million, or 8.2% in volume decline
principally due to lower sales of Myorisan®.

The Prescription Pharmaceuticals segment revenue of $179.2 million for the three
month period ended March 31, 2020, represented an increase of $31.2 million, or
21.1%, compared to revenue of $148.0 million for the three month period ended
March 31, 2019.

The Consumer Health segment revenue of $25.4 million for the three month period
ended March 31, 2020, represented an increase of $7.5 million, or 41.9%,
compared to revenue of $17.9 million for three month period ended March 31,
2019. The $7.5 million increase was driven in part by strong consumer demand due
to the COVID-19 pandemic.

The net revenue for the three month period ended March 31, 2020, of $204.7
million was net of adjustments totaling $224.7 million for chargebacks, rebates,
administrative fees and others, product returns, discounts and allowances and
advertising, promotions and other. Chargeback expenses for the three month
period ended March 31, 2020, were $156.3 million, or 36.4% of gross sales,
compared to $205.4 million, or 44.8% of gross sales for the three month period
ended March 31, 2019. The $49.1 million decrease in chargeback expense was due
to volume declines as well as decreases in wholesale acquisition cost of certain
products in the current period as compared to prior year. Rebates,
administrative fees and other expenses for the three month period ended
March 31, 2020, were $52.8 million, or 12.3% of gross sales, compared to $64.3
million, or 14.0% of gross sales for three month period ended March 31, 2019.
The $11.5 million decrease in rebates, administrative fees and other expenses
was primarily due to lower failure to supply claims, decreases in contract
prices and product mix.  Our product returns provision for the three month
period ended March 31, 2020, was $4.3 million, or 1.0% of gross sales, compared
to $11.9 million, or 2.6% of gross sales for the three month period ended March
31, 2019. Discounts and allowances were $9.3 million, or 2.2% of gross sales for
the three month period ended March 31, 2020, compared to $9.0 million, or 2.0%
of gross sales for the three month period ended March 31, 2019. Advertisement
and promotion expenses were $2.0 million, or 0.5% of gross sales for the three
month period ended March 31, 2020, compared to $2.2 million, or 0.5% of gross
sales for the three month period ended March 31, 2019.

Gross profit for the quarter ended March 31, 2020, was $94.5 million, or 46.2%
of net revenue, compared to $53.5 million, or 32.3% of net revenue, in the
corresponding prior year quarter. The increase in the gross profit percentage
was principally due to decreased costs associated with FDA compliance related
improvement activities, favorable price and product mix, including the sale of
an unapproved product that has since been discontinued.

Total operating expenses were $341.5 million in the three month period ended
March 31, 2020, an increase of $222.5 million, or 187.0%, from the prior year
quarter amount of $119.0 million. The $222.5 million increase was primarily
driven by increase in goodwill impairments of $252.0 million, partially offset
by decreases of $10.4 million, $7.4 million and $4.9 million in impairment of
intangibles, selling, general and administrative ("SG&A") and amortization of
intangibles, respectively. The following is a discussion of the main drivers:

Goodwill impairments during the three month period ended March 31, 2020 were
$267.9 million, an increase of $252.0 million, over the corresponding prior year
quarter amount of $16.0 million. The $252.0 million increase in impairments were
a result of significant deterioration in the price of the Company's common
stock.

There were no impairments of intangible assets during the three month period
ended March 31, 2020. Impairments of intangible assets were $10.4 million on one
Product licensing rights in the corresponding prior year quarter.

SG&A expenses were $65.1 million in the three month period ended March 31, 2020,
a decrease of $7.4 million, or 10.3%, from the prior year quarter amount of
$72.5 million. The major drivers of the $7.4 million decrease were decreases of
$10.1 million related to the India plant assets impairments, and $4.3 million in
expenses related to the data integrity assessment projects which were partially
offset by increases of $3.9 million related to legal and financial advisory fees
and $3.5 million in employee cash retention awards.

Amortization of intangible assets were $6.1 million in the three month period
ended March 31, 2020, a decrease of $4.9 million, or 44.5% over the prior year
amount of $11.1 million. The primary driver of the $4.9 million decrease was a
lower intangible asset base during the three month period ended March 31, 2020
compared to prior year quarter as a result of impairments.

Non-operating expenses were $33.3 million in the three month period ended March 31, 2020, an increase of $18.0 million, or 117.7%, from the comparative prior year period amount of $15.3 million. The $18.0 million increase was primarily driven

                                      [51]
--------------------------------------------------------------------------------

by $10.0 million increase in interest expense and $7.3 million increase in amortization of deferred financing cost both related to the standstill agreement and related amendments.

During the three month periods ended March 31, 2020 and 2019, the Company
recorded income tax (benefit)/provision of $(23.4) million and $1.4 million,
respectively, on (loss) before income taxes. The reason for the overall tax
benefit during the three month period ended March 31, 2020, was the impact of a
$(37.1) million net operating (loss) carryback benefit partially offset by $13.9
million of current year tax expense.

The Company reported a net loss of $256.7 million for the three month period
ended March 31, 2020, or 125.4% of net revenue, compared to net loss of $82.2
million for the three month period ended March 31, 2019, or 49.5% of net
revenue.

FINANCIAL CONDITION AND LIQUIDITY

Overview

As discussed in the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 2019, as filed with the SEC on February 26, 2020, the
continuation of our business is dependent upon our ability to comply with the
Second Amended Standstill Agreement and the Term Loan Agreement and conduct a
successful Sale Process in accordance with certain milestones, which milestones
depend upon whether the bids submitted and then in effect in connection with the
Sale Process are sufficient to pay all obligations under the Term Loan
Agreement. As of March 28, 2020, there were no bids in the Sale Process
sufficient to pay all obligations under the Term Loan Agreement and the Toggle
Event occurred. As a result, as of April 1, 2020, the alternative milestones for
the Sale Process set forth in the Second Amended Standstill Agreement apply,
which provide that, among other things, the Company shall commence the Chapter
11 Cases on or before May 1, 2020. The Company did not satisfy the milestone
requirement to commence the Chapter 11 Cases on or before May 1, 2020 and
continues to engage in discussions with the Standstill Lenders regarding the
Sale Process and the Chapter 11 Cases. These factors, together with the
Company's recurring losses from operations and net capital deficiency, create
substantial doubt about the Company's ability to continue as a going concern.

We require certain capital resources in order to operate our business.  Our
primary sources of liquidity have historically been cash generated from
operations and borrowings under our Term Loans.
Historically, our principal liquidity requirements have been to maintain and
expand our business, pay principal and interest obligations on our Term Loans
and other expenses, and for capital expenditures to upgrade, expand and improve
our manufacturing facilities. Our future capital expenditures may include
substantial projects undertaken to upgrade, expand and improve our manufacturing
facilities in the United States and Switzerland. Our cash obligations include
the principal and interest payments due on our Term Loans (as described
throughout this report). More recently, our liquidity requirements also include
expenses related to FDA compliance related enhancements, interest and fees
associated with the standstill agreement and related amendments, the Delaware
Action and other litigation matters.
Cash and Cash Flows

As of March 31, 2020, we had cash and cash equivalents of $72.2 million, which
was $72.6 million less than our cash and cash equivalents balance of $144.8
million as of December 31, 2019. This decrease in cash and cash equivalents was
primarily driven by decreases of $61.4 million and $11.1 million in net
operating cash inflows and net investing cash outflows, respectively. Our net
working capital was $(494.7) million at March 31, 2020, compared to $(505.5)
million at December 31, 2019. The negative net working capital for the period
was primarily due to the classification of the Term loans as a current
liability.

Operating Cash Flows

During the three month period ended March 31, 2020, net cash used in operating
activities was $61.4 million. This negative operating cash flow was primarily
driven by an increase in trade accounts receivable, a decrease in trade payables
necessitated by our current financial condition and payment of retention bonuses
for certain Company employees. During the three month period ended March 31,
2019, net cash used in operating activities was $30.5 million, driven by
increases in trade accounts receivable, financial advisory fees and data
integrity assessment projects.

Investing Cash Flows

                                      [52]
--------------------------------------------------------------------------------

Net cash used in investing activities during the three month period ended March 31, 2020, was approximately $11.1 million. Of this net amount, $11.5 million was used to acquire property, plant and equipment. We used approximately $10.1 million in investing activities during the three month period ended March 31, 2019, to acquire property, plant and equipment.

Financing Cash Flows

Financing activities used $0.1 million in the three month period ended March 31,
2020, consisting of $0.1 million for employee tax withholding related to vested
RSUs. Financing activities used $0.5 million in the three month period ended
March 31, 2019, consisting of $0.3 million for lease payments and $0.1 million
for employee tax withholding related to vested RSUs.

Liquidity Considerations

The Second Amended Standstill Agreement, the Sale Process, the Toggle Event and the Chapter 11 Cases

During 2014, in order to finance its acquisitions of Hi-Tech Pharmacal Co Inc.
and VersaPharm Inc., the Company Loan Parties, entered into the Term Loan
Agreement. The aggregate principal amount of the Term Loans was $1,045.0
million. As of March 31, 2020, outstanding debt under the Term Loan Agreement
was $853.6 million. As of March 31, 2020, the Term Loan has a market price of
$778 per $1,000 of principal amount. The Term Loans are scheduled to mature on
April 16, 2021.
On May 6, 2019, the Company Loan Parties and certain Lenders entered into a
Standstill Agreement and First Amendment (the "Original Standstill Agreement")
to the Term Loan Agreement. Pursuant to the terms of the Original Standstill
Agreement, Akorn, Inc. was required to enter into a comprehensive amendment to
the Term Loan Agreement (the "Comprehensive Amendment"). If Akorn, Inc. did not
enter into a Comprehensive Amendment by December 13, 2019, or refinance or
otherwise address the outstanding loans, an event of default would occur under
the Term Loan Agreement.
On December 15, 2019, the Company Loan Parties entered into a First Amendment to
Standstill Agreement and Second Amendment to Credit Agreement (the "First
Amended Standstill Agreement") with certain Lenders. Pursuant to the terms of
the First Amended Standstill Agreement, the maximum duration of the "Standstill
Period" was extended from December 13, 2019 to February 7, 2020.
On February 12, 2020, the Company Loan Parties entered into the Comprehensive
Amendment in the form of the Second Amended Standstill Agreement with the
Standstill Lenders. Pursuant to the terms of the Second Amended Standstill
Agreement, the duration of the "Standstill Period" was extended from February 7,
2020, until the earliest of the delivery of a notice of termination of the
Standstill Period by the Standstill Lenders upon the occurrence of a default
under the loan agreement, or a breach of, or non-compliance with certain
provisions of the Second Amended Standstill Agreement.
The Second Amended Standstill Agreement provides that, for the duration of the
Extended Standstill Period, among other matters, neither the Administrative
Agent nor the Lenders may (i) declare any Event of Default or (ii) otherwise
seek to exercise any rights or remedies, in each case of clauses (i) and (ii)
above, to the extent directly relating to any alleged Event of Default arising
from any alleged breach of certain covenants, to the extent the facts and
circumstances giving rise to any such breach have been (x) publicly disclosed by
Akorn, Inc. or (y) disclosed in writing by Akorn, Inc. to private side Lenders
or certain advisors to the Ad Hoc Group (collectively, the "Specified Matters").
The Second Amended Standstill Agreement provides, among other matters, that:
•during the Extended Standstill Period:
•Akorn, Inc. must deliver certain financial and other information to the Lenders
or their advisors, including without limitation, monthly financial statements
with agreed upon adjustment, monthly operational statistics broken down by
facility, pipeline reporting, 13-week cash flow forecasts, weekly variance
reports, certain valuation reports, weekly status updates with respect to the
Sale Process (as defined below) and certain regulatory information, and
participate in various update calls with the Lenders and their advisors (the
"Affirmative Covenants and Milestones")? and
•Akorn, Inc. and its subsidiaries are restricted, among other matters, from (i)
consummating certain asset sales and investments, (ii) making certain restricted
payments, (iii) engaging in sale and leaseback transactions, (iv) incurring
certain liens and indebtedness, (v) reinvesting any proceeds received from
certain asset sales and (vi) without the consent of the Required Lenders at such
time, (A) designating any Restricted Subsidiary as an Unrestricted Subsidiary,
or otherwise creating or forming any Unrestricted Subsidiary, (B) transferring
any
                                      [53]
--------------------------------------------------------------------------------

assets of Akorn, Inc. or any of its Restricted Subsidiaries to any Unrestricted
Subsidiary, except as otherwise permitted under the Term Loan Agreement (after
giving effect to the Second Amended Standstill Agreement), and/or (C) releasing
any existing Loan Guarantors or security interest granted under the Term Loan
Agreement outside of the ordinary course of business (collectively, the
"Negative Covenants")?
•Akorn, Inc. will market and conduct the Sale Process for substantially all of
its assets in accordance with the milestones set forth in the Second Amended
Standstill Agreement, which milestones will depend upon whether the bids
submitted and then in effect in connection with the Sale Process are sufficient
to pay all obligations under the Term Loan Agreement;
•the Sale Process will be consummated on either an out-of-court or in-court
basis (potentially through the filing of Chapter 11 Cases under the Bankruptcy
Code in order to effectuate the Sale Process);
•if at any time during the Sale Process, no third party bids exist that are
sufficient to pay all obligations under the Loan Agreement (taking into account
available cash) there shall be a Toggle Event;
•the milestones with respect to the Sale Process include:
•subject to the alternative milestones described below upon the occurrence of a
Toggle Event:
•on or before March 27, 2020, binding bids in connection with the Sale Process
shall be due;
•on or before April 5, 2020, Akorn, Inc. shall select a stalking horse bidder
and commence the Chapter 11 Cases to effectuate the Sale Process; and
•thereafter, certain additional milestones shall be applicable during the
Chapter 11 Cases;
•upon the occurrence of a Toggle Event, the following alternative milestones
will apply:
•on or before twenty-six (26) days after a Toggle Event, Akorn, Inc. and the Ad
Hoc Group Advisors shall reach an agreement in principle with respect to a
restructuring support agreement ("RSA") (such agreement not to be unreasonably
withheld, conditioned or delayed);
•on or before thirty (30) days after a Toggle Event, Akorn, Inc. shall commence
the Chapter 11 Cases to consummate either (A) a sale transaction pursuant with
the Lenders serving as a stalking horse, and entering into a stalking horse
asset purchase agreement (the "Credit Bid APA") in order to exercise their
rights to credit bid under the Loan Documents or (B) a transaction backstopped
by an executed RSA; and
•thereafter, certain additional milestones shall be applicable during the
Chapter 11 Cases;
•To the extent either (i) a Toggle Event exists or (ii) Akorn, Inc. commences
the Chapter 11 Cases without a stalking horse asset purchase agreement with a
bid sufficient to pay all obligations under the Term Loan Agreement (taking into
account available cash in the case of cash fee, debt free bids), Akorn, Inc.
shall prepay, on a ratable basis, within five (5) days prior to the commencement
of the Chapter 11 Cases all outstanding Loans under the Term Loan Agreement in
an amount that, after giving effect to such prepayment, leaves Akorn, Inc.'s pro
forma cash balance at an amount not to exceed $87.5 million.
•the following exit payments will be paid in cash to each Lender on a pro rata
basis in connection with repayment of the Loans under the Term Loan Agreement:
•if the Sale Process is approved by the Bankruptcy Court on or prior to July 15,
2020, then:
•if the Sale Process is consummated on or prior to July 15, 2020, 0.50% of the
aggregate principal amount of the Loans of such Lender then outstanding (i.e.,
50 basis points); or
•if the Sale Process is consummated after July 15, 2020, 0.75% of the aggregate
principal amount of the Loans of such Lender then outstanding (i.e., 75 basis
points); and
•if the Sale Process is not approved by the Bankruptcy Court on or prior to July
15, 2020, then:
• if the Sale Process is consummated on or prior to August 15, 2020, 1.00% of
the aggregate principal amount of the Loans of such Lender then outstanding
(i.e., 100 basis points); or
• if the Sale Process is consummated after August 15, 2020, 2.00% of the
aggregate principal amount of the Loans of such Lender then outstanding (i.e.,
200 basis points);
•upon the earlier to occur of (i) entry into the RSA, (ii) entry into the Credit
Bid APA, and one day prior to Akorn, Inc. commencing the Chapter 11 Cases
without a Stalking Horse APA, 2.50% of the aggregate principal amount of the
Loans of such Lender then outstanding (i.e., 250 basis points);
•if at any time during the Sale Process no third-party bids exist which are
sufficient to pay all obligations (net of available cash), then from the
occurrence of such date until the date of a Standstill Event of Default, the
interest margin payable in cash shall be further increased by 2.5% to LIBOR plus
12.50%.
                                      [54]
--------------------------------------------------------------------------------


Subject to a five business day cure period (the "Cure Period"), Akorn, Inc.'s
failure to comply with the Affirmative Covenants and Milestones (other than
perfection of the Lenders' security interests (the "Excluded Milestones"))
during the Standstill Period would permit the Required Lenders to terminate the
Standstill Period and exercise any rights and remedies under the Term Loan
Agreement with respect to the Specified Matters or a Standstill Event of
Default. Akorn, Inc.'s failure to comply with the Negative Covenants and
Excluded Milestones during the Standstill Period would permit the Required
Lenders to terminate the Standstill Agreement and constitute an immediate Event
of Default under the Term Loan Agreement. Akorn, Inc.'s failure to comply with
any Affirmative Covenants and Milestones (subject to the Cure Period), the
Excluded Milestones, Negative Covenants or other covenants in the Second Amended
Standstill Agreement would also result in a further increase of the interest
margins payable with respect to outstanding Loans by 0.50%, payable in kind.
In addition, Akorn, Inc. agreed (1) not to make any payments in respect of
judgments or settlements of certain ongoing litigation matters without the prior
written consent of the Required Lenders and (2) to make payment of fees and
expenses to the advisors of Ad Hoc Group (collectively, the "Other Covenants").
The failure to comply with any of the Other Covenants would constitute an
immediate Event of Default under the Term Loan Agreement.
If an Event of Default occurs, the Lenders may accelerate the obligations under
the Term Loan Agreement, foreclose upon the collateral securing the debt and
exercise other rights and remedies. If the Lenders take this action, the Company
may not be able to repay the obligations under the Term Loan Agreement. If the
Company does not have sufficient funds on hand to pay its debt when due, it may
be required to seek Chapter 11 protection, refinance the debt, incur additional
debt, sell assets, sell additional securities, and/or consummate the Sale
Process. There can be no assurance that the Company will be able to consummate
any of these transactions on commercially reasonable terms or at all. The
failure to repay or refinance the obligations under the Term Loan Agreement when
due and the uncertainties relating to the Company's outstanding litigation may
have a material adverse impact on the Company's business, financial condition
and results of operations.
As of March 28, 2020, there were no bids in the Sale Process sufficient to pay
all obligations under the Term Loan Agreement and a Toggle Event occurred.
Subsequent Events Related to the Toggle Event
As a result of the Toggle Event, pursuant to the Term Loan Agreement, the
interest margin payable in cash under the Term Loan Agreement has increased to
LIBOR plus 12.50% (provided that 0.75% of such rate shall be payable in kind by
capitalizing and adding such amount to the outstanding principal balance of the
loans on the applicable payment date). In addition, a default rate of 2.00%
applies. The Lenders may also accelerate the obligations under the Term Loan
Agreement, foreclose upon the collateral securing the debt and exercise other
rights and remedies. The Company is also obligated to prepay, on a ratable
basis, all outstanding loans under the Term Loan Agreement in an amount that
after giving effect to the prepayment, leaves the Company with a pro forma cash
balance of not more than $87.5 million within five (5) days prior to the
commencement of the Chapter 11 Cases.
As of April 1, 2020, the following alternative milestones apply under the Second
Amended Standstill Agreement, unless otherwise agreed between the Company and
the required lenders:
•on or before April 27, 2020, the Company and the Ad Hoc Group Advisors shall
reach an agreement in principle with respect to an RSA;
•on or before May 1, 2020, the Company shall commence the Chapter 11 Cases to
consummate either (A) a sale transaction pursuant to the Credit Bid APA in order
to exercise their rights to credit bid under the Loan Documents or (B) a
transaction backstopped by an executed RSA; and
•certain additional milestones shall be applicable during the Chapter 11 Cases.

The Company did not satisfy the milestone requirement to commence the Chapter 11
Cases on or before May 1, 2020 and continues to engage in discussions with the
Standstill Lenders regarding the Sale Process and the Chapter 11 Cases.

Refer to Note 8 - Financing Arrangements for further detail of debt obligations as of and for the three months ended March 31, 2020.

CONTRACTUAL OBLIGATIONS

Except for changes to the Term Loans as a result of the Second Amended Standstill Agreement as described in -Financial Condition and Liquidity - Liquidity Considerations, Note 8 - Financing Arrangements -Term Loans and Note 18 -

                                      [55]
--------------------------------------------------------------------------------

Subsequent Events, there have been no material changes in the information reported under Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations -Contractual Obligations in our Form 10-K for the fiscal year ended December 31, 2019.

CRITICAL ACCOUNTING POLICIES

The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and judgments that
affect the reported amounts of assets, liabilities, revenues and expenses. A
summary of our significant accounting policies is included in Note 2 - Summary
of Significant Accounting Policies, in our Annual Report on Form 10-K for the
year ended December 31, 2019, and in Note 2 - Summary of Significant Accounting
Policies of this Form 10-Q. Certain of our accounting policies are considered
critical, as these policies require significant, difficult or complex judgments
by management, often requiring the use of estimates about the effects of matters
that are inherently uncertain.

The Company consolidates the financial statements of its foreign subsidiaries in
accordance with ASC 830 - Foreign Currency Matters, under which the statement of
operations amounts are translated from Indian Rupees ("INR") and Swiss Francs
("CHF"), respectively, to U.S. Dollars at the average exchange rate during the
applicable period, while balance sheet amounts are generally translated at the
exchange rate in effect as of the applicable balance sheet date. Cash flows are
translated at the average exchange rate in place during the applicable
period. Differences arising from foreign currency translation are included in
accumulated other comprehensive loss and are carried as a separate component of
equity on our condensed consolidated balance sheets.

OFF-BALANCE SHEET ARRANGEMENTS

We do not have any off-balance sheet arrangements that have had, or are reasonably likely to have, a current or future material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources.

                                      [56]

--------------------------------------------------------------------------------

© Edgar Online, source Glimpses