<PAGE>   1
 
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
 
                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549
                      ------------------------------------
                                   FORM 10-K
 
[X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
 
                      FOR THE YEAR ENDED DECEMBER 31, 2000
 
[ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 
                        Commission File Number: 0-13976
 
                                  AKORN, INC.
                (Name of registrant as specified in its charter)
 

<TABLE>
<S>                                             <C>
                 LOUISIANA                                       72-0717400
      (State or other jurisdiction of                (IRS Employer Identification No.)
       incorporation or organization)
</TABLE>

 
              2500 MILLBROOK DRIVE, BUFFALO GROVE, ILLINOIS 60089
             (Address of principal executive offices and zip code)
 
                 REGISTRANT'S TELEPHONE NUMBER: (847) 279-6100
 
         SECURITIES REGISTERED UNDER SECTION 12(b) OF THE EXCHANGE ACT:
                                      None
 
         SECURITIES REGISTERED UNDER SECTION 12(g) OF THE EXCHANGE ACT:
                           Common Stock, No Par Value
                                (Title of Class)
 
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 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      No
------
 
Indicate by check mark if disclosure of delinquent filers in response to Item
405 of Regulation S-K is not contained in this form, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.  [ ]
 
The aggregate market value of the voting stock held by nonaffiliates (affiliates
being, for these purposes only, directors, executive officers and holders of
more than 5% of the Issuer's common stock) of the Issuer as of March 29, 2001
was approximately $26,970,000.
 
The number of shares of the Issuer's common stock, no par value per share,
outstanding as of March 29, 2001 was 19,279,714.
 
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

<PAGE>   2
 
                           FORWARD-LOOKING STATEMENTS
 
     Certain statements in this Form 10-K constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act.
When used in this document, the words "anticipate," "believe," "estimate" and
"expect" and similar expressions are generally intended to identify
forward-looking statements. Any forward-looking statements, including statements
regarding the intent, belief or expectations of the Company or its management
are not guarantees of future performance. These statements involve risks and
uncertainties and actual results may differ materially from those in the
forward-looking statements as a result of various factors, including but not
limited to:
 
     - the effects of federal, state and other governmental regulation of the
       Company's business;
 
     - the Company's success in developing, manufacturing and acquiring new
       products;
 
     - the Company's ability to bring new products to market and the effects of
       sales of such products on the Company's financial results;
 
     - the Company's working capital requirements;
 
     - the Company's ability to comply with Debt covenants;
 
     - the effects of competition from generic pharmaceuticals and from other
       pharmaceutical companies; and
 
     - other factors referred to in this Form 10-K and the Company's other SEC
       filings.
 
     See "Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Factors That May Effect Future Results". The
Company does not intend to update these forward-looking statements.
 
                                        1

<PAGE>   3
 
                          FORM 10-K TABLE OF CONTENTS
 

<TABLE>
<CAPTION>
                                                                           PAGE
                                                                           ----
<S>        <C>                                                             <C>

                                    PART I

Item 1.    Business....................................................      3

Item 1A.   Executive Officers of the Registrant........................      6

Item 2.    Properties..................................................      7

Item 3.    Legal Proceedings...........................................      7

Item 4.    Submission of Matters to a Vote of Security Holders.........      7

                                    PART II

Item 5.    Market for Registrant's Common Equity and Related                 8
           Stockholder Matters.........................................

Item 6.    Selected Financial Data.....................................      9

Item 7.    Management's Discussion and Analysis of Financial Condition      10
           and Results of Operations...................................

Item 7A.   Quantitative and Qualitative Disclosures about Market            18
           Risk........................................................

Item 8.    Financial Statements and Supplemental Data..................     19

Item 9.    Changes in and Disagreements with Accountants on Accounting
           and Financial
           Disclosures.................................................     36

                                   PART III

Item 10.   Directors...................................................     36

Item 11.   Executive Compensation......................................     36

Item 12.   Security Ownership of Certain Beneficial Owners and              38
           Management..................................................

Item 13.   Certain Relationships and Related Transactions..............     39

                                    PART IV

Item 14.   Exhibits and Financial Statement Schedules..................     40
           Schedule II.................................................     41
           Signatures..................................................     42
</TABLE>

 
                                        2

<PAGE>   4
 

                                     PART I
 

ITEM 1. DESCRIPTION OF BUSINESS
 
     Akorn, Inc. ("Akorn" or the "Company") manufactures and markets diagnostic
and therapeutic pharmaceuticals in specialty areas such as ophthalmology,
rheumatology, anesthesia and antidotes, among others. The Company also markets
ophthalmic surgical instruments and related products. Customers include
physicians, optometrists, wholesalers, group purchasing organizations and other
pharmaceutical companies. The Company also provides contract manufacturing
services. Akorn is a Louisiana corporation founded in 1971 in Abita Springs,
Louisiana, a suburb of New Orleans. In 1997, the Company relocated its
headquarters and certain operations to Illinois.
 
     In May 1996, the Company acquired Pasadena Research Laboratories, Inc., a
developer and distributor of injectable pharmaceutical products. Subsequently,
the Company reorganized its operations into two segments, ophthalmic and
injectable. For information regarding sales, operating income and identifiable
assets for each of the Company's segments, see Note M to the consolidated
financial statements included in Item 8 of this report.
 
     Ophthalmic Segment. The Company markets an extensive line of diagnostic and
therapeutic ophthalmic pharmaceutical products as well surgical instruments and
related supplies. Diagnostic products, primarily used in the office setting,
include mydriatics and cycloplegics, anesthetics, topical stains, gonioscopic
solutions, angiography dyes and others. Therapeutic products, sold primarily to
wholesalers and other national account customers, include antibiotics,
anti-infectives, steroids, steroid combinations, glaucoma medications,
decongestants/antihistamines and anti-edema medications. Surgical products
include surgical knives and other surgical instruments, balanced salt solution,
post-operative kits, surgical tapes, eye shields, anti-ultraviolet goggles,
facial drape supports and other supplies. Non-pharmaceutical products include
various artificial tear solutions, preservative-free lubricating ointments, lid
cleansers, vitamin supplements and contact lens accessories.
 
     Injectable Segment. The Company markets a line of specialty injectable
pharmaceutical products, including anesthesia and products used in the treatment
of rheumatoid arthritis and pain management. These products are marketed to
wholesalers and other national account customers as well as directly to medical
specialists. Akorn also provides contract manufacturing services to
pharmaceutical and biotech companies.
 
     Manufacturing. The Company has two manufacturing facilities located in
Decatur, Illinois and Somerset, New Jersey. See "Item 2. Description of
Property." The Company manufactures a diverse group of sterile pharmaceutical
products, including solutions, ointments and suspensions for its ophthalmic and
injectable segments. The Company is also in the process of adding freeze-dried
(lyophilized) manufacturing capabilities at its Decatur facility. See "Item 7.

Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Factors That May Effect Future Results -- Dependence on
Development of Pharmaceutical Products and Manufacturing Capabilities."
 
     Sales and Marketing. While the Company is working to expand its proprietary
product base through internal development and, to a lesser extent, acquisitions,
the majority of current products are non-proprietary. The Company relies on its
efforts in marketing, distribution, development and low cost manufacturing to
maintain and increase market share.
 
     The ophthalmic segment uses a three-tiered sales effort. Outside sales
representatives, with two field managers, sell directly to physicians and group
practices. In-house sales (telemarketing) and customer service (catalog sales)
sell to optometrists and other customers. A national accounts group sells to
wholesalers, retail chains and other group purchasing organizations. This
national accounts group also markets the Company's injectable pharmaceutical
products which the Company also sells through telemarketing and direct mail
activities to individual specialty physicians and hospitals. The injectable
segment does not utilize a field sales force at this time. The segment may add
such a force in the future as it introduces proprietary products. The injectable
segment markets its contract manufacturing services through direct mail, trade
shows and direct industry contacts.
 
                                        3

<PAGE>   5
 
     Research and Development. As of December 31, 2000, the Company had 20
Abbreviated New Drug Applications ("ANDAs") for generic pharmaceuticals in
various stages of development. The Company filed 8 of these ANDAs and received
approval for 6 ANDAs in 2000. See "Government Regulation." The Company expects
to continue to file ANDAs on a regular basis as pharmaceutical products come off
patent allowing the Company to compete by marketing generic equivalents. The
Company had one New Drug Application ("NDA"), for Paremyd, on file as of
December 31, 2000. The Company is also developing four new indications for
ophthalmic products for which it currently anticipates filing NDAs in the
future. See Note C to the consolidated financial statements included in Item 8
of this report. One is an indication for Indocyanine Green ("ICG") to treat age
related macular degeneration (AMD). If the Company's developmental efforts are
successful, the Company currently anticipates filing this NDA within the next
four years and estimates the market size for this product to be $350 million
annually. A second anticipated NDA filing is for a new controlled release
delivery system used with glaucoma medicines. If the Company's developmental
efforts are successful, the Company currently anticipates filing this NDA within
the next four years and estimates the market size for this product to be $270
million annually. A third anticipated NDA filing is for Piroxicam, which is an
anti-inflammatory to be used during cataract surgery. The Company began
conducting additional Phase III clinical studies on this product in the third
quarter of 1999 and completed these studies during 2000. The results are
currently being analyzed for safety and efficacy. If appropriate, the Company
anticipates filing an NDA in 2001. The Company estimates the market for this
product to be $75 million annually. Finally, the Company currently anticipates
filing an NDA within the next three years for an indication for ICG for
intra-ocular staining. The Company estimates the market for this product to be
$10 million annually. Pre-clinical and clinical trials required in connection
with the development of pharmaceutical products are performed by contract
research organizations under the direction of Company personnel. No assurance
can be given as to whether the Company will file these NDAs, or any ANDAs, when
anticipated, whether the Company will develop marketable products based on these
filings or as to the actual size of the market for any such products. See
"Government Regulation" and "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Factors That May Effect Future
Results -- Dependence on Development of Pharmaceutical Products and
Manufacturing Capabilities".
 
     The Company also maintains a business development program that identifies
potential product acquisition or product licensing candidates. The Company has
focused its business development efforts on niche products which complement its
existing product lines and which have few or no competitors in the market. In
2000, the Company entered into an exclusive cross marketing agreement with
NovaDAQ Technologies, Inc., for cardiac angiography procedures employing ICG.
 
     At December 31, 2000, 31 full-time employees of the Company were involved
in research and development and product licensing.
 
     Research and development costs are expensed as incurred. Such costs
amounted to $4,132,000, $2,744,000 and $4,010,000 for the years ended December
31, 2000, 1999 and 1998, respectively.
 
     Patents and Proprietary Rights. The Company considers the protection of
discoveries in connection with its development activities important to its
business. The Company intends to seek patent protection in the United States and
selected foreign countries where deemed appropriate. To date, the Company has
received three U.S. patents and has four additional U.S. and one international
patent applications pending. The Company has also licensed two U.S. patents from
the Johns Hopkins University, Applied Physics Laboratory for the development and
commercialization of AMD diagnosis and treatment using ICG. There can be no
assurance that the Company will obtain U.S. or foreign patents or, if obtained,
that they will provide substantial protection or be of commercial benefit. The
Company also relies upon trademarks, trade secrets, unpatented proprietary
know-how and continuing technological innovation to maintain and develop its
competitive position. The Company enters into confidentiality agreements with
certain of its employees pursuant to which such employees agree to assign to the
Company any inventions relating to the Company's business made by them while in
the Company's employ. However, there can be no assurance that others may not
acquire or independently develop similar technology or, if patents are not
issued with respect to products arising from research, that the Company will be
able to maintain information pertinent to such research as proprietary
technology or trade secrets. See "Item 7. Management's Discussion and Analysis
of Financial
                                        4

<PAGE>   6
 
Condition and Results of Operations -- Factors That May Effect Future
Results -- Patents and Proprietary Rights".
 
     Employee Relations. At December 31, 2000, the Company had 447 full-time
employees, of whom 395 were employed by Akorn and 52 by its wholly owned
subsidiary, Akorn (New Jersey), Inc. The Company enjoys good relations with its
employees, none of whom are represented by a collective bargaining agent.
 
     Competition. The marketing and manufacturing of pharmaceutical products is
highly competitive, with many established manufacturers, suppliers and
distributors actively engaged in all phases of the business. Most of the
Company's competitors have substantially greater financial and other resources,
including greater sales volume, larger sales forces and greater manufacturing
capacity. See "Item 7. Management's Discussion and Analysis of
Operations -- Factors That May Effect Future Results -- Competition; Uncertainty
of Technological Change."
 
     The companies that compete with the ophthalmic segment include Alcon
Laboratories, Inc., Allergan Pharmaceuticals, Inc., Ciba Vision and Bausch &
Lomb, Inc. ("B&L"). The ophthalmic segment competes primarily on the basis of
price and service. The ophthalmic segment purchases some ophthalmic products
from Steris Pharmaceuticals, Inc. and B&L, who are in direct competition with
the Company in several markets.
 
     The companies that compete with the injectable segment include both generic
and name brand companies such as Abbott Labs, Gensia, Marsam, Steris, Elkin Sinn
and American Regent. The injectable segment competes primarily on the basis of
price. Competitors in the contract manufacturing business include Cook Imaging,
Chesapeake Biological Laboratories, Ben Venue and Oread Laboratories. The
manufacturing of sterile products must be performed under government mandated
Good Manufacturing Practices.
 
     Suppliers and Customers. No supplier of products accounted for more than
10% of the Company's sales in either segment during 2000, 1999 or 1998. The
Company requires a supply of quality raw materials and components to manufacture
and package pharmaceutical products for itself and for third parties with which
it has contracted. The principal components of the Company's products are active
and inactive pharmaceutical ingredients and certain packaging materials. Many of
these components are available from only a single source and, in many of the
Company's ANDAs and NDAs, only one supplier of raw materials has been
identified. See "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Factors That May Effect Future
Results -- Dependence on Supply of Raw Materials and Components".
 
     During 2000, the Company realized approximately 12% of its net sales from
one customer. This customer is a distributor of the Company's products as well
as a distributor of a broad range of health care products for many companies in
the health care sector. This customer is not the end user of the Company's
products. If sales to this customer were to diminish or cease, the Company
believes that the end users of its products would find no difficulty obtaining
the Company's products either directly from the Company or from another
distributor. The accounts receivable balance for this customer was approximately
22% of gross accounts receivable. No single customer accounted for more than 10%
of the Company's sales in either segment during 1999 or 1998.
 
     Government Regulation. Pharmaceutical manufacturers and distributors are
subject to extensive regulation by government agencies, including the Food and
Drug Administration ("FDA"), the Drug Enforcement Agency ("DEA"), the Federal
Trade Commission ("FTC") and other federal, state and local agencies. The
federal Food, Drug and Cosmetic Act (the "FDA Act"), the Controlled Substance
Act and other federal statutes and regulations govern or influence the
development, testing, manufacture, labeling, storage and promotion of products.
The FDA inspects drug manufacturers and storage facilities to determine
compliance with its Good Manufacturing Practice regulations, non-compliance with
which can result in fines, recall and seizure of products, total or partial
suspension of production, refusal to approve new drug applications and criminal
prosecution. The FDA also has the authority to revoke approval of drug products.
 
     With certain exceptions, FDA approval is required before any drug can be
manufactured and marketed. New drugs require the filing of an NDA, including
clinical studies demonstrating the safety and efficacy of the drug. Generic
drugs, which are equivalents of existing brand name drugs, require the filing of
an ANDA,
                                        5

<PAGE>   7
 
which waives the requirement of conducting clinical studies of safety and
efficacy. Ordinarily, the filing of an ANDA for generic drugs which contain the
same ingredients as drugs already approved for use in the United States requires
data showing that the generic formulation is equivalent to the brand name drug
and that the product is stable in its formulation. The Company has no control
over the time required for the FDA to approve NDA or ANDA filings.
 
     During 2000, the Company received a warning letter as a result of a routine
inspection of its Decatur manufacturing facilities. This letter focused on
general documentation issues. The Company has responded to all of the issues
presented by the FDA and is currently awaiting re-inspection.
 
     The Company also manufactures and distributes several controlled-drug
substances, the distribution and handling of which are regulated by the DEA.
Failure to comply with DEA regulations can result in fines or seizure of
product. See "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Factors That May Effect Future
Results -- Government Regulation".
 
     The Company does not anticipate any material adverse effect from compliance
with federal, state and local provisions which have been enacted or adopted
regulating the discharge of materials into the environment, or otherwise
relating to the protection of the environment.
 

I
TEM 1A. EXECUTIVE OFFICERS OF THE REGISTRANT
 
     The following table sets forth the executive officers of the Company as of
March 29, 2001. Each officer serves as such at the pleasure of the Board of
Directors.
 

<TABLE>
<CAPTION>
                                                                                          EXECUTIVE
           NAME AND AGE                        POSITION WITH THE COMPANY                OFFICER SINCE
           ------------                        -------------------------                -------------
<S>                                 <C>                                               <C>
John N. Kapoor, Ph.D., 57.........  President and Chief Executive Officer of the            1991
                                    Company since March 2001 and Chairman of the
                                    Board of the Company since May 1995 and from
                                    December 1991 to January 1993; acting Chairman
                                    of the Board of the Company from April 1993 to
                                    May 1995; Chief Executive Officer of the Company
                                    from May 1996 to November 1998; chairman of the
                                    Board of Option Care, Inc. (infusion services
                                    and supplies); chief executive officer of Option
                                    Care, Inc. from August 1993 to April 1996;
                                    president of E.J. Financial Enterprises, Inc.,
                                    (health care consulting and investment company),
                                    since April 1990; Chairman of the Board of
                                    NeoPharm, Inc. (specialty pharmaceutical
                                    company) since July 1990
Floyd Benjamin, 58................  Vice Chairman of the Board since March 2001,            1998
                                    President and Chief Executive Officer of the
                                    Company from November 1998 to March 2001;
                                    Executive Vice President of the Company and
                                    President of Taylor Pharmaceuticals, Inc.
                                    (formerly a subsidiary of the Company) from May
                                    1996 to November 1998; president of Pasadena
                                    Research Laboratories, Inc. ("PRL") from October
                                    1994 to May 1996 and consultant to PRL from
                                    October 1993 to October 1994; president and
                                    chief executive officer of Neocrin, Inc.
                                    (biomedical venture capital company) from
                                    February 1992 to October 1993; prior to February
                                    1992, chief operating officer of Lyphomed, Inc.
                                    (injectable pharmaceuticals)
</TABLE>

 
                                        6

<PAGE>   8
 

<TABLE>
<CAPTION>
                                                                                          EXECUTIVE
           NAME AND AGE                        POSITION WITH THE COMPANY                OFFICER SINCE
           ------------                        -------------------------                -------------
<S>                                 <C>                                               <C>
Kevin M. Harris, 40...............  Vice President, Chief Financial Officer,                2001
                                    Secretary and Treasurer of the Company since
                                    March 2001; Director of Taxes and Planning at EJ
                                    Financial Enterprises, Inc.; Chief Financial
                                    Officer for NeoPharm, Inc. from April 1997 to
                                    September 2000; Interim Chief Financial Officer
                                    for Option Care, Inc. from April 1998 until
                                    October 1998; Vice President of Finance of
                                    Duo-Fast Corporation from January 1992 to
                                    January 1997; prior to January 1992 employed for
                                    eleven years in public accounting, six years
                                    with Arthur Andersen & Company
Harold Koch, Jr., 52..............  Senior Vice President, Business Development &           1998
                                    Planning of the Company since February 1998;
                                    Senior Vice President Business & Product
                                    Development of the Company from November 1994 to
                                    January 1998; Vice President, Business
                                    Development of the Company from March 1992 to
                                    October 1994; President of Walnut
                                    Pharmaceuticals,Inc. (formerly a subsidiary of
                                    the Company) June 1991 to February 1992;
                                    Licensing Consultant from November 1988 to June
                                    1991; Vice President of Business & Product
                                    Development for The Cooper Companies, Inc.
                                    October 1986 to October 1988; Director, R&D
                                    Rorer Group, Inc. October 1978 to September 1986
</TABLE>

 

ITEM 2. DESCRIPTION OF PROPERTY
 
     Since August 1998, the Company's headquarters and certain administrative
offices, as well as a finished goods warehouse, have been located in leased
space at 2500 Millbrook Drive, Buffalo Grove, Illinois. The Company leased
approximately 24,000 square feet until June 2000 at which time it expanded to
the current occupied space of approximately 48,000 square feet. From May 1997 to
August 1998, the Company's headquarters and ophthalmic division offices were
located in approximately 11,000 square feet of leased space in Lincolnshire,
Illinois. The Company sub-lets portions of the Lincolnshire space to several
tenants. The Company's former headquarters, consisting of approximately 30,000
square feet located on ten acres of land in Abita Springs, Louisiana, was sold
in February 1999.
 
     The Company owns a 76,000 square foot facility located on 15 acres of land
in Decatur, Illinois. This facility is currently used for packaging,
distribution, warehousing and office space. In addition, the Company owns a
55,000 square-foot manufacturing facility in Decatur, Illinois. The Company
leases approximately 7,000 square feet of office and warehousing space in San
Clemente, California. The Company's Akorn (New Jersey) subsidiary also leases
approximately 40,000 square feet of space in Somerset, New Jersey. This space is
used for manufacturing, research and development and administrative activities.
The combined space is considered adequate to accommodate growth for the
foreseeable future.
 

ITEM 3. LEGAL PROCEEDINGS
 
     The Company is a party in legal proceedings and potential claims arising in
the ordinary course of its business. The amount, if any, of ultimate liability
with respect to such matters cannot be determined. Despite the inherent
uncertainties of litigation, management of the Company at this time does not
believe that such proceedings will have a material adverse impact on the
financial condition or results of operations or cash flows of the Company.
 

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
     No matters were submitted to a vote of security holders during the quarter
ended December 31, 2000.
 
                                        7

<PAGE>   9
 

                                    PART II
 

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
 
     The Company's Common Stock is traded on the Nasdaq National Market under
the symbol AKRN. On March 29, 2001, the Company estimated that the number of
holders of its Common Stock was approximately 5,100, including record holders
and individual participants in security position listings.
 
     High and low bid prices per NASDAQ for the periods indicated were:
 

<TABLE>
<CAPTION>
                                                                 HIGH         LOW
                                                                ------       -----
<S>                                                             <C>          <C>
Year Ended December 31, 2000:
  1st Quarter...............................................    $13.56       $4.00
  2nd Quarter...............................................      9.88        5.50
  3rd Quarter...............................................     12.63        5.00
  4th Quarter...............................................     11.00        2.16
Year Ended December 31, 1999:
  1st Quarter...............................................    $ 5.50       $3.50
  2nd Quarter...............................................      5.00        3.69
  3rd Quarter...............................................      5.00        3.88
  4th Quarter...............................................      4.69        3.78
</TABLE>

 
     As of March 29, 2001, there were approximately 600 holders of record of the
Company's Common Stock. Closing price at March 29, 2001 was $2.25 per share as
reported by the Nasdaq National Market.
 
     The Company did not pay cash dividends in 2000, 1999 or 1998, and is
prohibited by its revolving credit agreement with The Northern Trust Company
from making any dividend payment which causes the Company to violate its debt
covenants.
 
                                        8

<PAGE>   10
 

ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
 
     In October 1996, the Board of Directors of the Company voted to change the
Company's fiscal year end from June 30 to December 31. The following table sets
forth selected consolidated financial information for the Company for the years
ended December 31, 2000, 1999, 1998 and 1997, the six month transition period
ended December 31, 1996 and the year ended June 30, 1996:
 

<TABLE>
<CAPTION>
                                                                                 SIX MONTHS         YEAR
                                                                                   ENDED           ENDED
                                            YEARS ENDED DECEMBER 31,            DECEMBER 31,      JUNE 30,
                                   ------------------------------------------   ------------      --------
                                     2000      1999       1998         1997         1996            1996
                                   --------   -------   --------      -------   ------------      --------
<S>                                <C>        <C>       <C>           <C>       <C>               <C>
PER SHARE
Equity...........................  $   2.02   $  1.85   $   1.40      $  1.20     $  0.98         $  0.97
Net income:
  Basic..........................  $   0.11   $  0.37   $   0.26      $  0.11     $  0.00         $  0.05
  Diluted........................  $   0.11   $  0.36   $   0.25      $  0.11     $  0.00         $  0.05
Price: High......................  $  13.63   $  5.56   $   9.19      $  4.50     $  3.50         $  3.50
       Low.......................  $   3.50   $  3.50   $   2.54      $  1.84     $  1.63         $  2.06
P/E:  High.......................      124x       15x        35x          41x          NM             70x
       Low.......................       32x       10x        10x          17x          NM             41x
INCOME DATA (000)
Net sales........................  $ 66,927   $64,632   $ 56,667      $42,323     $16,519         $33,925
Gross profit.....................    28,837    33,477     29,060       18,776       5,758          11,953
Operating income.................     5,789    12,122      9,444        3,165         130           1,089
Interest expense.................    (2,400)   (1,921)    (1,451)        (497)       (243)           (441)
Pretax income....................     3,506    10,639      7,686        2,844          70             977
Income taxes.....................     1,319     3,969      3,039        1,052          26             189
Net income.......................  $  2,187   $ 6,670   $  4,647      $ 1,792     $    44         $   788
Weighted average shares
  outstanding:
  Basic..........................    19,030    18,269     17,891       16,614      16,580          16,383
  Diluted........................    19,721    18,573     18,766       16,925      16,763          16,788
BALANCE SHEET (000)
Current assets...................  $ 42,123   $35,851   $ 24,948      $19,633     $13,840         $17,001
Net fixed assets.................    34,031    20,812     15,860       12,395      12,833          11,524
Total assets.....................    96,518    76,098     61,416       38,715      28,013          29,567
Current liabilities..............    15,768     9,693     13,908        8,612       5,636           9,351
Long-term obligations............    40,918    32,015     21,228        9,852       6,003           3,915
Shareholders' equity.............  $ 39,832   $34,390   $ 26,280      $20,251     $16,374         $16,301
CASH FLOW DATA (000)
From operations..................  $    362   $   131   $  1,093      $    64     $ 2,553         $    10
Dividends paid (1)...............        --        --         --           --          --            (583)
From investing...................   (17,688)   (6,233)   (13,668)      (6,387)     (2,028)           (873)
From financing...................    18,108     5,391     10,898        7,356         (36)            979
Change in cash & equivalents.....  $    782   $  (711)  $ (1,677)     $ 1,033     $   489         $   116
</TABLE>

 
---------------
 
(1) Dividends paid pertain to Subchapter S distributions made to former PRL
    shareholders for pre-acquisition earnings.
 
     All of the information shown in the table above for the one year period
ended June 30, 1996 has been restated to reflect the combined operations of
Akorn and Pasadena Research Laboratories, Inc. (PRL).
 
                                        9

<PAGE>   11
 

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
 
     Management's discussion and analysis of financial condition and results of
operations should be read in conjunction with the accompanying consolidated
financial statements.
 
RESULTS OF OPERATIONS
 
     The Company's revenues are derived from sales of diagnostic and therapeutic
pharmaceuticals by the ophthalmic and injectable segments, from sales of
surgical instruments and related products by the ophthalmic segment and from
sales of contract manufacturing services by the injectable segment. The
following table sets forth the percentage relationships that certain items from
the Company's Consolidated Statements of Income bear to revenues for the years
ended December 31, 2000, 1999 and 1998.
 

<TABLE>
<CAPTION>
                                                                     YEARS ENDED DECEMBER 31,
                                                                  ------------------------------
                                                                  2000         1999         1998
                                                                  ----         ----         ----
<S>                                                               <C>          <C>          <C>
Revenues
  Ophthalmic................................................       42%          50%          52%
  Injectable................................................       58           50           48
                                                                  ---          ---          ---
Total revenues..............................................      100%         100%         100%
Gross profit................................................       43           52           51
Selling, general and administrative expenses................       26           26           24
Amortization of intangibles.................................        2            3            4
Research and development expenses...........................        6            4            7
Operating income............................................        9           19           17
Net income..................................................        3%          10%           8%
</TABLE>

 
COMPARISON OF TWELVE MONTHS ENDED DECEMBER 31, 2000 AND 1999
 
     Net sales increased 3.6% for the year ended December 31, 2000 compared to
the prior year. Ophthalmic segment sales decreased 13.1%, primarily due to
sharply reduced sales in generic therapeutic pharmaceuticals for glaucoma and
allergies. The reduction in sales was due to both a decline in unit price as
well as volume. Injectable segment sales increased 20.3%, primarily due to
acquired anesthesia products. Injectable segment sales also benefited from
favorable unit prices due to a continuing shortage of certain distributed
products and increased contract manufacturing activity. In both segments,
wholesaler-discounting programs unfavorably impacted unit prices. These
discounts take the form of chargebacks and rebates. Chargebacks and rebates are
discussed further in Note K to the Consolidated Financial Statements. This
charge is reflected as a reduction in net sales, primarily Ophthalmic.
 
     Consolidated gross profit decreased 13.9% for the year, with gross margins
decreasing from 51.8% to 43.1%. Pricing pressure on ophthalmic generic
pharmaceuticals as well as the disproportionate increase in contract
manufacturing revenues caused the decrease in gross margins. Contract
manufacturing activity commands significantly lower margins than sales of the
Company's other product lines. Margins in 2000 were also reduced by a $4.0
million ($2.7 million in the fourth quarter) increase in the reserve for
slow-moving and obsolete inventory. This increase was primarily related to
products purchased from third parties in 1998 and 1999 for which the original
sales forecast overestimated demand.
 
     Selling, general and administrative expenses ("SG&A") increased 4.0%,
reflecting routine escalations in rental and other contracts, routine
compensation increases, and the increase in leased space in the Buffalo Grove
facility.
 
     Amortization of intangibles decreased 19.1% for the year, reflecting a
patent expiration in the 2nd quarter of 1999.
 
     Research and Development expenses ("R&D") increased 50.6%, primarily
reflecting costs associated with Piroxicam clinical trials and beginning stage
development of the Company's age-related macular degeneration product.
 
                                        10

<PAGE>   12
 
     Interest expense increased 24.9%, reflecting higher interest rates on
higher average outstanding debt balances partially offset by capitalized
interest related to major capital projects in 2000.
 
     Net income for 2000 was $2,187,000, or $0.11 per diluted share, compared to
$6,670,000, or $0.36 per diluted share, for the prior year. The decrease in
earnings resulted from the above mentioned items.
 
COMPARISON OF TWELVE MONTHS ENDED DECEMBER 31, 1999 AND 1998
 
     Net sales increased 14.1% for the year ended December 31, 1999 compared to
the prior year. Ophthalmic segment sales increased 11.2%, primarily due to
previously acquired products and product licensing agreements entered into in
1999. Injectable segment sales increased 17.1%, primarily due to strong sales of
anesthesia products.
 
     Consolidated gross profit increased 15.2% for the year, with gross margins
increasing from 51.3% to 51.8%. The increase in gross margins was caused by
branded products acquired in 1998 being included in the full year results for
1999 and the resultant shift in sales mix to higher margin products. 1999 cost
of sales includes $1.4 million in unfavorable manufacturing variances resulting
from under-utilization of manufacturing capacity at the Somerset, New Jersey
facility. Management expects the unfavorable manufacturing variances to continue
until additional product approvals are obtained at the Somerset facility.
 
     SG&A increased 25.9% from 1998, resulting from new hires in 1999 and the
associated salary and salary related expenses being included in the full year
results for 1999 (28.9%) as well as one time consulting fees (55.5%) and
warehouse related expenses (69.5%).
 
     Amortization of intangibles decreased 18.9% for the year, reflecting the
expiration of a patent in May 1999.
 
     R&D decreased 31.6%, primarily reflecting the conclusion of clinical
studies on TP-1000, a migraine product, in December 1998. The Company did not
conduct clinical studies in 1999 until late in the third quarter, when a third
Piroxicam trial began. See "Item 1. Description of Business -- Research and
Development".
 
     During 1998, the Company recorded $350,000 in charges related to a
cancelled public equity offering.
 
     Interest expense increased 32.4%, reflecting higher average outstanding
debt balances related to prior year product acquisitions and 1999 capital
spending.
 
     Net income for 1999 was $6,670,000, or $0.36 per diluted share, compared to
$4,647,000, or $0.25 per diluted share, for the prior year. The increase in
earnings resulted from the above mentioned items.
 
FINANCIAL CONDITION AND LIQUIDITY
 
     As of December 31, 2000, the Company had cash and cash equivalents of
$807,000. Working capital at that date was $26,355,000 versus $26,158,000 at
December 31, 1999 resulting primarily from an increase in receivables of
$6,449,000 offset by an increase in current liabilities. The Company manages its
cash balances to minimize interest expense on its line of credit borrowing. At
December 31, 2000, the Company had $600,000 available under its revolving credit
facility.
 
     During the year ended December 31, 2000, the Company generated $362,000 in
cash from operations after financing its working capital requirements, primarily
an increase in accounts receivable. Management has active working capital
management initiatives in place to reduce receivables and inventory levels.
Investing activities, which include the purchase of product-related intangible
assets as well as equipment required $17,689,000 in cash. Purchases related to
the lyophilized (freeze-dried) pharmaceuticals manufacturing line expansion
accounted for $7,572,000 of the $17,689,000 cash used in investing activities
and the Company expects to incur an additional $1,000,000 for such expansion
during 2001. Financing activities provided $18,109,000 in cash primarily through
a net $14,895,000 increase in long-term debt and $3,255,000 from stock option
exercises. The Company's repayment of capital lease obligations used $41,000 in
cash.
 
                                        11

<PAGE>   13
 
     Capital expenditures for equipment in 2000 and 1999 principally relate to
the Company's lyophilization project as discussed in Note F to the Consolidated
Financial Statements.
 
     In 1997 the Company entered into a $15 million revolving credit
arrangement, increased to $25 million in 1998, and subsequently increased to $45
million in 1999, subject to certain financial covenants and certain liens on the
Company's fixed assets. The credit agreement, as amended on April 16, 2001,
requires the Company to maintain certain financial covenants that, among other
things, require minimum levels of net worth, net income and monthly EBITDA and a
minimum borrowing base (as defined) and limits capital expenditures. The
agreement also prohibits the Company from declaring any cash dividends on its
common stock that would create a violation of its debt covenants. The Company
has and will continue to take certain actions it believes are within its control
and are necessary to meet the restrictive covenants of the amended credit
agreement. Such actions include, but are not limited to, reducing its planned
2001 capital expenditures, increasing resources dedicated to collecting past due
accounts receivable, implementing steps to control inventory levels, reducing
rebates and other discounts offered to its customers and obtaining subordinated
debt of $3 million. Based upon its financial projections for 2001, which reflect
the impacts of these actions, management believes it will be able to comply with
the covenants during 2001. In the event that the Company is not in compliance
with the covenants during 2001 and does not negotiate amended covenants and/or
obtain a waiver thereto, then the debt holder, at its option, may demand
immediate payment of all outstanding amounts due it. The amended credit
agreement requires payments throughout 2001 totaling $7.5 million, with the
balance of $37.5 million due January 1, 2002. The current credit facility
matures on January 1, 2002 at which point the Company will need to re-negotiate
or obtain new financing. Management believes that additional long-term financing
will be needed to finance product development or acquisitions. There are no
guarantees that such financing will be available or available at an acceptable
cost. See Note G to Consolidated Financial Statement for a description of this
indebtedness and other indebtedness of the Company.
 
SELECTED QUARTERLY DATA
In Thousands, Except Per Share Amounts
 

<TABLE>
<CAPTION>
                                                                                NET INCOME (LOSS)
                                                                        ---------------------------------
                                                    NET       GROSS                PER SHARE    PER SHARE
                                                   SALES     PROFIT     AMOUNT       BASIC       DILUTED
                                                   -----     ------     ------     ---------    ---------
<S>                                               <C>        <C>        <C>        <C>          <C>
Year Ended December 31, 2000:
  1st Quarter.................................    $16,644    $ 8,413    $ 1,794     $ 0.10       $ 0.09
  2nd Quarter.................................     18,320      9,786      2,184       0.11         0.11
  3rd Quarter.................................     16,878      7,096        415       0.02         0.02
  4th Quarter.................................     15,085      3,542     (2,206)     (0.11)       (0.11)
                                                  -------    -------    -------     ------       ------
                                                  $66,927    $28,837    $ 2,187     $ 0.11       $ 0.11
                                                  =======    =======    =======     ======       ======
Year Ended December 31, 1999:
  1st Quarter.................................    $14,719    $ 7,436    $ 1,458     $ 0.08       $ 0.08
  2nd Quarter.................................     16,089      8,323      1,675       0.09         0.09
  3rd Quarter.................................     16,795      8,932      1,702       0.09         0.09
  4th Quarter.................................     17,029      8,786      1,835       0.11         0.10
                                                  -------    -------    -------     ------       ------
                                                  $64,632    $33,477    $ 6,670     $ 0.37       $ 0.36
                                                  =======    =======    =======     ======       ======
</TABLE>

 
FACTORS THAT MAY EFFECT FUTURE RESULTS
 
  Financial Risk Factors
 
     A small number of wholesale drug distributors accounts for a large portion
of our sales. In 2000, sales to five wholesale drug distributors accounted for
43% of our total sales and approximately 60% of gross accounts receivable as of
December 31, 2000. The loss of one or more of these customers, a change in
purchasing patterns, an increase in returns of our products, delays in
purchasing our products and delays in payment for our products by one or more
distributors could have a material negative impact on our sales revenue and
results of operations.
 
                                        12

<PAGE>   14
 
     At December 31, 2000, we had total outstanding indebtedness of $46,842,000
or 54% of our total capitalization. This significant debt load could limit our
operating flexibility as a result of restrictive covenants placed on us by our
lenders. Further, the current debt levels could require us to use a large
portion of our cash flow from operations for debt payments that would reduce the
availability of our cash flow to fund operations, product acquisitions, the
expansion of our sales force and facilities and our research and development
activities.
 
     We may need additional funds to operate and grow our business. We may seek
additional funds through public and private financing, including equity and debt
offerings. Adequate funds through the financial markets or from other sources,
may not be available when we need them or on terms favorable to us or our
stockholders. Insufficient funds could cause us to delay, scale back, or abandon
some or all of our product acquisition, licensing opportunities, marketing,
product development, research and development and manufacturing opportunities.
 
  Government Regulation
 
     Virtually all aspects of the Company's business are regulated by federal
and state statutes and government agencies. The development, testing,
manufacturing, processing, quality, safety, efficacy, packaging, labeling,
record-keeping, distribution, storage and advertising of the Company's products,
and disposal of waste products arising from such activities, are subject to
regulation by one or more federal agencies, including the Food and Drug
Administration ("FDA"), the Drug Enforcement Agency ("DEA"), the Federal Trade
Commission ("FTC"), the Consumer Product Safety Commission, the Occupational
Safety and Health Administration ("OSHA") and the U.S. Environmental Protection
Agency ("EPA"). These activities are also regulated by similar state and local
agencies. Failure to comply with applicable statutes and government regulations
could have a material adverse effect on the Company's business, financial
condition and results of operations.
 
     All pharmaceutical manufacturers, including the Company, are subject to
regulation by the FDA under the authority of the Federal Food, Drug, and
Cosmetic Act ("FDC Act"). Under the FDC Act, the federal government has
extensive administrative and judicial enforcement powers over the activities of
pharmaceutical manufacturers to ensure compliance with FDA regulations. Those
powers include, but are not limited to, the authority to initiate court action
to seize unapproved or non-complying products, to enjoin non-complying
activities, to halt manufacturing operations that are not in compliance with
current good manufacturing practices ("cGMP"), to recall products which present
a health risk, and to seek civil monetary and criminal penalties. Other
enforcement activities include refusal to approve product applications or the
withdrawal of previously approved applications. Any such enforcement activities,
including the restriction or prohibition on sales of products marketed by the
Company or the halting of manufacturing operations of the Company, could have a
material adverse effect on the Company's business, financial condition and
results of operations. In addition, product recalls may be issued at the
discretion of the Company, the FDA or other government agencies having
regulatory authority for pharmaceutical product sales. Recalls may occur due to
disputed labeling claims, manufacturing issues, quality defects or other
reasons. No assurance can be given that recalls of the Company's pharmaceutical
products will not occur in the future. Any product recall could have a material
adverse effect on the Company's business, financial condition and results of
operations.
 
     All "new drugs" must be the subject of an FDA-approved new drug application
("NDA") before they may be marketed in the United States. Certain prescription
drugs are not currently required to be the subject of an approved NDA but,
rather, may be marketed pursuant to an FDA regulatory enforcement policy
permitting continued marketing of those drugs until the FDA determines whether
they are safe and effective. All generic equivalents to previously approved
drugs or new dosage forms of existing drugs must be the subject of an
FDA-approved abbreviated new drug application ("ANDA") before they may be
marketed in the United States. The FDA has the authority to withdraw existing
NDA and ANDA approvals and to review the regulatory status of products marketed
under the enforcement policy. The FDA may require an approved NDA or ANDA for
any drug product marketed under the enforcement policy if new information
reveals questions about the drug's safety or efficacy. All drugs must be
manufactured in conformity with cGMP and
 
                                        13

<PAGE>   15
 
drugs subject to an approved NDA or ANDA must be manufactured, processed,
packaged, held, and labeled in accordance with information contained in the NDA
or ANDA.
 
     The Company and its third-party manufacturers are subject to periodic
inspection by the FDA to assure such compliance. The FDA imposes additional
stringent requirements on the manufacture of sterile pharmaceutical products to
ensure the sterilization processes and related control procedures consistently
produce a sterile product. Additional sterile manufacturing requirements include
the submission for expert review of detailed documentation for sterilization
process validation in drug applications beyond those required for general
manufacturing process validation. Various sterilization process requirements are
the subject of detailed FDA guidelines, including requirements for the
maintenance of microbiological control and quality stability. Pharmaceutical
products must be distributed, sampled and promoted in accordance with FDA
requirements. The FDA also regulates drug labeling and the advertising of
prescription drugs. The Company believes its operating facilities and practices
are in compliance with applicable federal and state law. However, a finding by a
governmental agency or court that the Company is not in compliance could have a
material adverse effect on the Company's business, financial condition and
results of operations.
 
     While the Company believes that all of its current pharmaceuticals are
lawfully marketed in the United States under current FDA enforcement policies or
have received the requisite agency approvals for manufacture and sale, such
marketing authority is subject to withdrawal by the FDA. In addition,
modifications or enhancements of approved products are in many circumstances
subject to additional FDA approvals which may or may not be granted and which
may be subject to a lengthy application process. Any change in the FDA's
enforcement policy or any decision by the FDA to require an approved NDA or ANDA
for a Company product not currently subject to the approved NDA or ANDA
requirements or any delay in the FDA approving an NDA or ANDA for a Company
product could have a material adverse effect on the Company's business,
financial condition and results of operations.
 
     A number of products marketed by the Company are "grandfathered" drugs
which are permitted to be manufactured and marketed without FDA-issued ANDAs or
NDAs on the basis of their having been marketed prior to enactment of relevant
sections of the FDC Act. The regulatory status of these products is subject to
change and/or challenge by the FDA, which could establish new standards and
limitations for manufacturing and marketing such products, or challenge the
evidence of prior manufacturing and marketing upon which grandfathering status
is based. The Company is not aware of any current efforts by the FDA to change
the status of any of its "grandfathered" products, but there can be no assurance
that such initiatives will not occur in the future. Any such change in the
status of the Company's "grandfathered" products could have a material adverse
effect on the Company's business, financial condition and results of operations.
 
     The Company also manufactures and sells drugs which are "controlled
substances" as defined in the federal Controlled Substances Act and similar
state laws, which establishes, among other things, certain licensing, security
and record keeping requirements administered by the DEA and similar state
agencies, as well as quotas for the manufacture, purchase and sale of controlled
substances. The DEA could limit or reduce the amount of controlled substances
which the Company is permitted to manufacture and market. The Company has not
experienced sanctions or fines for non-compliance with the foregoing
regulations, but no assurance can be given that any such sanctions or fines
would not have a material adverse effect on the Company's business, financial
condition and results of operations.
 
     The Company cannot determine what effect changes in regulations or statutes
or legal interpretation, when and if promulgated or enacted, may have on its
business in the future. Changes could, among other things, require changes to
manufacturing methods, expanded or different labeling, the recall, replacement
or discontinuation of certain products, additional record keeping and expanded
documentation of the properties of certain products and scientific
substantiation. Such changes or new legislation could have a material adverse
effect on the Company's business, financial condition and results of operations.
 
  Dependence on Development of Pharmaceutical Products and Manufacturing
  Capabilities
 
     The Company's strategy for growth is dependent upon its ability to develop
products that can be promoted through existing marketing and distribution
channels and, when appropriate, the enhancement of
                                        14

<PAGE>   16
 
such marketing and distribution channels. The Company currently has 20 ANDAs in
various stages of development and anticipates filing four NDAs at some point in
the future. See "Item 1. Description of Business -- Research and Development."
The Company may not meet its anticipated time schedule for the filing of ANDAs
and NDAs or may decide not to pursue ANDAs or NDAs that it has submitted or
anticipates submitting. The internal development of new pharmaceutical products
by the Company is dependent upon the research and development capabilities of
the Company's personnel and its infrastructure. There can be no assurance that
the Company will successfully develop new pharmaceutical products or, if
developed, successfully integrate new products into its existing product lines.
In addition, there can be no assurance that the Company will receive all
necessary approvals from the FDA or that such approvals will not involve delays
which adversely affect the marketing and sale of the Company's products. The
Company's failure to develop new products or receive FDA approval of ANDAs or
NDAs, could have a material adverse effect on the Company's business, financial
condition and results of operations. Another part of the Company's growth
strategy is to develop the capability to manufacture lyophilized (freeze-dried)
pharmaceutical products. While the Company has devoted resources to developing
these capabilities, it may not be successful in developing these capabilities,
or the Company may not realize the anticipated benefits from developing these
capabilities.
 
  Generic Substitution
 
     The Company's branded pharmaceutical products are subject to competition
from generic equivalents and alternative therapies. Generic pharmaceuticals are
the chemical and therapeutic equivalents of brand-name pharmaceuticals and
represent an increasing proportion of pharmaceuticals dispensed in the United
States. There is no proprietary protection for most of the branded
pharmaceutical products sold by the Company and generic and other substitutes
for most of its branded pharmaceutical products are sold by other pharmaceutical
companies. In addition, governmental and cost-containment pressures regarding
the dispensing of generic equivalents will likely result in generic substitution
and competition generally for the Company's branded pharmaceutical products.
Although the Company attempts to mitigate the effect of this substitution
through, among other things, creation of strong brand-name recognition and
product-line extensions for its branded pharmaceutical products, there can be no
assurance that the Company will be successful in these efforts. Increased
competition in the sale of generic pharmaceutical products could have a material
adverse effect on the Company's business, financial condition and results of
operations. Generic substitution is regulated by the federal and state
governments, as is reimbursement for generic drug dispensing. There can be no
assurance that substitution will be permitted for newly-approved generic drugs
or that such products will be subject to government reimbursement.
 
  Dependence on Generic and Off-Patent Pharmaceutical Products
 
     The success of the Company depends, in part, on its ability to anticipate
which branded pharmaceuticals are about to come off patent and thus permit the
Company to develop, manufacture and market equivalent generic pharmaceutical
products. Generic pharmaceuticals must meet the same quality standards as
branded pharmaceuticals, even though these equivalent pharmaceuticals are sold
at prices which are significantly lower than that of branded pharmaceuticals. In
addition, generic products that third parties develop may render the Company's
generic products noncompetitive or obsolete. Although the Company has
successfully brought generic pharmaceutical products to market in a timely
manner in the past, there can be no assurance that the Company will be able to
consistently bring these products to market quickly and efficiently in the
future. An increase in competition in the sale of generic pharmaceutical
products or the Company's failure to bring such products to market before its
competitors could have a material adverse effect on the Company's business,
financial condition and results of operations.
 
  Competition; Uncertainty of Technological Change
 
     The Company competes with other pharmaceutical companies, including major
pharmaceutical companies with financial resources substantially greater than
those of the Company, in developing, acquiring, manufacturing and marketing
pharmaceutical products. The selling prices of pharmaceutical products
 
                                        15

<PAGE>   17
 
typically decline as competition increases. Further, other products now in use,
under development or acquired by other pharmaceutical companies, may be more
effective or offered at lower prices than the Company's current or future
products. The industry is characterized by rapid technological change which may
render the Company's products obsolete, and competitors may develop their
products more rapidly than the Company. Competitors may also be able to complete
the regulatory process sooner, and therefore, may begin to market their products
in advance of the Company's products. The Company believes that competition in
sales of its products is based primarily on price, service, availability and
product efficacy. There can be no assurance that: (i) the Company will be able
to develop or acquire commercially attractive pharmaceutical products; (ii)
additional competitors will not enter the market; or (iii) competition from
other pharmaceutical companies will not have a material adverse effect on the
Company's business, financial condition and results of operations.
 
  Dependence on Supply of Raw Materials and Components
 
     The Company requires a supply of quality raw materials and components to
manufacture and package pharmaceutical products for itself and for third parties
with which it has contracted. The principal components of the Company's products
are active and inactive pharmaceutical ingredients and certain packaging
materials. Many of these components are available from only a single source and,
in many of the Company's ANDAs and NDAs, only one supplier of raw materials has
been identified. Because FDA approval of drugs requires manufacturers to specify
their proposed suppliers of active ingredients and certain packaging materials
in their applications, FDA approval of any new supplier would be required if
active ingredients or such packaging materials were no longer available from the
specified supplier. The qualification of a new supplier could delay the
Company's development and marketing efforts. If for any reason the Company is
unable to obtain sufficient quantities of any of the raw materials or components
required to produce and package its products, it may not be able to manufacture
its products as planned, which could have a material adverse effect on the
Company's business, financial condition and results of operations.
 
  Dependence on Third-Party Manufacturers
 
     The Company derives a significant portion of its net sales from the sale of
products manufactured by third parties, including its competitors in some
instances. There can be no assurance that the Company's dependence on third
parties for the manufacture of such products will not adversely affect the
Company's profit margins or its ability to develop and deliver its products on a
timely and competitive basis. If for any reason the Company is unable to obtain
or retain third-party manufacturers on commercially acceptable terms, it may not
be able to distribute certain of its products as planned. No assurance can be
made that the manufacturers utilized by the Company will be able to provide the
Company with sufficient quantities of its products or that the products supplied
to the Company will meet the Company's specifications. Any delays or
difficulties with third-party manufacturers could adversely affect the marketing
and distribution of certain of the Company's products, which could have a
material adverse effect on the Company's business, financial condition and
results of operations.
 
  Product Liability
 
     The Company faces exposure to product liability claims in the event that
the use of its technologies or products or those it licenses from third parties
is alleged to have resulted in adverse effects in users thereof. Receipt of
regulatory approval for commercial sale of such products does not mitigate such
product liability risks. While the Company has taken, and will continue to take,
what it believes are appropriate precautions, there can be no assurance that it
will avoid significant product liability exposure. In addition, future product
labeling may include disclosure of additional adverse effects, precautions and
contraindications, which may adversely impact sales of such products. The
Company currently has product liability insurance in the amount of $10.0 million
for aggregate annual claims with a $50,000 deductible per incident and a
$250,000 aggregate annual deductible. However, there can be no assurance that
its insurance coverage will be sufficient to fully cover potential claims.
Additionally, there can be no assurance that adequate insurance coverage will be
 
                                        16

<PAGE>   18
 
available in the future at acceptable costs, if at all, or that a product
liability claim would not have a material adverse effect on the Company's
business, financial condition and results of operations.
 
  Acquisition and Licensing of Pharmaceutical Products
 
     As part of its growth strategy, the Company may purchase or license
pharmaceutical product lines of other pharmaceutical or biotechnology companies.
Other companies, including those with substantially greater financial, marketing
and other resources, compete with the Company for the right to acquire or
license such products. Were the Company to elect to pursue this strategy, its
success would depend, in part, on its ability to identify potential products
that meet the Company's criteria, including possessing a recognizable brand name
or being complementary to the Company's existing product lines. There can be no
assurance that the Company would have success in identifying potential product
acquisitions or licensing opportunities or that, if identified, it would
complete such product acquisitions or obtain such licenses on acceptable terms
or that it would obtain the necessary financing, or that it could successfully
integrate any acquired or licensed products into its existing product lines. The
inability to complete acquisitions of, or obtain licenses for, pharmaceutical
products could have a material adverse effect on the Company's business,
financial condition and results of operations. Furthermore, there can be no
assurance that the Company, once it has obtained rights to a pharmaceutical
product and committed to payment terms, will be able to generate sales
sufficient to create a profit or otherwise avoid a loss. Any inability to
generate such sufficient sales or any subsequent reduction of sales could have a
material adverse effect on the Company's business, financial condition and
result of operations.
 
  Patents and Proprietary Rights
 
     The patent position of competitors in the pharmaceutical industry generally
is highly uncertain, involves complex legal and factual questions, and is the
subject of much litigation. There can be no assurance that any patent
applications relating to the Company's potential products or processes will
result in patents being issued, or that the resulting patents, if any, will
provide protection against competitors who: (i) successfully challenge the
Company's patents; (ii) obtain patents that may have an adverse effect on the
Company's ability to conduct business; or (iii) are able to circumvent the
Company's patent position. It is possible that other parties have conducted or
are conducting research and could make discoveries of pharmaceutical
formulations or processes that would precede any discoveries made by the
Company, which could prevent the Company from obtaining patent protection for
these discoveries or marketing products developed therefrom. Consequently, there
can be no assurance that others will not independently develop pharmaceutical
products similar to or obsoleting those that the Company is planning to develop,
or duplicate any of the Company's products. The inability of the Company to
obtain patents for its products and processes or the ability of competitors to
circumvent or obsolete the Company's patents could have a material adverse
effect on the Company's business, financial condition and results of operations.
 
  Need to Attract and Retain Key Personnel in Highly Competitive Marketplace
 
     The Company's performance depends, to a large extent, on the continued
service of its key research and development personnel, other technical
employees, managers and sales personnel and its ability to continue to attract
and retain such personnel. Competition for such personnel is intense,
particularly for highly motivated and experienced research and development and
other technical personnel. The Company is facing increasing competition from
companies with greater financial resources for such personnel. There can be no
assurance that the Company will be able to attract and retain sufficient numbers
of highly-skilled personnel in the future, and the inability to do so could have
a material adverse effect on the Company's business, operating results and
financial condition and results of operations.
 
  Dependence on Key Executive Officers
 
     Currently the Company is operating under the direction of an interim chief
executive officer. The Company's success will depend, in part, on its ability to
attract and retain key executive officers. The inability
 
                                        17

<PAGE>   19
 
to find or the loss of one or more of the Company's key executive officers could
have a material adverse effect on the Company's business, financial condition
and results of operations.
 
  Quarterly Fluctuation of Results; Possible Volatility of Stock Price
 
     The Company's results of operations may vary from quarter to quarter due to
a variety of factors including the timing of the development and marketing of
new pharmaceutical products, the failure to develop such products, delays in
obtaining government approvals, including FDA approval of NDAs or ANDAs for
Company products, expenditures incurred to acquire and promote pharmaceutical
products, changes in the Company's customer base, a customer's termination of a
substantial account, the availability and cost of raw materials, interruptions
in supply by third-party manufacturers, the introduction of new products or
technological innovations by the Company's competitors, loss of key personnel,
changes in the mix of products sold by the Company, changes in sales and
marketing expenditures, competitive pricing pressures and the Company's ability
to meet its financial covenants. There can be no assurance that the Company will
be successful in maintaining or improving its profitability or avoiding losses
in any future period. Such fluctuations may result in volatility in the price of
the Company's Common Stock.
 
  Relationships With Other Entities; Conflicts of Interest
 
     Mr. John N. Kapoor, Ph.D., the Company's Chairman of the Board and interim
Chief Executive Officer is affiliated with EJ Financial Enterprises, Inc., a
health care consulting investment company ("EJ Financial"). EJ Financial is
involved in the management of health care companies in various fields, and Dr.
Kapoor is involved in various capacities with the management and operation of
these companies. The John N. Kapoor Trust, the beneficiary and sole trustee of
which is Dr. Kapoor, is a principal shareholder of each of these companies. As a
result, Dr. Kapoor does not devote his full time to the business of the Company.
Mr. Kevin Harris, Chief Financial Officer of the Company, is Director of Taxes
and Planning of EJ Financial. Although such companies do not currently compete
directly with the Company, certain companies with which EJ Financial is involved
are in the pharmaceutical business. Discoveries made by one or more of these
companies could render the Company's products less competitive or obsolete.
Potential conflicts of interest could have a material adverse effect on the
Company's business, financial condition and results of operations.
 
RECENT ACCOUNTING PRONOUNCEMENTS
 
     In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivatives Instruments and Hedging Activities." SFAS 133 establishes accounting
and reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. SFAS No.
133, as amended by SFAS No. 137 and No. 138, will be effective for the Company's
fiscal 2001 financial statements. Adoption on January 1, 2001 of SFAS No. 133,
as amended, did not have a material effect on the Company's financial position
or results of operations.
 

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
     The Company is subject to market risk associated with changes in interest
rates. The Company's interest rate exposure is limited to interest rate changes
on its revolving credit agreement. The revolving credit, as amended on April 16,
2001, bears interest at rates that fluctuate at Prime plus 300 basis points. All
of the Company's remaining long-term debt is at fixed interest rates. The
Company believes that reasonable possibly near-term changes in interest rates
would not have a material effect on the Company's financial position, results of
operations and cash flows.
 
     The Company's financial instruments consist mainly of cash, accounts
receivable, accounts payable and debt. The carrying amount of these instruments,
except debt, approximate fair value due to their short-term nature. The
estimated fair value of the Company's debt instruments is based upon rates
currently available to the Company for debt with similar terms and remaining
maturities.
 
                                        18

<PAGE>   20
 

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
     The following financial statements are included in Part II, Item 8 of this
Form 10-K.
 

<TABLE>
<S>                                                             <C>
Independent Auditors' Report................................     20
Consolidated Balance Sheets as of December 31, 2000 and
  1999......................................................     21
Consolidated Statements of Income for the years ended
  December 31, 2000, 1999 and 1998..........................     22
Consolidated Statements of Shareholders' Equity for the
  years ended December 31, 2000, 1999 and 1998..............     23
Consolidated Statements of Cash Flow for the years ended
  December 31, 2000, 1999 and 1998..........................     24
Notes to Consolidated Financial Statements..................     25

</TABLE>

 
                                        19

<PAGE>   21
 

                          INDEPENDENT AUDITORS' REPORT
 
To the Board of Directors and Shareholders of Akorn, Inc.:
 
     We have audited the accompanying consolidated balance sheets of Akorn, Inc.
and subsidiaries (the "Company") as of December 31, 2000 and 1999, and the
related consolidated statements of income, shareholders' equity, and cash flows
for each of the three years in the period ended December 31, 2000. Our audit
also included the financial statement schedule listed in the Index of Item
14(a).2. These financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and financial statement schedule based on
our audits.
 
     We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
 
     In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Akorn, Inc. and subsidiaries at
December 31, 2000 and 1999, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 2000 in
conformity with accounting principles generally accepted in the United States of
America. Also, in our opinion, such financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly in all material respects the information set forth
therein.
 
Deloitte & Touche LLP
 
Chicago, Illinois
February 23, 2001, except for paragraph 4 of

Note G, as to which the date is April 17, 2001
 
                                        20

<PAGE>   22
 
                                  AKORN, INC.
 
                          CONSOLIDATED BALANCE SHEETS
                 (DOLLARS IN THOUSANDS, EXCEPT PAR VALUE DATA)
 

<TABLE>
<CAPTION>
                                                                   DECEMBER 31,
                                                                ------------------
                                                                 2000       1999
                                                                -------    -------
<S>                                                             <C>        <C>
ASSETS
CURRENT ASSETS
  Cash and cash equivalents.................................    $   807    $    25
  Trade accounts receivable (less allowance for
     uncollectibles of $801 and $226 at December 31, 2000
     and 1999, respectively)................................     24,144     17,695
  Inventory.................................................     14,058     16,473
  Deferred income taxes.....................................      2,016        803
  Prepaid expenses and other assets.........................      1,098        855
                                                                -------    -------
     TOTAL CURRENT ASSETS...................................     42,123     35,851
OTHER ASSETS
  Intangibles, net..........................................     20,342     19,412
  Other.....................................................         22         23
                                                                -------    -------
     TOTAL OTHER ASSETS.....................................     20,364     19,435
PROPERTY, PLANT AND EQUIPMENT, NET..........................     34,031     20,812
                                                                -------    -------
     TOTAL ASSETS...........................................    $96,518    $76,098
                                                                =======    =======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
  Current installments of long-term debt....................    $ 7,753    $ 1,305
  Current portion of capital lease obligations..............         --         41
  Trade accounts payable....................................      5,900      4,523
  Income taxes payable......................................        556      1,606
  Accrued compensation......................................        854      1,049
  Accrued expenses and other liabilities....................        705      1,169
                                                                -------    -------
     TOTAL CURRENT LIABILITIES..............................     15,768      9,693
Long-term debt..............................................     39,089     30,643
Capital lease obligations...................................         --         --
Deferred income taxes.......................................      1,829      1,372
                                                                -------    -------
     TOTAL LIABILITIES......................................     56,686     41,708
                                                                =======    =======
COMMITMENTS AND CONTINGENCIES (Notes C, H and N)............
SHAREHOLDERS' EQUITY
  Preferred stock, $1.00 par value--authorized 5,000,000
     shares; none issued Common stock, no par
     value--authorized 40,000,000 shares; issued and
     outstanding 19,247,299 and 18,650,990 shares at
     December 31, 2000 and 1999, respectively...............     22,647     19,392
  Retained earnings.........................................     17,185     14,998
                                                                -------    -------
     TOTAL SHAREHOLDERS' EQUITY.............................     39,832     34,390
                                                                -------    -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY..................    $96,518    $76,098
                                                                =======    =======
</TABLE>

 
See notes to consolidated financial statements.
 
                                        21

<PAGE>   23
 
                                  AKORN, INC.
 
                       CONSOLIDATED STATEMENTS OF INCOME
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)
 

<TABLE>
<CAPTION>
                                                                  YEARS ENDED DECEMBER 31,
                                                                -----------------------------
                                                                 2000       1999       1998
                                                                -------    -------    -------
<S>                                                             <C>        <C>        <C>
Net sales...................................................    $66,927    $64,632    $56,667
Cost of goods sold..........................................     38,090     31,155     27,607
                                                                -------    -------    -------
  GROSS PROFIT..............................................     28,837     33,477     29,060
Selling, general and administrative expenses................     17,397     16,733     13,291
Amortization of intangibles.................................      1,519      1,878      2,315
Research and development....................................      4,132      2,744      4,010
                                                                -------    -------    -------
                                                                 23,048     21,355     19,616
                                                                -------    -------    -------
  OPERATING INCOME..........................................      5,789     12,122      9,444
Interest and other income (expense):
  Interest income...........................................         --         31          1
  Interest expense..........................................     (2,400)    (1,921)    (1,451)
  Offering costs............................................         --         --       (350)
  Gain on sale of fixed assets..............................         --        275         --
  Other income, net.........................................        117        132         42
                                                                -------    -------    -------
                                                                 (2,283)    (1,483)    (1,758)
                                                                -------    -------    -------
INCOME BEFORE INCOME TAXES..................................      3,506     10,639      7,686
Income tax provision........................................      1,319      3,969      3,039
                                                                -------    -------    -------
NET INCOME..................................................    $ 2,187    $ 6,670    $ 4,647
                                                                =======    =======    =======
  NET INCOME PER SHARE:
     BASIC..................................................    $  0.11    $  0.37    $  0.26
                                                                =======    =======    =======
     DILUTED................................................    $  0.11    $  0.36    $  0.25
                                                                =======    =======    =======
  Weighted average shares outstanding:
     Basic..................................................     19,030     18,269     17,891
                                                                =======    =======    =======
     Diluted................................................     19,721     18,573     18,766
                                                                =======    =======    =======
</TABLE>

 
                      COMPUTATION OF NET INCOME PER SHARE
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)
 

<TABLE>
<CAPTION>
                                                                  YEARS ENDED DECEMBER 31,
                                                                -----------------------------
                                                                 2000       1999       1998
                                                                -------    -------    -------
<S>                                                             <C>        <C>        <C>
Earnings
  Income applicable to common stock.........................    $ 2,187    $ 6,670    $ 4,647
                                                                =======    =======    =======
Shares
  Weighted average number of shares outstanding -- basic....     19,030     18,269     17,891
Net income per share -- basic...............................    $  0.11    $  0.37    $  0.26
                                                                =======    =======    =======
  Additional shares assuming conversion of options..........        691        304        875
                                                                -------    -------    -------
  Weighted average number of shares outstanding --diluted...     19,721     18,573     18,766
Net income per share -- diluted.............................    $  0.11    $  0.36    $  0.25
                                                                =======    =======    =======
</TABLE>

 
See notes to consolidated financial statements.
 
                                        22

<PAGE>   24
 
                                  AKORN, INC.
 
                CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                                 (IN THOUSANDS)
 

<TABLE>
<CAPTION>
                                                      COMMON STOCK
                                                 ----------------------
                                                   SHARES                  RETAINED    TREASURY
                                                 OUTSTANDING    AMOUNT     EARNINGS     STOCK       TOTAL
                                                 -----------    ------     --------    --------     -----
<S>                                              <C>            <C>        <C>         <C>         <C>
Balances at January 1, 1998..................      17,630       $16,241    $ 4,010     $    --     $20,251
Net income...................................          --            --      4,647          --       4,647
Treasury stock received in lieu of cash......         (56)           --         --        (465)       (465)
Exercise of stock options....................         484         1,649         --          --       1,649
Treasury stock reissued......................          56            --       (329)        465         136
Employee stock purchase plan.................           8            62         --          --          62
                                                   ------       -------    -------     -------     -------
Balances at December 31, 1998................      18,122       $17,952    $ 8,328     $    --     $26,280
                                                   ======       =======    =======     =======     =======
Net income...................................          --       $    --    $ 6,670     $    --     $ 6,670
Treasury stock received in lieu of cash......          (9)           --         --         (35)        (35)
Exercise of stock options....................         476         1,228         --          --       1,228
Management bonus paid in stock...............          27           109         --          --         109
Treasury stock reissued......................           9            (6)        --          35          29
Employee stock purchase plan.................          26           109         --          --         109
                                                   ------       -------    -------     -------     -------
Balances at December 31, 1999................      18,651       $19,392    $14,998     $    --     $34,390
                                                   ======       =======    =======     =======     =======
Net income...................................          --       $    --    $ 2,187     $    --     $ 2,187
Exercise of stock options....................         576         3,105         --          --       3,105
Employee stock purchase plan.................          20           150         --          --         150
                                                   ------       -------    -------     -------     -------
Balances at December 31, 2000................      19,247       $22,647    $17,185     $    --     $39,832
                                                   ======       =======    =======     =======     =======
</TABLE>

 
     See notes to consolidated financial statements.
 
                                        23

<PAGE>   25
 
                                  AKORN, INC.
 
                      CONSOLIDATED STATEMENTS OF CASH FLOW
                             (DOLLARS IN THOUSANDS)
 

<TABLE>
<CAPTION>
                                                                 YEARS ENDED DECEMBER 31,
                                                              ------------------------------
                                                                2000       1999       1998
                                                              --------   --------   --------
<S>                                                           <C>        <C>        <C>
OPERATING ACTIVITIES
Net income..................................................  $  2,187   $  6,670   $  4,647
  Adjustments to reconcile net income to net cash provided
     by operating activities:
     Depreciation and amortization..........................     3,539      3,161      3,615
     Gain on disposal of fixed assets.......................        --       (245)        --
     Stock bonus............................................        --        109         --
     Deferred income taxes..................................      (756)       763        307
     Other..................................................        --         (6)        --
     Changes in operating assets and liabilities:
       Accounts receivable..................................    (6,449)    (6,992)    (5,736)
       Inventory, prepaid expenses and other assets.........     2,173     (5,213)    (1,770)
       Trade accounts payable and accrued expenses..........       718      1,750       (980)
       Income taxes payable.................................    (1,050)       134      1,010
                                                              --------   --------   --------
NET CASH PROVIDED BY OPERATING ACTIVITIES...................       362        131      1,093
INVESTING ACTIVITIES
Purchases of property, plant and equipment..................   (15,239)    (6,157)    (4,765)
Proceeds from disposal of fixed assets......................        --        629         --
Sales of investments........................................        --         --         96
Purchase of product intangibles and product licensing
  fees......................................................    (2,449)      (705)    (8,999)
                                                              --------   --------   --------
NET CASH USED IN INVESTING ACTIVITIES.......................   (17,688)    (6,233)   (13,668)
FINANCING ACTIVITIES
Proceeds from exercise of stock options.....................     3,255      1,337      1,102
Repayments of long-term debt................................   (22,206)   (22,584)    (2,583)
Proceeds from issuance of long-term debt....................    37,100     26,800     14,404
Principal payments under capital lease obligations..........       (41)      (162)      (149)
Short-term borrowings, net..................................        --         --     (1,750)
Debt acquisition costs......................................        --         --       (126)
                                                              --------   --------   --------
NET CASH PROVIDED BY FINANCING ACTIVITIES...................    18,108      5,391     10,898
                                                              --------   --------   --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............       782       (711)    (1,677)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR..............        25        736      2,413
                                                              --------   --------   --------
CASH AND CASH EQUIVALENTS AT END OF YEAR....................  $    807   $     25   $    736
                                                              ========   ========   ========
</TABLE>

 
See notes to consolidated financial statements.
 
                                        24

<PAGE>   26
 
                                  AKORN, INC.
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
     Consolidation: The accompanying consolidated financial statements include
the accounts of Akorn, Inc. and its wholly owned subsidiary, Akorn (New Jersey),
Inc (collectively, the "Company"). Intercompany transactions and balances have
been eliminated in consolidation. During 2000, the Company dissolved the
inactive subsidiaries Compass Vision, Inc., Spectrum Scientific Pharmaceuticals,
Inc. and Walnut Pharmaceuticals, Inc. The dissolution of these subsidiaries did
not have a material impact on the balances and activities of the Company.
 
     Use of Estimates: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ materially from those
estimates. Significant estimates and assumptions relate to the allowance for
uncollectable accounts, the allowance for chargebacks and rebates, the reserve
for slow-moving and obsolete inventory, the reserve for returned goods and the
carrying value of intangible assets.
 
     Revenue Recognition: The Company recognizes sales upon the shipment of
goods.
 
     Cash Equivalents: The Company considers all highly liquid investments with
a maturity of three months or less, when purchased, to be cash equivalents.
 
     Inventory: Inventory is stated at the lower of cost (average cost method)
or market (see Note E). Provision is made for slow-moving, unsalable or obsolete
items.
 
     Intangibles: Intangibles consist primarily of product licensing and other
such costs which are capitalized and amortized on the straight line method over
the lives of the related license periods or the estimated life of the acquired
product, which range from 17 months to 18 years. Accumulated amortization at
December 31, 2000 and 1999 was $5,954,000 and $4,523,000, respectively.
 
     The Company annually assesses the impairment of intangibles based on
several factors, including estimated fair market value and anticipated cash
flows.
 
     Property, Plant and Equipment: Property, plant and equipment is stated at
cost, less accumulated depreciation. Depreciation is provided using the
straight-line method in amounts considered sufficient to amortize the cost of
the assets to operations over their estimated service lives. The average
estimated service lives of buildings, leasehold improvements, furniture and
equipment, and automobiles are approximately 30, 10, 8, and 5 years,
respectively.
 
     Allowance for Chargebacks and Rebates: The Company accrues an estimate of
the difference between the gross sales price of certain products sold to
wholesalers and the expected resale prices of such products under contractual
arrangements with third parties such as hospitals and group purchasing
organizations at the time of sale. As part of the Company's sales terms to
wholesale customers, it agrees to reimburse wholesalers for such differentials
between wholesale prices and contract prices. Because this allowance relates to
amounts not yet collected from the wholesalers, this allowance is recorded as a
reduction of accounts receivable. Similarly, the Company records an allowance
for rebates related to contracts and other programs with wholesalers. The
balance for these allowances was $3,296,000 and $3,174,000 as of December 31,
2000 and 1999, respectively.
 
     Income Taxes: The Company files a consolidated federal income tax return
with its subsidiary. Deferred income taxes are provided in the financial
statements to account for the tax effects of temporary differences resulting
from reporting revenues and expenses for income tax purposes in periods
different from those used for financial reporting purposes.
 
                                        25

<PAGE>   27
 
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
 
     Fair Value of Financial Instruments: The Company's financial instruments
include cash, accounts receivable, accounts payable and term debt. The fair
values of cash, accounts receivable and accounts payable approximate fair value
because of the short maturity of these instruments. The carrying amounts of the
Company's bank borrowings under its credit facility approximate fair value
because the interest rates are reset periodically to reflect current market
rates.
 
     Net Income Per Common Share: Basic net income per common share is based
upon weighted average common shares outstanding. Diluted net income per common
share is based upon the weighted average number of common shares outstanding,
including the dilutive effect of stock options and warrants using the treasury
stock method.
 
NOTE B -- NONCASH TRANSACTIONS
 
     In August 1999, a former employee exercised options for 23,352 shares of
the Company's common stock. The individual tendered approximately 8,800 shares
of the Company's outstanding stock as consideration for the option exercise,
which was recorded as treasury stock. The net effect of this transaction was to
increase common stock and paid in capital by $35,028 and increase treasury stock
by $35,028.
 
     In July 1998, the Company financed the acquisition of four product licenses
with long-term debt in the amount of $3.332 million.
 
     In June 1998, a former employee exercised options for 105,000 shares of the
Company's common stock. The individual tendered approximately 22,000 shares of
the Company's outstanding stock as consideration for the option exercise and
approximately 33,000 shares to satisfy the personal income tax withholding
requirements of the transaction, all of which was recorded as treasury stock.
The net effects of this transaction was to increase accrued liabilities by
$280,000, increase common stock and paid in capital by $185,000, and increase
treasury stock by $465,000.
 
     In March 1998, the Company financed the acquisition of two product licenses
with long-term debt in the amount of $3.905 million.
 
NOTE C -- PRODUCT AND OTHER ACQUISITIONS
 
     In April 2000, the Company entered into a worldwide license agreement with
The Johns Hopkins University Applied Physics Laboratory. This license provides
the Company exclusive rights to two patents covering the methodology and
instrumentation for a method of treating age-related macular degeneration. Upon
signing the agreement, the Company made an initial payment under the agreement
of $1,484,500. Future payments of up to $7,215,500 are contingent upon the
achievement of specifically defined milestones. As of December 31, 2000, there
are no payments due under the terms of the agreement.
 
     In March 1999, the Company purchased the Paredrine NDA and trade name from
Pharmics for $62,500 in cash. The acquisition cost has been allocated to
intangibles and will be amortized over 15 years.
 
     In February 1999, the Company paid $400,000 to Eastman Kodak to license IC
Green raw material manufacturing processes. The acquisition cost has been
allocated to intangibles and will be amortized over 15 years.
 
     In August 1998, the Company entered into an agreement to purchase the
regulatory files related to three ophthalmic products, Fluress, Ful-Glo and Rose
Bengal, from Allergan, Inc. The total purchase price was $4,650,000 with
$2,000,000 paid upon closing and two additional payments of $1,500,000 and
$1,150,000 paid on the next two anniversaries of the closing date. The Company
imputed interest on these payments using a 7.5 percent interest rate. The
acquisition cost has been allocated to intangibles and will be amortized over 15
years.
 
     In July 1998, the Company acquired certain assets of Advanced Remedies,
Inc. (ARI) for approximately $3,750,000. The purchase price included, in
addition to capital equipment, all Abbreviated New Drug
 
                                        26

<PAGE>   28
 
NOTE C -- PRODUCT AND OTHER ACQUISITIONS -- (CONTINUED)
 
Applications (ANDAs) for any product previously approved for ARI or under review
by the FDA. The purchase price also included regulatory files for products under
development by ARI but not yet filed with the FDA. The total purchase price was
allocated to ANDAs, $3,000,000 with amortization over 15 years, and tangible
assets, $750,000 with asset depreciation up to ten years.
 
     In January 1998, the Company purchased the New Drug Application (NDA),
trademark and U.S. trade name rights to Paremyd, a topical mydriatic combination
product, from Allergan. Paremyd had been off the market for all of 1997 due to a
raw material shortage. The Company is awaiting FDA approval to manufacture the
product. The total purchase price was $700,000, with $500,000 paid upon closing
and $200,000 paid on the first anniversary of the closing date. The acquisition
cost has been allocated to intangibles and will be amortized over 15 years.
 
     In January 1998, the Company purchased the NDA's related to two branded
injectable products, Sufenta and Alfenta, from Janssen Pharmaceutica, Inc. Also
included in the purchase was a patent on Alfenta. The patent expired in the
second quarter of 1999. These products are injectable opioid analgesics
indicated for use in the induction and maintenance of general anesthesia. The
total purchase price was $6,600,000, with $2,200,000 paid upon closing and two
additional payments of $2,200,000 paid on the next anniversary of the closing
date and on December 29, 1999, respectively. Irrevocable bank letters of credit
secured the second two payments, which were issued under the revolving credit
facility (see Note G). The acquisition cost has been allocated to intangibles
and will be amortized for 17 months (patent) and 15 years.
 
NOTE D -- ALLOWANCE FOR UNCOLLECTIBLES
 
     The activity in the allowance for uncollectibles for the periods indicated
is as follows (in thousands):
 

<TABLE>
<CAPTION>
                                                                YEARS ENDED DECEMBER 31,
                                                                ------------------------
                                                                2000      1999      1998
                                                                ----      ----      ----
<S>                                                             <C>       <C>       <C>
Balance at beginning of year................................    $226      $425      $522
Provision for bad debts.....................................     607       161        50
Specific reversal of doubtful account.......................      --      (300)       --
Accounts written off........................................     (32)      (60)     (147)
                                                                ----      ----      ----
Balance at end of year......................................    $801      $226      $425
                                                                ====      ====      ====
</TABLE>

 
NOTE E -- INVENTORY
 
     The components of inventory are as follows (in thousands):
 

<TABLE>
<CAPTION>
                                                                    DECEMBER 31,
                                                                --------------------
                                                                 2000         1999
                                                                -------      -------
<S>                                                             <C>          <C>
Finished goods..............................................    $ 5,014      $10,316
Work in process.............................................      3,644        2,179
Raw materials and supplies..................................      5,400        3,978
                                                                -------      -------
                                                                $14,058      $16,473
                                                                =======      =======
</TABLE>

 
     Inventory at December 31, 2000 and 1999 is reported net of reserves for
slow-moving, unsalable and obsolete items of $3,171,000 and $134,000,
respectively.
 
                                        27

<PAGE>   29
 
NOTE F -- PROPERTY, PLANT AND EQUIPMENT
 
     Property, plant and equipment consists of the following (in thousands):
 

<TABLE>
<CAPTION>
                                                                 DECEMBER 31,
                                                              -------------------
                                                                2000       1999
                                                              --------   --------
<S>                                                           <C>        <C>
Land........................................................  $    396   $    396
Buildings and leasehold improvements........................     8,204      7,763
Furniture and equipment.....................................    21,508     17,955
Automobiles.................................................        55         55
                                                              --------   --------
                                                                30,163     26,169
Accumulated depreciation....................................   (13,697)   (11,677)
                                                              --------   --------
                                                                16,466     14,492
Construction in progress....................................    17,565      6,320
                                                              --------   --------
                                                              $ 34,031   $ 20,812
                                                              ========   ========
</TABLE>

 
     Construction in progress represents capital expenditures principally
related to the Company's lyophilization project that will enable the Company to
perform processes in-house, which are currently being performed by a
sub-contractor.
 
NOTE G -- FINANCING ARRANGEMENTS
 
     The Company's long-term debt consists of (in thousands):
 

<TABLE>
<CAPTION>
                                                                DECEMBER 31,
                                                              -----------------
                                                               2000      1999
                                                              -------   -------
<S>                                                           <C>       <C>
Payable under lines of credit...............................  $44,400   $28,200
Mortgages payable secured by real property located in
  Decatur, Illinois.........................................    2,442     2,678
Notes payable secured by various assets, at interest rates
  ranging from 7.5% to 10.25%...............................       --     1,070
                                                              -------   -------
                                                               46,842    31,948
Less current portion........................................    7,753     1,305
                                                              -------   -------
Long-term debt..............................................  $39,089   $30,643
                                                              =======   =======
</TABLE>

 
     Maturities of debt are as follows (in thousands):
 

<TABLE>
<S>                                                             <C>
Year ending December 31:
2001........................................................      7,753
2002........................................................     37,173
2003........................................................        293
2004........................................................        316
2005........................................................        340
Thereafter..................................................        967
                                                                -------
          Total.............................................    $46,842
                                                                =======
</TABLE>

 
     In December 1997, the Company entered into a $15,000,000 revolving credit
agreement with The Northern Trust Company, which was increased to $25,000,000 on
June 30, 1998 and to $45,000,000 on December 28, 1999, of which there were
outstanding borrowings of $44,400,000 at December 31, 2000 and
 
                                        28

<PAGE>   30
 
NOTE G -- FINANCING ARRANGEMENTS -- (CONTINUED)
 
$28,200,000 at December 31, 1999. There was also an outstanding letter of credit
of $35,000 at December 31, 1999. The interest rate as of December 31, 2000 was
7.160%.
 
     On April 16, 2001, the revolving credit agreement was amended to, among
other things, extend the term of the agreement and establish a payment schedule,
revise the method by which the interest rate will be determined, amend and add
certain covenants, require the Company to obtain subordinated debt of $3 million
by May 15, 2001 and waive certain covenant violations through March 31, 2001.
The amended credit agreement requires payments throughout 2001 totaling $7.5
million, with the balance of $37.5 million due January 1, 2002. The revised
interest rate is now computed at the prime rate plus 300 basis points.
Previously, the interest rate was computed at the federal funds rate or LIBOR
plus an applicable percentage, depending on certain financial ratios. The
revolving credit facility is secured by substantially all of the assets of the
Company and its subsidiaries and contains a number or restrictive covenants
that, among other things, require minimum levels of net worth, net income and
monthly EBITDA and a minimum borrowing base (as defined) and limits capital
expenditures. The Company has received a commitment from Dr. John Kapoor, its
Chairman and Interim Chief Executive Officer, to provide the subordinated debt
with terms satisfactory to the lender of the credit facility. The terms of the
subordinated debt have not been finalized. The agreement prohibits the Company
from declaring any cash dividends on its common stock which would create a
violation of its debt covenants. The Company has and will continue to take
certain actions it believes are within its control and are necessary to meet the
restrictive covenants of the amended credit agreement. Such actions include, but
are not limited to, reducing its planned 2001 capital expenditures, increasing
resources dedicated to collecting past due accounts receivable, implementing
steps to control inventory levels, and reducing rebates and other discounts
offered to its customers. Based upon its financial projections for 2001, which
reflect the impacts of these actions, management believes it will be able to
comply with the covenants during 2001. In the event that the Company is not in
compliance with the covenants during 2001 and does not negotiate amended
covenants and/or obtain a waiver thereto, then the debt holder, at its option,
may demand immediate payment of all outstanding amounts due it.
 
     In June 1998, the Company entered into a $3,000,000 mortgage agreement with
Standard Mortgage Investors, LLC of which there were outstanding borrowings of
$2,442,000 and $2,678,000 at December 31, 2000 and 1999, respectively. The
principal balance is paid over 10 years, with the final payment due in June
2007. The mortgage note bears an interest rate of 7.375% and is secured by the
real property located in Decatur, Illinois.
 
     In August 1998, the Company entered into an agreement to purchase three
ophthalmic products from Allergan, Inc. The total purchase price was $4,650,000
with $2,000,000 paid upon closing and two additional payments of $1,500,000 and
$1,150,000 paid on the next two anniversaries of the closing date. The Company
imputed interest on these payments with a 7.5% interest rate.
 
     The fair value of the debt obligations approximated the recorded value as
of December 31, 2000.
 
NOTE H -- LEASING ARRANGEMENTS
 
     The Company leased certain equipment under capital leasing arrangements
that expired in 2000.
 
     Property, plant and equipment includes the following amounts relating to
such capital leases (in thousands):
 

<TABLE>
<CAPTION>
                                                                  DECEMBER 31,
                                                                ----------------
                                                                2000       1999
                                                                -----      -----
<S>                                                             <C>        <C>
Furniture and equipment.....................................    $ 806      $ 806
Less accumulated depreciation...............................     (806)      (697)
                                                                -----      -----
                                                                $  --      $ 109
                                                                =====      =====
</TABLE>

 
                                        29

<PAGE>   31
 
NOTE H -- LEASING ARRANGEMENTS -- (CONTINUED)
 
     Depreciation expense provided on these assets was $109,000 for 2000 and
$157,000, for each of the years ended December 31, 1999 and 1998.
 
     The Company leases real and personal property in the normal course of
business under various operating leases, including non-cancelable and
month-to-month agreements. Payments under these leases were $1,158,861, $906,167
and $570,288 for the years ended December 31, 2000, 1999 and 1998, respectively.
 
     The following is a schedule, by year, of future minimum rental payments
required under these non-cancelable operating leases (in thousands):
 

<TABLE>
<S>                                                             <C>
Years ended December 31,
2001........................................................    $1,622
2002........................................................     1,393
2003........................................................     1,146
2004........................................................     1,132
2005........................................................     1,128
2006........................................................     1,115
2007........................................................     1,113
2008........................................................        40
                                                                ------
Total Minimum Payments Required.............................    $8,689
                                                                ======
</TABLE>

 
     The Company currently sub-lets portions of its leased space. Rental income
under these sub-leases was $227,446, $211,043 and $41,160 in 2000, 1999 and
1998, respectively.
 
NOTE I -- STOCK OPTIONS AND EMPLOYEE STOCK PURCHASE PLAN
 
     Under the 1988 Incentive Compensation Program (the "Incentive Program") any
officer or key employee of the Company is eligible to receive options as
designated by the Company's Board of Directors. As of December 31, 2000,
4,500,000 shares of the Company's Common Stock are reserved to be issued under
the Incentive Program. The exercise price of the options granted under the
Incentive Program may not be less than 50 percent of the fair market value of
the shares subject to the option on the date of grant, as determined by the
Board of Directors. All options granted under the Incentive Program during the
years ended December 31, 2000, 1999 and 1998 have exercise prices equivalent to
the market value of the Company's Common Stock on the date of grant. Options
granted under the Incentive Program generally vest over a period of three years
and expire within a period of five years.
 
     Under the 1991 Stock Option Plan for Directors (the "Directors' Plan")
persons elected as directors of the Company are granted nonqualified options at
the fair market value of the shares subject to option on the date of the grant.
As of December 31, 2000, 500,000 shares of the Company's Common Stock are
reserved to be issued under the Directors' Plan. Options granted under the
Directors' Plan vest immediately and expire five years from the date of grant.
 
                                        30

<PAGE>   32
 
NOTE I -- STOCK OPTIONS AND EMPLOYEE STOCK PURCHASE PLAN -- (CONTINUED)
 
     A summary of the status of the Company's stock options as of December 31,
2000, 1999 and 1998 and changes during the years ended December 31, 2000, 1999
and 1998 is presented below (shares in thousands):
 

<TABLE>
<CAPTION>
                                                                   YEARS ENDED DECEMBER 31,
                                                --------------------------------------------------------------
                                                       2000                  1999                  1998
                                                ------------------    ------------------    ------------------
                                                          WEIGHTED              WEIGHTED              WEIGHTED
                                                          AVERAGE               AVERAGE               AVERAGE
                                                          EXERCISE              EXERCISE              EXERCISE
                                                SHARES     PRICE      SHARES     PRICE      SHARES     PRICE
                                                ------    --------    ------    --------    ------    --------
<S>                                             <C>       <C>         <C>       <C>         <C>       <C>
Outstanding at beginning of period..........    1,901      $3.64      1,952      $3.16      1,899      $2.35
Granted.....................................      644      $6.80        777      $4.53        784      $5.18
Exercised...................................     (576)     $3.14       (478)     $2.71       (530)     $2.20
Expired/Canceled............................     (142)     $5.30       (350)     $4.19       (201)     $5.96
                                                -----                 -----                 -----
Outstanding at end of period................    1,827      $4.78      1,901      $3.64      1,952      $3.16
                                                =====                 =====                 =====
Options exercisable at end of period........    1,054      $4.08      1,088      $3.19      1,033      $2.87
Options available for future grant..........    1,234                 1,736                 2,163
Weighted average fair value of options
  granted during the period.................               $5.17                 $2.37                 $2.58
</TABLE>

 
     The fair value of each option granted during the year ended December 31,
2000 is estimated on the date of grant using the Black-Scholes option pricing
model with the following assumptions: (i) dividend yield of 0%, (ii) expected
volatility of 98%, (iii) risk-free interest rate of 5.0% and (iv) expected life
of 5 years.
 
     The fair value of each option granted during the year ended December 31,
1999 is estimated on the date of grant using the Black-Scholes option pricing
model with the following assumptions: (i) dividend yield of 0%, (ii) expected
volatility of 51%, (iii) risk-free interest rate of 6.5% and (iv) expected life
of 5 years.
 
     The fair value of each option granted during the year ended December 31,
1998 is estimated on the date of grant using the Black-Scholes option pricing
model with the following assumptions: (i) dividend yield of 0%, (ii) expected
volatility of 55%, (iii) risk-free interest rate of 5.75% and (iv) expected life
of 5 years.
 
     The following table summarizes information about stock options outstanding
at December 31, 2000 (shares in thousands):
 

<TABLE>
<CAPTION>
                                             OPTIONS OUTSTANDING                             OPTIONS EXERCISABLE
                            ------------------------------------------------------    ----------------------------------
                                NUMBER                                                    NUMBER
                            OUTSTANDING AT    WEIGHTED AVERAGE                        EXERCISABLE AT
                             DECEMBER 31,        REMAINING        WEIGHTED AVERAGE     DECEMBER 31,     WEIGHTED AVERAGE
RANGE OF EXERCISE PRICES         2000         CONTRACTUAL LIFE     EXERCISE PRICE          2000          EXERCISE PRICE
------------------------    --------------    ----------------    ----------------    --------------    ----------------
<S>                         <C>               <C>                 <C>                 <C>               <C>
$2.13 -- $2.20.........           259            1.0 years             $ 2.14               259              $ 2.14
$2.28 -- $2.54.........           104            1.2 years             $ 2.36               104              $ 2.36
$2.63 -- $2.81.........            58            1.1 years             $ 2.73                58              $ 2.73
$2.88 -- $3.94.........            49            3.6 years             $ 3.92                25              $ 3.93
$3.97 -- $4.60.........           414            2.7 years             $ 4.17               245              $ 4.14
$4.63 -- $5.56.........           384            3.2 years             $ 5.06               192              $ 5.09
$6.25 -- $8.00.........           454            4.1 years             $ 6.38               115              $ 6.38
$8.12 -- $8.38.........            25            2.8 years             $ 8.33                21              $ 8.36
$9.00 -- $10.00........            50            4.3 years             $ 9.46                28              $ 9.45
$10.01 -- $12.00.......            30            4.4 years             $11.16                 7              $11.16
                                -----                                                     -----
                                1,827                                                     1,054
                                =====                                                     =====
</TABLE>

 
     The Company applies Accounting Principles Board Opinion No. 25 and related
interpretations in accounting for its plans. Accordingly, no compensation
expense has been recognized for its stock option plans.
 
                                        31

<PAGE>   33
 
NOTE I -- STOCK OPTIONS AND EMPLOYEE STOCK PURCHASE PLAN -- (CONTINUED)
 
     Had compensation cost for the Company's stock-based compensation plans been
determined based on Statement of Financial Accounting Standards ("SFAS") No.
123, the Company's net income and net income per share for the years ended
December 31, 2000, 1999 and 1998 would have been the pro forma amounts indicated
below (in thousands, except per share amounts):
 

<TABLE>
<CAPTION>
                                                                 YEARS ENDED DECEMBER 31,
                                          -----------------------------------------------------------------------
                                                  2000                     1999                     1998
                                          ---------------------    ---------------------    ---------------------
                                             AS                       AS                       AS
                                          REPORTED    PRO FORMA    REPORTED    PRO FORMA    REPORTED    PRO FORMA
                                          --------    ---------    --------    ---------    --------    ---------
<S>                                       <C>         <C>          <C>         <C>          <C>         <C>
Net income............................     $2,187       $ 421       $6,670      $5,939       $4,647      $4,110
                                           ======       =====       ======      ======       ======      ======
Net income per share -- diluted.......     $ 0.11       $0.02       $ 0.36      $ 0.32       $ 0.25      $ 0.22
                                           ======       =====       ======      ======       ======      ======
</TABLE>

 
     The Akorn, Inc. Employee Stock Purchase Plan permits eligible employees to
acquire shares of the Company's common stock through payroll deductions not
exceeding 15% of base wages, at a 15% discount from market price. A maximum of
1,000,000 shares of the Company's common stock may be acquired under the terms
of the Plan. Purchases of shares issued from treasury stock approximated 7,000
and 8,000 shares, respectively, during the years ended December 31, 1999 and
1998. New shares issued under the plan approximated 20,000 in 2000, 26,000 in
1999 and 8,000 in 1998.
 
NOTE J -- INCOME TAXES
 
     The income tax provision (benefit) consisted of the following (in
thousands):
 

<TABLE>
<CAPTION>
                                                                CURRENT    DEFERRED    TOTAL
                                                                -------    --------    ------
<S>                                                             <C>        <C>         <C>
Year ended December 31, 2000:
  Federal...................................................    $1,680      $(629)     $1,051
  State.....................................................       395       (127)        268
                                                                ------      -----      ------
                                                                $2,075      $(756)     $1,319
                                                                ======      =====      ======
Year ended December 31, 1999:
  Federal...................................................    $2,561      $ 636      $3,197
  State.....................................................       645        127         772
                                                                ------      -----      ------
                                                                $3,206      $ 763      $3,969
                                                                ======      =====      ======
Year ended December 31, 1998:
  Federal...................................................    $2,124      $ 359      $2,483
  State.....................................................       608        (52)        556
                                                                ------      -----      ------
                                                                $2,732      $ 307      $3,039
                                                                ======      =====      ======
</TABLE>

 
     Income tax expense differs from the "expected" tax expense computed by
applying the U.S. Federal corporate income tax rate of 34% to income before
income taxes as follows (in thousands):
 

<TABLE>
<CAPTION>
                                                                 YEARS ENDED DECEMBER 31,
                                                                --------------------------
                                                                 2000      1999      1998
                                                                 ----      ----      ----
<S>                                                             <C>       <C>       <C>
Computed "expected" tax expense.............................    $1,192    $3,618    $2,613
Increase in income taxes resulting from:
  State income taxes, net of federal income tax benefits....       177       510       371
  Other, net................................................       (50)     (159)       55
                                                                ------    ------    ------
Income tax expense..........................................    $1,319    $3,969    $3,039
                                                                ======    ======    ======
</TABLE>

 
                                        32

<PAGE>   34
 
NOTE J -- INCOME TAXES -- (CONTINUED)
     Deferred tax assets (liabilities) at December 31, 2000 and 1999 include (in
thousands):
 

<TABLE>
<CAPTION>
                                                                DECEMBER 31,    DECEMBER 31,
                                                                    2000            1999
                                                                ------------    ------------
<S>                                                             <C>             <C>
Other accrued expenses......................................      $ 1,688         $   432
Intangible assets, net......................................          545             246
Property, plant and equipment, net..........................       (2,332)         (1,735)
Other, net..................................................          286             488
                                                                  -------         -------
                                                                  $   187         $  (569)
                                                                  =======         =======
</TABLE>

 
     The deferred taxes are classified in the accompanying balance sheets as
follows (in thousands):
 

<TABLE>
<CAPTION>
                                                                DECEMBER 31,    DECEMBER 31,
                                                                    2000            1999
                                                                ------------    ------------
<S>                                                             <C>             <C>
Deferred tax asset -- current...............................      $ 2,016         $   803
Deferred tax liability -- noncurrent........................       (1,829)         (1,372)
                                                                  -------         -------
                                                                  $   187         $  (569)
                                                                  =======         =======
</TABLE>

 
     Management concluded that there was no need for a valuation allowance
because it was more likely than not that all of the net deferred tax assets will
be realized through future taxable earnings.
 
NOTE K -- CHANGES IN ACCOUNTING ESTIMATES
 
     The Company accrues an estimate of the difference between the gross sales
price of certain products sold to wholesalers and the expected resale prices of
such products under contractual arrangements with third parties such as
hospitals and group purchasing organizations at the time of sale to the
wholesaler. Similarly, the Company records an allowance for rebates related to
contracts and other programs with wholesalers. This allowance is carried as a
reduction of accounts receivable. The Company evaluates the allowance balance
against actual chargebacks and rebates processed by wholesalers. Actual
chargebacks and rebates processed can vary materially from period to period. The
Company has an increasing number of contracts and other programs with
wholesalers, each incorporating various numbers and types of chargebacks and
rebates. The recorded allowance amount reflects the Company's current estimate
of the chargeback and rebate amounts wholesalers have earned under these various
contracts and programs.
 
     The Company records an estimate for slow-moving and obsolete inventory
based upon recent historical sales by unit. The Company evaluates the potential
sales of its products over their remaining lives and estimates the amount that
may expire before being sold. In 2000, the Company incurred $3,983,000 in
charges for unsalable product. In the fourth quarter of 2000, the Company
increased this reserve by $2,700,000 to account for slow moving and obsolete
inventory primarily related to products purchased from third parties in 1998 and
1999 for which the original sales forecast overestimated actual demand.
Accordingly, the Company believes a portion of the quantities on hand may not be
sold before they expire.
 
NOTE L -- RETIREMENT PLAN
 
     All employees who have attained the age of 21 with six months of service
are eligible for participation in the Company's 401(k) Plan. The plan-related
expense recognized for the years ended December 31, 2000, 1999 and 1998 totaled
$284,694, $220,203 and $89,020, respectively. The employer's matching
contribution is a percentage of the amount contributed by each employee and is
funded on a current basis.
 
NOTE M -- INDUSTRY SEGMENT INFORMATION
 
     The Company classifies its operations into two business segments,
ophthalmic and injectable. The ophthalmic segment manufactures, markets and
distributes diagnostic and therapeutic pharmaceuticals and surgical instruments
and related supplies. The injectable segment manufactures, markets and
distributes
 
                                        33

<PAGE>   35
 
NOTE M -- INDUSTRY SEGMENT INFORMATION -- (CONTINUED)
injectable pharmaceuticals, primarily in niche markets. Selected financial
information by industry segment is presented below (in thousands):
 

<TABLE>
<CAPTION>
                                                                  YEARS ENDED DECEMBER 31,
                                                                -----------------------------
                                                                 2000       1999       1998
                                                                 ----       ----       ----
<S>                                                             <C>        <C>        <C>
NET SALES
Ophthalmic..................................................    $28,221    $32,467    $29,205
Injectable..................................................     38,706     32,165     27,462
                                                                -------    -------    -------
       Total net sales......................................    $66,927    $64,632    $56,667
                                                                =======    =======    =======
OPERATING INCOME
Ophthalmic..................................................    $(1,517)   $ 4,338    $ 4,219
Injectable..................................................      9,224      9,208      6,364
General Corporate...........................................     (1,918)    (1,424)    (1,139)
                                                                -------    -------    -------
       Total operating income...............................      5,789     12,122      9,444
Interest and other (expense), net...........................     (2,283)    (1,483)    (1,758)
                                                                -------    -------    -------
Income before income taxes..................................    $ 3,506    $10,639    $ 7,686
                                                                =======    =======    =======
</TABLE>

 
     The Company does not identify assets by segment for internal purposes.
 
NOTE N -- COMMITMENTS AND CONTINGENCIES
 
     The Company is a party in legal proceedings and potential claims arising in
the ordinary course of its business. Despite the inherent uncertainties of
litigation, management of the Company at this time does not believe that such
proceedings will have a material adverse impact on the consolidated financial
position, results of operations, or cash flows of the Company.
 
NOTE O -- SUPPLEMENTAL CASH FLOW INFORMATION (IN THOUSANDS)
 

<TABLE>
<CAPTION>
                                                                 YEARS ENDED DECEMBER 31,
                                                                --------------------------
                                                                 2000      1999      1998
                                                                 ----      ----      ----
<S>                                                             <C>       <C>       <C>
Interest and taxes paid:
  Interest (net of amounts capitalized).....................    $2,596    $1,245    $1,121
  Income taxes..............................................     1,625     2,860     1,167
Noncash investing and financing activities:
  Treasury stock received for exercise of stock options.....        --        35       465
  Notes issued for product acquisitions.....................        --        --     6,741
</TABLE>

 
NOTE P -- RECENT ACCOUNTING PRONOUNCEMENTS
 
     In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivatives Instruments and Hedging Activities." SFAS 133 establishes accounting
and reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. SFAS No.
133, as amended by SFAS No. 137 and No. 138, will be effective for the Company's
fiscal 2001 financial statements. Adoption, on January 1, 2001, of SFAS No. 133,
as amended, did not have a material effect on the Company's financial position
or results of operations.
 
NOTE Q -- CUSTOMER CONCENTRATION
 
     During 2000, the Company realized approximately 12% of its net sales from
one customer. This customer is a distributor of the Company's products as well
as a distributor of a broad range of health care products for many companies in
the health care sector. This customer is not the end user of the Company's
products. If
 
                                        34

<PAGE>   36
 
NOTE Q -- SUBSEQUENT EVENTS -- (CONTINUED)
 
sales to this customer were to diminish or cease, the Company believes that the
end users of its products would find no difficulty obtaining the Company's
products either directly from the Company or from another distributor. The
accounts receivable balance for this customer was approximately 22% of gross
accounts receivable. No single customer accounted for more than 10% of the
Company's sales in either segment during 1999 or 1998.
 
                                        35

<PAGE>   37
 

I
TEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE
 
     None.
 

                                    PART III
 

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
         COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
 
     During 2000, Harold Koch, an officer of the Company, failed to file timely
with the Securities and Exchange Commission one Form 3 to report initial
holdings and Doyle S. Gaw, a director of the Company, failed to file timely with
the Securities and Exchange Commission one Form 4 to report current
transactions, as required by Section 16(a) of the Securities Exchange Act of
1934. All such transactions have been reported on amended statements or annual
statements on Form 5.
 

ITEM 11. EXECUTIVE COMPENSATION
 
     The following table summarizes the compensation paid by the Company for
services rendered during the years ended December 31, 2000, 1999 and 1998 to
each person who, during 2000, served as the chief executive officer of the
Company and to each other executive officer of the Company whose total annual
salary and bonus for 2000 exceeded $100,000 (each a "Named Executive Officer").
 
                           SUMMARY COMPENSATION TABLE
 

<TABLE>
<CAPTION>
                                                                                  LONG-TERM
                                                                                 COMPENSATION
                                                                                 ------------
                                            ANNUAL COMPENSATION                   SECURITIES
                             -------------------------------------------------    UNDERLYING    ALL OTHER(1)
NAME AND PRINCIPAL POSITION          TIME PERIOD            SALARY    BONUS(2)   OPTIONS/SARS   COMPENSATION
---------------------------          -----------            ------    --------   ------------   ------------
<S>                          <C>                            <C>       <C>        <C>            <C>
Floyd Benjamin (3).........  Year ended December 31, 2000   274,205        --      105,000         38,826
  Vice Chairman              Year ended December 31, 1999   246,184   137,116      305,000         11,700
                             Year ended December 31, 1998   211,407   304,493       70,000          5,756
Harold Koch Jr. (4)........  Year ended December 31, 2000   158,617        --       40,000         11,600
  Senior Vice President      Year ended December 31, 1999   147,928    36,540       10,000         11,600
                             Year ended December 31, 1998   140,384    31,500       10,000         23,900
Rita J. McConville (5).....  Year ended December 31, 2000   151,716        --       55,000          3,500
  Corporate Controller       Year ended December 31, 1999   138,600    33,301       30,000          3,333
                             Year ended December 31, 1998   125,673    37,702       30,000          3,726
</TABLE>

 
---------------
(1) Represents contributions to the Company's Savings and Retirement Plan,
    except as indicated in notes (3) and (4).
 
(2) Represents bonuses awarded for 1998 and 1999 performance paid in 1999 and
    2000, except for Mr. Benjamin, whose 1998 bonus was paid partially in 1998
    and partially in 1999 ($55,916). There were no executive officer bonuses
    awarded for 2000.
 
(3) Mr. Benjamin served as Chief Executive Officer from May 3, 1996 to March 21,
    2001. His "Other Compensation" for 2000 and 1999 includes $9,600 auto
    allowance. His other compensation for 2000 includes $23,372 for country club
    membership and $4,104 for spousal travel.
 
(4) Mr. Koch served as an officer of the Company from May 12, 2000 to April 13,
    2001. His "Other Compensation" includes $7,200 auto allowance for 2000, 1999
    and 1998. His other compensation for 1998 includes $12,500 for title to a
    company vehicle.
 
(5) Ms. McConville served as Chief Financial Officer from February 28, 1997 to
    March 21, 2001.
 
                                        36

<PAGE>   38
 
                     OPTION/SAR GRANTS IN LAST FISCAL YEAR
 

<TABLE>
<CAPTION>
                                                                                        POTENTIAL REALIZABLE
                                         INDIVIDUAL GRANTS                                VALUE AT ASSUMED
                                  --------------------------------                     ANNUAL RATES OF STOCK
                                   NUMBER OF      PERCENT OF TOTAL                     PRICE APPRECIATION FOR
                                   SECURITIES       OPTIONS/SARS      EXERCISE              OPTION TERM
                                   UNDERLYING        GRANTED TO       OR BASE     --------------------------------
                                  OPTIONS/SARS      EMPLOYEES IN       PRICE      EXPIRATION
             NAME                 GRANTED (#)       FISCAL YEAR        ($/SH)        DATE        5%($)     10%($)
             ----                 ------------    ----------------    --------    ----------    -------    -------
<S>                               <C>             <C>                 <C>         <C>           <C>        <C>
Floyd Benjamin................        5,000(1)           1%             9.44       5/12/05       13,038     28,810
                                    100,000(2)          36%             6.25       2/10/05      172,676    381,569
Rita J. McConville............       55,000(2)           9%             6.25       2/10/05       94,972    209,863
Harold Koch Jr................       40,000(2)           6%             6.25       2/10/05       69,070    152,628
</TABLE>

 
---------------
(1) Issued pursuant to the 1991 Stock Option Plan for Directors.
 
(2) Issued pursuant to the Amended and Restated 1988 Incentive Compensation
    Program.
 
              AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
                          AND FY-END OPTION/SAR VALUES
 

<TABLE>
<CAPTION>
                                                                             NUMBER OF
                                                                       SECURITIES UNDERLYING
                                                                            UNEXERCISED               VALUE OF
                                                                             OPTIONS/           UNEXERCISED IN-THE-
                                                                          SARS AT FY-END           MONEY OPTIONS/
                                                                                (#)             SARS AT FY-END($)(1)
                                         SHARES                        ---------------------    --------------------
                                      ACQUIRED ON         VALUE            EXERCISABLE/             EXERCISABLE/
              NAME                    EXERCISE (#)     REALIZED ($)        UNEXERCISABLE           UNEXERCISABLE
              ----                   --------------    ------------    ---------------------    --------------------
<S>                                  <C>               <C>             <C>                      <C>
Floyd Benjamin...................            --               --          413,750/125,000        798,1612/132,875
Rita J. McConville...............            --               --          125,000/ 35,000         322,719/ 25,486
Harold Koch Jr. (2)..............        40,000          334,375            35,000/20,000          61,892/  6,260
</TABLE>

 
---------------
(1) Value of Unexercised in-the-Money options calculated using the 12/31/00
    closing price of $6.563.
 
(2) Mr. Koch's exercises were executed prior to his appointment as an officer.
 
EMPLOYMENT AGREEMENTS
 
     In May 1996 the Company entered into an employment agreement with Mr.
Benjamin calling for an annual salary of $200,000, increased annually at the
discretion of the Board of Directors, plus bonuses determined by a formula
stated in the agreement. The agreement terminated January 1, 1999 upon Mr.
Benjamin's appointment as President and CEO of Akorn, Inc. The Company currently
has no employment contracts with its Named Executive Officers.
 
COMPENSATION COMMITTEE INTERLOCKS
 
     Dr. Bruhl and Mr. Gaw, who comprise the Compensation Committee, are both
independent, non-employee directors of the Company. No executive officer of the
Company served as a director or member of the compensation committee of (i)
another entity in which one of the executive officers of such entity served on
the Company's Compensation Committee, (ii) the board of directors of another
entity in which one of the executive officers of such entity served on the
Company's Compensation Committee, or (iii) the compensation committee of any
other entity in which one of the executive officers of such entity served as a
member of the Company's Board of Directors, during the year ended December 31,
2000.
 
                                        37

<PAGE>   39
 
COMPENSATION COMMITTEE REPORT
 
     The Compensation Committee of the Board of Directors reviews, analyzes and
makes recommendations related to compensation packages for the Company's
executive officers, evaluates the performance of the Chief Executive Officer and
administers the grant of stock options under the Company's Incentive
Compensation Program.
 
     The Company's executive compensation policies are designed to (a) provide
competitive levels of compensation to attract and retain qualified executives,
(b) reward achievements in corporate performance, (c) integrate pay with annual
and long-term performance goals and (d) align the interests of executives with
the goals of shareholders.
 
     Compensation paid to Company executives consists of salaries, annual cash
incentive bonuses and long-term incentive opportunities in the form of stock
options.
 
Salary
 
     Mr. Benjamin's salary for the years ended December 31, 2000 and 1999 and
the salary of Ms. McConville for the year ended December 31, 1999 were
determined after considering the executive compensation policies noted above,
the impact the executive has on the Company, the skills and experience the
executive brings to the job, competition in the marketplace for those skills and
the potential of the executive in the job. Ms. McConville's salary for 1998 and
2000 and Mr. Koch's salary for 1998, 1999 and 2000 was determined by the Chief
Executive Officer. Mr. Benjamin's salary through 1998 was fixed in his
employment agreement.
 
Incentive Bonus
 
     Annual incentive compensation for executive officers during 2000, 1999 and
1998 was based on corporate earnings objectives as well as position-specific
performance objectives. Mr. Benjamin's employment agreement specified the
formula under which he was to be awarded incentive bonuses. Under those
criteria, he did earn a bonus for 1998. Mr. Benjamin's 1998 bonus was paid
partially in 1998 and partially in 1999. The bonuses awarded to Ms. McConville
and Mr. Koch, as noted in the compensation table for 1998 and 1999, and to Mr.
Benjamin for 1999, were paid in 1999 and 2000, respectively. There were no
performance bonuses granted to executive officers for 2000.
 
Stock Options
 
     The Committee's practice with respect to stock options has been to grant
options based upon the attainment of Company performance goals and to vest
options based on the passage of time. The option grants noted in the
compensation table include grants upon initial employment and annual grants as
well as grants issued under the Stock Option Plan for Directors to those named
executive officers who are also directors.
 
     It is the responsibility of the Committee to address the issues raised by
tax laws under which certain non-performance based compensation in excess of $1
million per year paid to executives of public companies is non-deductible to the
Company and to determine whether any actions with respect to this limit need to
be taken by the Company. It is not anticipated that any executive officer of the
Company will receive any compensation in excess of this limit.
 
SUBMITTED BY THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS

                Daniel E. Bruhl, M.D.               Doyle S. Gaw
 

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
 
     As of April 16, 2001, the following persons were directors, nominees, Named
Executive Officers (as defined in "Executive Compensation" below), or others
with beneficial ownership of five percent or more of the Company's common
stock.. The information set forth below has been determined in accordance with
Rule 13d-3 under the Securities Exchange Act of 1934 based upon information
furnished to the Company or
 
                                        38

<PAGE>   40
 
to the Securities and Exchange Commission by the persons listed. Unless
otherwise noted the address of each of the following persons is 2500 Millbrook
Drive, Buffalo Grove, Illinois 60089.
 

<TABLE>
<CAPTION>
                 BENEFICIAL OWNER                     SHARES BENEFICIALLY OWNED    PERCENT OF CLASS
                 ----------------                     -------------------------    ----------------
<S>                                                   <C>                          <C>
DIRECTORS AND NOMINEES
Floyd Benjamin....................................              880,417(1)               4.47%
Daniel E. Bruhl, M.D..............................              311,767(2)               1.62%
Doyle S. Gaw......................................              107,860(2)               0.56%
John N. Kapoor, Ph.D..............................            4,458,038(3)              22.96%
 
NAMED EXECUTIVE OFFICERS (4)
Rita J. McConville................................              133,928                  0.69%
Harold Koch Jr....................................               81,341                  0.42%
Directors and officers as a group (7 persons).....            5,973,351(5)              29.83%
 
OTHER BENEFICIAL OWNERS
Wellington Management Company (6).................            1,054,300                  5.47%
J. P. Morgan Chase & Co. (7)......................            1,012,400                  5.25%
</TABLE>

 
---------------
(1) Mr. Benjamin's shares are held by a trust of which Mr. Benjamin and his wife
    are trustees and their child is beneficiary. Includes 413,750 shares
    issuable pursuant to options granted by the Company directly to Mr.
    Benjamin.
 
(2) The reported shares include options to purchase shares. The shares reported
    for Directors Bruhl and Gaw include options to purchase 15,000 and 20,000
    shares, respectively. In addition, Dr. Bruhl's retirement plan holds 64,266
    of the listed shares.
 
(3) Of such 4,458,038 shares, (i) 841,000 are owned directly by the John N.
    Kapoor Trust dated September 20, 1989 (the "Trust") of which Dr. Kapoor is
    the sole trustee and beneficiary, (ii) 2,000,000 are owned by EJ Financial
    Investments VIII of which Dr. Kapoor is managing general partner, (iii)
    1,395,000 are owned by EJ financial/Akorn Management, L.P. of which Dr.
    Kapoor is managing general partner, (iv) 20,000 are owned directly by Dr.
    Kapoor, (v) 63,600 are owned by a trust, the trustee of which is Dr.
    Kapoor's wife and the beneficiaries of which are their children, and (vi)
    138,438 are issuable pursuant to options granted by the Company directly to
    Dr. Kapoor.
 
(4) Mr. Benjamin and Dr. Kapoor are also named executive officers of the
    Company, and information regarding their beneficial ownership is included in
    this table under the section, "Directors and Nominees." The shares reported
    for Mr. Koch and Ms. McConville include options to purchase 35,000 and
    125,000 shares, respectively.
 
(5) Of such 5,973,351 shares, 747,188 are not presently outstanding, but are
    issuable pursuant to option rights described in the preceding footnotes.
 
(6) The address of Wellington Management Company is 75 State Street, Boston, MA
    02109.
 
(7) The address of J. P. Morgan Chase & Co. is 270 Park Avenue, New York, NY
    10017.
 

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
 
     For the year ended December 31, 2000, the Company did not have any
transactions with shareholders or directors which require disclosure.
 
                                        39

<PAGE>   41
 

                                    PART IV
 

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
 
     (a).2. Financial Statement Schedule. The following financial Financial
            Statement Schedule is filed with this Annual Report on Form 10-K on
            the page indicated:
 
            Description                                   Page
 
     II.     Valuation and Qualifying Accounts            41
 
     (a).3. Exhibits
 
     Those exhibits marked with an asterisk (*) refer to exhibits filed
herewith. The other exhibits are incorporated herein by reference, as indicated
in the following list.
 

<TABLE>
<C>       <S>
 (2.0)    Agreement and Plan of Merger among Akorn, Inc., Taylor, and
          Pasadena Research Laboratories, Inc. dated May 7, 1996,
          incorporated by reference to the Company's report on Form
          10-K for the fiscal year ended June 30, 1996.
 (3.1)    Restated Articles of Incorporation of the Company dated
          September 6, 1991, incorporated by reference to Exhibit 3.1
          to the Company's report on Form 10-K for the fiscal year
          ended June 30, 1991.
 (3.2)    Articles of Amendment to Articles of Incorporation of the
          company dated February 28, 1997, incorporated by reference
          to Exhibit 3.2 to the Company's report on Form 10-K for the
          transition period from July 1, 1996 to December 31, 1996.
 (3.3)    Current Composite of By-laws of the Company, incorporated by
          reference to Exhibit 3.3 to the Company's report on Form
          10-K for the transition period from July 1, 1996 to December
          31, 1996.
 (4.1)    Specimen Common Stock Certificate, incorporated by reference
          to Exhibit 4.1 to the Company's report on Form 10-K for the
          fiscal year ended June 30, 1988.
(10.1)    Consulting Agreement dated November 15, 1990 by and between
          E. J. Financial Enterprises, Inc., a Delaware corporation,
          and the Company, incorporated by reference to Exhibit 10.24
          to the Company's report on Form 10-K for the fiscal year
          ended June 30, 1991.
(10.2)    Amendment No. 1 to the Amended and Restated Akorn, Inc. 1988
          Incentive Compensation Program, incorporated by reference to
          Exhibit 10.33 to the Company's report on Form 10-K for the
          fiscal year ended June 30, 1992.
(10.3)    1991 Akorn, Inc. Stock Option Plan for Directors,
          incorporated by reference to Exhibit 4.3 to the Company's
          registration statement on Form S-8, registration number
          33-44785.
(10.4)    Common Stock Purchase Warrant dated September 3, 1992,
          issued by the Company to the John N. Kapoor Trust dated
          September 20, 1989, incorporated by reference to Exhibit No.
          7 to Amendment No. 3 to Schedule 13D, dated September 10,
          1992, filed by John N. Kapoor and the John N. Kapoor Trust
          dated September 20, 1989.
(10.5)    Amended and Restated Credit Agreement dated September 15,
          1999 among the Company, Akorn (New Jersey), Inc. and The
          Northern Trust Company (the "Credit Agreement").
(10.6)    Amendment No. 1 to the Credit Agreement dated December 28,
          1999.
(21.1)    *Subsidiaries of the Company.
(23.1)    *Consent of Deloitte & Touche LLP.
</TABLE>

 
     (b) Reports on Form 8-K.
 
     A report on Form 8-K was filed October 26, 2000, reporting revised
estimates for revenues and earnings for the fourth quarter of 2000 and for
fiscal year 2001.
 
                                        40

<PAGE>   42
 
                                  AKORN, INC.
 
                       VALUATION AND QUALIFYING ACCOUNTS
                  YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
 

<TABLE>
<CAPTION>
                                                              ADDITIONS
                                               BALANCE AT    CHARGED TO                      BALANCE
                                               BEGINNING      COSTS AND                       AT END
                DESCRIPTION                    OF PERIOD      EXPENSES       DEDUCTIONS     OF PERIOD
                -----------                    ----------    ----------      ----------     ---------
<S>                                            <C>           <C>            <C>             <C>
Allowance for doubtful accounts
  1998.....................................    $  522,000    $    50,000    $   (147,000)   $  425,000
  1999.....................................       425,000        161,000        (360,000)      226,000
  2000.....................................       226,000        607,000         (32,000)      801,000
Allowance for returns
  1998.....................................    $       --    $    22,000    $    (22,000)   $       --
  1999.....................................            --        205,000        (205,000)           --
  2000.....................................            --      1,159,000        (927,000)      232,000
Allowance for chargebacks and rebates
  1998.....................................    $2,114,000    $ 9,252,000    $ (9,817,000)   $1,549,000
  1999.....................................     1,549,000     23,793,000     (22,168,000)    3,174,000
  2000.....................................     3,174,000     29,558,000     (29,436,000)    3,296,000
Allowance for inventory obsolescence
  1998.....................................    $  710,000    $   702,000    $   (840,000)   $  572,000
  1999.....................................       572,000        611,000      (1,049,000)      134,000
  2000.....................................       134,000      3,983,000        (946,000)    3,171,000
</TABLE>

 
                                        41

<PAGE>   43
 

                                   SIGNATURES
 
     In accordance with Section 13 or 15(d) 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.
 
                                          By:      /s/ JOHN N. KAPOOR
                                            ------------------------------------
                                                       John N. Kapoor
                                                  Chief Executive Officer
 
Date: April 17, 2001
 
     In accordance with the Securities Exchange Act of 1934, this report has
been signed below by the following persons on behalf of the Registrant, and in
the capacities and on the dates indicated.
 

<TABLE>
<CAPTION>
                  SIGNATURE                                    TITLE                        DATE
                  ---------                                    -----                        ----
<C>                                            <S>                                     <C>
 
                                               Chief Executive Officer and Director    April 17, 2001
---------------------------------------------  (Principal Executive Officer)
            John N. Kapoor, Ph.D.
 
                                               Director                                April 17, 2001
---------------------------------------------
               Floyd Benjamin
 
                                               Chief Financial Officer                 April 17, 2001
---------------------------------------------  (Principal Financial Officer and
               Kevin M. Harris                 Principal Accounting Officer)
 
                                               Director                                April 17, 2001
---------------------------------------------
            Daniel E. Bruhl, M.D.
 
                                               Director                                April 17, 2001
---------------------------------------------
                Doyle S. Gaw
</TABLE>

 
                                        42





<PAGE>   1
                                                                    EXHIBIT 21.1

                           SUBSIDIARIES OF THE COMPANY

         Name                                   State of Incorporation
---------------------------                     ----------------------

Akorn (New Jersey), Inc.                               Illinois


















                                       43






<PAGE>   1
                                                                    EXHIBIT 23.1
                                                                                
                         INDEPENDENT AUDITORS' CONSENT

We consent to the incorporation by reference in Registration Statement Nos.
33-44785, 33-24970 and 33-70686 of Akorn, Inc. on Form S-8 of our report dated
February 23, 2001, except for paragraph 4 of Note G, as to which the date is
April 17, 2001, appearing in this Annual Report on Form 10-K of Akorn, Inc. for
the year ended December 31, 2001.



Deloitte & Touche LLP
Chicago, Illinois
April 17, 2001