Akorn, Inc. (NASDAQ: AKRX), a niche generic pharmaceutical company, today announced that it will restate the previously issued unaudited financial statements contained in its Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2012.
The previously disclosed $66.7 million purchase price for the acquisition of Kilitch Drugs (India) Limited was originally recorded in the first quarter of 2012. During the second quarter of 2012, the Company determined that its preliminary accounting for the acquisition of Kilitch Drugs (India) Limited needed to be corrected, as certain items that had been previously capitalized as purchase price needed to be expensed as either compensation earned from the achievement of acquisition related milestones or other acquisition costs. As a result of the restatement Akorn will re-characterize approximately $8.3 million of originally recorded purchase price as additional expense for the quarter ended March 31, 2012.
In addition, the Company’s consolidated statements of cash flows for the three months ended March 31, 2012 and 2011 have been adjusted to correct a classification error. The error resulted in an understatement of net cash provided by operating activities of $1.4 million, with a corresponding understatement of net cash used in investing activities for the three months ended March 31, 2012 and an overstatement of net cash provided by operating activities of $0.5 million, with a corresponding overstatement of net cash used in investing activities for the three month period ended March 31, 2011.
To address these matters, Akorn expects to file an amendment to its Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2012 to reflect the corrections and accordingly, the referenced financial statements should not be relied upon until such time as the company files its restated financial statements.
The decision to restate prior financial statements based on these matters was made by the Audit Committee of Akorn’s Board of Directors, upon the recommendation of management. The company believes that the corrections will not impact its current cash or liquidity position. In connection with this matter, the company has re-evaluated its conclusions regarding the effectiveness of its internal control over financial reporting for the affected period and determined that a material weakness existed at March 31, 2012. The company had previously concluded in its Quarterly Report on Form 10-Q for the fiscal quarter March 31, 2012 that is controls were effective as of March 31, 2012. As a result of the material weakness, the company has now concluded that such controls were ineffective. Accordingly, the company will restate its disclosures as of March 31, 2012 to include the identification of a material weakness related to its restatement.