ACURA PHARMACEUTICALS, INC (Form: 10-K, Received: 03/05/2008 16:07:08)

SIGNATURES

Pursuant to the requirements of 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.

Date: March 5, 2008	ACURA PHARMACEUTICALS, INC.

	By :	ANDREW D. REDDICK
		Andrew D. Reddick President and Chief Executive Officer (Principal Executive Officer)

Pursuant to the requirements of 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.

Signature	Title(s)	Date

/s/ Andrew D. Reddick	President, Chief Executive Officer and	March 5, 2008
Andrew D. Reddick	Director
	(Principal Executive Officer)

/s/ Peter A. Clemens	Senior Vice President and Chief Financial	March 5, 2008
Peter A. Clemens	Officer (Principal Financial and Accounting
	Officer)

/s/ William G. Skelly	Director	March 5, 2008
William G. Skelly

/s/ Bruce F. Wesson	Director	March 5, 2008
Bruce F. Wesson

/s/ William A. Sumner	Director	March 5, 2008
William A. Sumner

/s/Richard J. Markham	Director	March 5, 2008
Richard J. Markham

/s/ Immanuel Thangaraj	Director	March 5, 2008
Immanuel Thangaraj

/s/ George K. Ross	Director	March 5, 2008
George K. Ross

INDEX TO FINANCIAL STATEMENTS

	Page
Report of Independent Registered Public Accounting Firm		F-2

Consolidated Balance Sheets		F-3

Consolidated Statements of Operations		F-4

Consolidated Statements of Stockholders' Equity (Deficit)		F-5

Consolidated Statements of Cash Flows		F-6 - F-7

Notes to Consolidated Financial Statements		F-8 - F-23

F-1

Report of Independent Registered Public Accounting Firm

Board of Directors and Stockholders

ACURA PHARMACEUTICALS, INC.

Palatine, Illinois

We have audited the accompanying consolidated balance sheets of Acura Pharmaceuticals, Inc. and Subsidiary as of December 31, 2007 and 2006 and the related consolidated statements of operations, stockholders’ equity (deficit), and cash flows for each of the three years in the period ended December 31, 2007. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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 consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, 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, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Acura Pharmaceuticals, Inc. and Subsidiary at December 31, 2007 and 2006, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2007, in conformity with accounting principles generally accepted in the United States of America.

As described in Note A.13 to the consolidated financial statements, effective January 1, 2006, the Company adopted the fair value method of accounting provisions of Statement of Financial Accounting Standard No. 123 (revised 2004), “Share Based Payment”.

/s/ BDO Seidman, LLP

Chicago, Illinois

March 5, 2008

F-2

ACURA PHARMACEUTICALS, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 2007 and 2006

(in thousands except share data)

	2007			2006
ASSETS
Current assets
Cash and cash equivalents	$	31,368		$	228
Collaboration revenue receivable		2,977			-
Prepaid clinical study costs		388			-
Prepaid insurance		202			179
Prepaid expenses and other current assets		47			60
Deferred income taxes		9,600			-
Total current assets		44,582			467
Property, plant and equipment, net		1,046			1,145
Deposits		-			7
Total assets	$	45,628		$	1,619

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current liabilities
Senior secured convertible bridge term notes, net	$	-		$	7,005
Conversion features on bridge term notes		-			16,750
Secured term note		-			5,000
Current maturities of capital lease obligations		-			25
Deferred program fee revenue – current portion		21,942			-
Accrued expenses		334			328
Total current liabilities		22,276			29,108
Non-current liabilities
Common stock warrants		-			10,784
Capital lease obligations, less current maturities		-			7
Deferred program fee revenue - non current portion		4,632			-
Total liabilities		26,908			39,899
Commitments and contingencies (Note J)
Stockholders’ equity (deficit)
Common stock - $.01 par value; 650,000,000 shares authorized; 42,706,466 and 33,099,846 shares issued and outstanding in 2007 and 2006, respectively		427			331
Additional paid-in capital		340,153			278,932
Accumulated deficit		(321,860	)		(317,543	)
Total stockholders’ equity (deficit)		18,720			(38,280	)
Total liabilities and stockholders’ equity	$	45,628		$	1,619

See accompanying notes to the consolidated financial statements.

F-3

ACURA PHARMACEUTICALS, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS

YEARS ENDED DECEMBER 31, 2007, 2006 and 2005

(in thousands except per share data)

	2007			2006			2005
Revenues
Program fee revenue	$	3,427		$	-		$	-
Collaboration revenue		2,977			-			-
Total revenue		6,404			-			-

Operating expenses
Research and development expense		7,169			5,172			6,265
Marketing, general and administrative expense		4,141			5,654			5,296
Total operating expenses		11,310			10,826			11,561
Loss from operations		(4,906	)		(10,826	)		(11,561	)

Other income (expense)
Interest income		268			18			36
Interest expense		(1,207	)		(1,140	)		(636	)
Amortization of debt discount		(2,700	)		(183	)		-
(Loss) gain on fair value change of conversion features		(3,483	)		4,235			-
(Loss) gain on fair value change of common stock warrants		(1,905	)		2,164			-
Gain (loss) on asset disposals		22			(22	)		81
Other (expense) income		(3	)		(213	)		5
Total other income (expense)		(9,008	)		4,859			(514	)
Loss before income tax benefit		(13,914	)		(5,967	)		(12,075	)

Income tax benefit		(9,600	)		-			-
Net loss	$	(4,314	)	$	(5,967	)	$	(12,075	)

Basic and diluted loss per share applicable to common stockholders (Note A)	$	(0.11	)	$	(0.75	)	$	(1.81	)

Weighted average shares used in computing basic and diluted loss per share allocable to common stockholders		39,157			34,496			6,680

See accompanying notes to the consolidated financial statements .

F-4

ACURA PHARMACEUTICALS, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005

(in thousands except par values)

	Common Stock $0.01 Par Value					Preferred Stock $0.01 Par Value						Additional Paid-in			Unearned			Accumulated
	Shares			Amount		Shares			Amount			Capital			Compensation			Deficit			Total
Balance at January 1, 2005		2,247		$	23		217,973		$	2,180		$	277,330		$	(1,078	)	$	(279,541	)	$	(1,086	)
Net loss for the year ended December 31, 2005																			(12,075	)		(12,075	)
Intrinsic value of issued options and restricted stock units													11,105			(11,105	)					-
Amortization of unearned compensation																6,459						6,459
Issuance of Common Shares for exercise of options		3			-								5									5
Issuance of Common Shares for interest		96			1								534									535
Conversion of Preferred Shares:
Series A Convertible Preferred		10,982			110		(21,964	)		(220	)		110									-
Series B Junior Convertible		2,025			20		(20,246	)		(203	)		183									-
Series C-1 Junior Convertible		5,642			56		(56,423	)		(564	)		508									-
Series C-2 Junior Convertible		3,743			37		(37,433	)		(374	)		337									-
Series C-3 Junior Convertible		8,191			82		(81,907	)		(819	)		737									-
Balance at December 31, 2005		32,929		$	329		-		$	-		$	290,849		$	(5,724	)	$	(291,616	)	$	(6,162	)
Net loss for the year ended December 31, 2006																			(5,967	)		(5,967	)
Deemed dividend related to debt modification																			(19,960	)		(19,960	)
Adoption of FAS 123R													(5,724	)		5,724						-
Issuance of restricted stock units													680									680
Other stock based compensation													5,046									5,046
Reclassification of value of common stock warrants to liabilities													(12,948	)								(12,948	)
Issuance of Common Shares for exercise of options		40			1								97									98
Issuance of Common Shares for interest		128			1								932									933
Issuance of Common Shares for cashless exercise of warrant		2																				-
Balance at December 31, 2006		33,099		$	331		-		$	-		$	278,932		$	-		$	(317,543	)	$	(38,280	)
Net loss for the year ended December 31, 2007																			(4,314	)		(4,314	)
Deemed dividend related to debt modification																			(3	)		(3	)
Reclassification of conversion feature value													21,086									21,086
Reclassification of common stock warrant value													12,453									12,453
Conversion feature value of issued debt													1,789									1,789
Other stock based compensation													915									915
Net proceeds from unit offering		5,556			56								14,090									14,146
Conversion of bridge loan notes, net		3,905			39								9,961									10,000
Issuance of Common Shares for exercise of options		31			-								116									116
Issuance of Common Shares for interest		84			1								811									812
Issuance of Common Shares for cashless exercise of warrants		32			-								-									-
Reverse stock split		(1	)		-								-									-
Balance at December 31, 2007		42,706		$	427		-		$	-		$	340,153		$	-		$	(321,860	)	$	18,720

See accompanying notes to the consolidated financial statements .

F-5

ACURA PHARMACEUTICALS, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

YEARS ENDED DECEMBER 31, 2007, 2006, and 2005

(in thousands, except supplemental data)

	2007			2006			2005
Cash flows from operating activities:
Net loss	$	(4,314	)	$	(5,967	)	$	(12,075	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization		130			118			137
Amortization of debt discount		2,700			183			-
Loss (gain) on the fair value change of conversion features		3,483			(4,235	)		-
Loss (gain) on the fair value change of common stock warrants		1,905			(2,164	)		-
Non-cash stock compensation expense		915			5,724			6,459
(Gain) loss on asset disposals		(22	)		22			(81	)
Common stock issued for interest		812			933			535
Deferred income taxes		(9,600	)		-			-
Impairment charge against fixed assets		-			71			-

Changes in assets and liabilities
Collaboration revenue receivable		(2,977	)		-			-
Prepaid expenses and other current assets		(398	)		(55	)		121
Other assets and deposits		7			-			(5	)

Accrued expenses		5			(13	)		(618	)
Deferred program fee revenue		26,574			-			-
Net cash provided by (used in) operating activities		19,220			(5,383	)		(5,527	)

Cash flows from investing activities:
Capital expenditures		(31	)		(85	)		(35	)
Proceeds from asset disposals		22			70			193
Net cash (used in) provided by investing activities		(9	)		(15	)		158

Cash flows from financing activities:
Proceeds from issuance of senior secured bridge term notes		2,696			5,298			2,550
Repayments on secured term note		(5,000	)		-			-
Net proceeds from the unit offering		14,146			-			-
Proceeds from exercise of stock options		119			98			5
Payments on capital lease obligations		(32	)		(31	)		(29	)
Net cash provided by financing activities		11,929			5,365			2,526

Net increase (decrease) in cash and cash equivalents		31,140			(33	)		(2,843	)
Cash and cash equivalents at beginning of period		228			260			3,103
Cash and cash equivalents at end of period	$	31,368		$	228		$	260

Cash paid during the period:
Interest	$	395		$	207		$	101
Income taxes	$	-		$	-		$	-

See accompanying notes to the consolidated financial statements .

F-6

ACURA PHARMACEUTICALS, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

YEAR ENDED DECEMBER 31, 2007, 2006, and 2005

Supplemental disclosures of noncash investing and financing activities presented on a reverse stock split basis:

Year ended December 31, 2007

1.	The Company issued 47,552 shares of common stock valued at $460,000 as payment of Senior Secured Convertible Bridge Term Notes Payable accrued interest.

2.	The Company issued 36,150 shares of common stock valued at $352,000 as payment of Secured Term Note Payable accrued interest.

3.	Warrants to purchase an aggregate 58,000 shares of common stock were exercised at exercise prices between $1.20 and $6.60 per share in a series of cashless exercise transactions resulting in the issuance of aggregate 31,361 shares of common stock.

4.	The issuance of $896,000 Senior Secured Convertible Bridge term Notes during the period January 1, 2007 through March 29, 2007 included conversion features measured at $849,000, which resulted in the recording of an equal amount of debt discount and conversion feature liabilities.

5.	The change in all separated conversion feature’s fair value through March 30, 2007 resulted in a loss of $3,483,000. Due to a debt agreement modification on March 30, 2007, the then current conversion feature fair value of $21,086,000 was reclassified from liabilities to equity.

6.	The issuance of $1,800,000 of Senior Secured Bridge Term Notes included conversion features measured at $1,552,000, which resulted in a recording of an equal amount of debt discount to equity.

The change in the common stock warrants’ fair value through the earlier of their exercise date or March 30, 2007 resulted in a loss of 1,668,000. Due to a debt agreement modification on March 30, 2007, the then current fair value of all 1,592,100 outstanding common stock warrants of $12,307,000 was reclassified from liabilities to equity, as was $146,000 of such value related to warrants exercised during the period.

8.	Anti-dilution provisions in certain warrant grants were triggered resulting in a loss of $236,000 with an equal amount recorded against equity.

9.	Senior Secured Convertible Bridge Term Notes Payable of $10,544,000, less unamortized debt discount of $544,000 was converted into 3,905,184 shares of common stock.

Year ended December 31, 2006

1.	The Company issued 85,464 shares of Common Stock as payment of $624,000 of Secured Term Note Payable accrued interest.

2.	The Company issued 42,650 shares of Common Stock as payment of $309,000 of Bridge Loan Notes Payable accrued interest.

3.	Warrants to purchase 16,593 shares of Common Stock were exercised in March 2006 at an exercise price of $4.80 per share in a cashless exercise transaction resulting in the issuance of 19,065 shares of Common Stock.

4.	Warrants to purchase 3,069 shares of Common Stock were exercised in May 2006 at an exercise price of $4.70 per share in a cashless exercise transaction resulting in the issuance of 473 shares of Common Stock.

5.	A warrant to purchase 15,000 shares of Common Stock was modified due to its anti-dilution clause resulting in a $142,000 stock compensation expense.

The modification of conversion features embedded within Bridge Loan Notes Payable was valued at $19,951,000 and the issuance of $1,104,000 of Bridge Loan Notes Payable contained conversion features valued at $1,035,000. The change in the conversion feature’s fair value through December 31, 2006 resulted in a gain of $4,235,000.

Due to certain debt conversion feature modifications, the then current fair value of all 16,331,000 outstanding common stock warrants of $12,948,000 was reclassified from equity to liabilities. The change in the common stock warrants fair value through December 31, 2006 resulted in a gain of $2,164,000.

8.	Bridge Loan Notes Payable of $1,104,000 contained $1,025,000 of debt discount.

Year ended December 31, 2005

1.	The Company issued 96,300 shares of common stock as payment of $535,000 of Secured Term Note Payable accrued interest.

2.	21,797,300 shares of Convertible Preferred Stock were converted into 30,582,800 shares of Common Stock.

See accompanying notes to the consolidated financial statements .

F-7

ACURA PHARMACEUTICALS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2007, 2006 and 2005

NOTE A - DESCRIPTION OF BUSINESS AND SUMMARY OF ACCOUNTING POLICIES

Acura Pharmaceuticals, Inc., a New York corporation, and its subsidiary (the “Company” or “We”) is a specialty pharmaceutical company engaged in research, development and manufacture of innovative Aversion® Technology and related product candidates. Product candidates developed with Aversion® Technology and containing opioid analgesic active ingredients are intended to effectively treat pain and also discourage the three most common methods of pharmaceutical product misuse and abuse including; (i) intravenous injection of dissolved tablets or capsules, (ii) nasal snorting of crushed tablets or capsules and (iii) intentional swallowing of excessive numbers of tablets or capsules. ACUROX™ Tablets, the Company’s lead product candidate utilizing Aversion® Technology, is being developed pursuant to an active investigational new drug application (“IND”) on file with the U.S. Food and Drug Administration (“FDA”). Aversion® Technology is our patented platform technology for developing next-generation pharmaceutical products containing potentially abuseable drugs including oxycodone, hydrocodone, oxymorphone, hydromorphone, morphine, codeine, tramadol, propoxyphene, and many others. Additional Aversion® Technology patents are pending encompassing a wide range of abuseable drugs including stimulants, tranquilizers and sedatives. Aversion® Technology is applicable to orally administered tablets and capsules. In addition to the active ingredient, Aversion® Technology utilizes certain patented compositions of pharmaceutical product inactive excipients and active ingredients intended to discourage or deter pharmaceutical product abuse.

The Company conducts internal research, development, laboratory, manufacturing and warehousing activities for Aversion® Technology at its Culver, Indiana facility. The 28,000 square foot facility is registered by the U.S. Drug Enforcement Administration (“DEA”) to perform research, development and manufacture of certain Schedule II - V finished dosage form products. In addition to internal capabilities and activities, the Company engages numerous contract research organizations (“CROs”) with expertise in regulatory affairs, clinical trial design and monitoring, clinical data management, biostatistics, medical writing, laboratory testing and related services. Such CROs perform development services for ACUROX™ Tablets and other product candidates under the direction of the Company.

Amounts presented have been rounded to the nearest thousand, except where indicated, share and per share data. The equity amounts and all share and per share data of the Company have been retroactively adjusted to reflect a one-for-ten reverse stock split on December 5, 2007.

Summary of Significant Accounting Policies

A summary of the significant accounting policies consistently applied in the preparation of the accompanying consolidated financial statements follows.

1. Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, Acura Pharmaceutical Technologies, Inc. All significant intercompany accounts and transactions are eliminated in consolidation. During 2006, the Company dissolved Axiom Pharmaceutical Corporation. The dissolution of this subsidiary had no impact on the consolidated financial position, results of operations or cash flows of the Company.

2. Cash, Cash Equivalents, and Credit Risk

The Company considers all highly liquid financial instruments purchased with original maturities of three months or less to be cash equivalents. Cash and cash equivalents consist of cash maintained at two financial institutions and in repurchase agreement investments at year end. We believe the financial risks associated with these instruments to be minimal. We have not experienced any losses from our investments in these securities.

3. Use of Estimates in Consolidated Financial Statements

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and use assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the consolidated financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Management periodically evaluates estimates used in the preparation of the consolidated financial statements for continued reasonableness. Appropriate adjustments, if any, to the estimates used are made prospectively based on such periodic evaluations.

F-8

4. Inventories

The Company had no inventories at each of December 31, 2007 and 2006. Purchases of active pharmaceutical ingredients required for the Company’s development and manufacture of product candidates utilizing its Aversion® Technology, are expensed as incurred. To purchase certain active ingredients required for our development and manufacture, we are required to file for and obtain quotas from the DEA.

5. Property, Plant and Equipment

Property, plant and equipment are recorded at cost. Depreciation is recorded on a straight-line basis over the estimated useful lives of the related assets. Amortization of capital lease assets is included in depreciation expense. Leasehold improvements are amortized on a straight-line basis over the shorter of their useful lives or the terms of their respective leases. Betterments are capitalized and maintenance and repairs are charged to operations as incurred. The estimated lives of the major classification of depreciable assets are:

Building and building improvements	10 - 40 years
Land improvements	20 - 40 years
Machinery and equipment	7 - 10 years
Scientific equipment	5 - 10 years
Computer hardware and software	3 - 10 years
Office equipment	5 - 10 years
Furniture and fixtures	10 years

6. Asset Impairment

Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate the carrying value may not be recoverable. Impairment is measured by comparing the carrying value of the long-lived assets to the estimated undiscounted future cash flows expected to result from use of the assets and their ultimate disposition. To the extent impairment has occurred, the carrying amount of the asset would be written down to an amount to reflect the fair value of the asset. During the fourth quarter of 2006, the Company provided a $71,000 reserve against the net book value of assets assigned to the Company’s Opioid Synthesis Technologies as the Company had discontinued all activities relating to this technology. At December 31, 2006, the net book value of all asset groups under reserve was $166,000. During 2007, group assets in the amount of $59,000 from the Opioid Synthesis Technologies were disposed of resulting in a recorded gain of $20,000. Additional other reserved assets of $25,000 were also disposed of resulting in neither gain nor loss. At December 31, 2007 the net book value of group assets under reserve was $82,000.

7. Debt Discount

Debt discount resulting from the issuance of common stock warrants in connection with the issuance of subordinated debt and other notes payable as well as from beneficial conversion features contained in convertible debt was recorded as a reduction of the related obligations and was amortized over the remaining life of the related obligations. Debt discount related to the common stock warrants issued was determined by a calculation based on the relative fair values ascribed to such warrants determined by management's use of the Black-Scholes valuation model. Inherent in the Black-Scholes valuation model are assumptions made by management regarding the estimated life of the warrant, the estimated volatility of the Company's common stock (as determined by reviewing its historical public market closing prices) and the expected dividend yield.

8. Debt Conversion Features and Common Stock Warrants

Certain provisions of the amended conversion features contained in the Company’s Bridge Loans required the Company to separate the value of the conversion feature from this debt and record such value as a separate liability which was marked-to-market each balance sheet date. The Company used the Black-Scholes option-pricing model to compute the estimated fair value of the conversion features. Marked-to-market adjustments resulted in recording of further gains and losses.

F-9

As a result of the amendment to the Bridge Loans, all outstanding common stock purchase warrants were fair valued using the Black - Scholes option-pricing model and recorded as a liability with a corresponding reduction in additional paid-in capital. This warrant liability was marked-to-market each balance sheet which resulted in recording of further gains and losses.

9. Revenue Recognition and Deferred Program Fee Revenue

We recognize revenue in accordance with Securities and Exchange Commission Staff Accounting Bulletin No. 104, “Revenue Recognition in Financial Statements” (“SAB 104”). We have also adopted the provisions of Emerging Issues Task Force, Issue No. 00-21, “Revenue Arrangements with Multiple Deliverables” (“EITF 00-21”). Revenue is recognized when there is persuasive evidence that an arrangement exists, delivery has occurred, the price is fixed and determinable, and collection is reasonably assured.

In connection with our Agreement with King, we recognize program fee revenue, collaboration revenue and milestone revenue. Program fee revenue is derived from the upfront payment from King received in December 2007. We have assigned a portion of the license fee revenue to each of the product candidates included under the Agreement and recognize the program fee ratably over our estimate of the development period for each of the products under the Agreement with King. Collaboration revenues from reimbursement of development expenses, which are invoiced quarterly in arrears, are recognized when costs are incurred pursuant to the Agreement with King. King is obligated to pay us milestone payments contingent upon the achievement of certain substantive events in the clinical development of ACUROX™ Tablets and the other product candidates under the Agreement. We recognize milestone payments from King as revenue when we achieve the underlying developmental milestone as the milestone payments are not dependent upon any other future activities or achievement of any other future milestones and the achievement of each of the developmental milestones were substantively at risk and contingent at the effective date of the collaboration. Substantial effort is involved in achieving each of the developmental milestones. These milestones represent the culmination of discrete earnings processes and the amount of each milestone payment is reasonable in relation with the level of effort associated with the achievement of the milestone. Each milestone payment is non-refundable and non-creditable when made. The ongoing research and development services being provided to King under the collaboration are priced at fair value based upon the reimbursement of expenses incurred pursuant to the collaboration with King. We recognized $3,427,000 of program fee revenue, $2,977,000 of collaboration revenue and $0 of milestone revenue in 2007.

10. Research and Development

Research and Development (“R&D”) expenses include internal R&D activities, external CRO activities, and other activities. Internal R&D activity expenses include facility overhead, equipment and facility maintenance and repairs, depreciation, laboratory supplies, pre-clinical laboratory experiments, depreciation, salaries, benefits, and incentive compensation expenses. CRO activity expenses include preclinical laboratory experiments and clinical trial studies. Other activity expenses include clinical trial studies and regulatory consulting, regulatory counsel, and patent counsel. Internal R&D activities and other activity expenses are charged to operations as incurred. The Company makes payments to the CRO's based on agreed upon terms including payments in advance of the study starting date. The Company reviews and accrues CRO and clinical trial study expenses based on work performed and rely on estimates of those costs applicable to the stage of completion of a study provided by the CRO. Accrued CRO costs are subject to revisions as such trials progress to completion. Revisions are charged to expense in the period in which the facts that give rise to the revision become known. Advance payments are amortized to expense based on work performed. The Company has entered into several CRO clinical trial agreements pursuant to which $388,000 was prepaid at December 31, 2007. The unfunded CRO commitments were $3,991,000 and $162,000 at December 31, 2007 and 2006, respectively, and are expected to be incurred as subjects are enrolled into the clinical studies.

F-10

11. Income Taxes

The Company accounts for income taxes under the liability method in accordance with Statement of Financial Accounting Standards No. 109 ("SFAS No. 109"), "Accounting for Income Taxes." Under this method, deferred income tax assets and liabilities are determined based on differences between financial reporting and income tax basis of assets and liabilities and are measured using the enacted income tax rates and laws that will be in effect when the differences are expected to reverse. Additionally, net operating loss and tax credit carryforwards are reported as deferred income tax assets. The realization of deferred income tax assets is dependent upon future earnings. SFAS 109 requires a valuation allowance against deferred income tax assets if, based on the weight of available evidence, it is more likely than not that some or all of the deferred income tax assets may not be realized. During the Fourth Quarter 2007, the Company determined it was more likely than not that it would be able to realize some of its deferred income tax assets in the near future, and recorded a $9.6 million adjustment to the deferred income tax asset valuation allowance. This adjustment recognized a benefit from income taxes in our income for such period and provided a current deferred income tax asset. At both December 31, 2007 and 2006, a valuation allowance equal to 100% of the remaining net deferred income tax assets was used and primarily pertains to uncertainties with respect to future utilization of net operating loss carryforwards. If in the future it is determined that additional amounts of our deferred income tax assets would likely be realized, the valuation allowance would be reduced in the period in which such determination is made and an additional benefit from income taxes in such period would be recognized.

12. Earnings (Loss) Per Share

The computation of basic earnings (loss) per share of common stock is based upon the weighted average number of common shares outstanding during the period, including shares related to vested restricted stock units (See Note I). The computation of diluted earnings (loss) per share is based on the same number of shares used in the basic share calculation adjusted for the effect of other potentially dilutive securities. No such adjustments were made for 2007, 2006 or 2005 as their effects would be antidilutive.

Net loss used in the Company’s earnings (loss) per share computations includes the impact in 2007 and 2006 of dividends deemed to have been issued to certain common shareholders as a result of modifications to debt agreements with those shareholders as further described in Note F.

	Year ended December 31,
(in thousands except per share data)	2007			2006			2005
Numerator:
Net loss	$	(4,314	)	$	(5,967	)	$	(12,075	)
Deemed dividend from modification of debt		(3	)		(19,960	)		-
Net loss applicable to common stock holders	$	(4,317	)	$	(25,927	)	$	(12,075	)

Denominator:
Weighted average number of outstanding -
Common shares		36,656			32,986			6,657
Vested restricted stock units		2,501			1,510			23
Weighted average shares		39,157			34,496			6,680

Basic and diluted loss per common share	$	(0.11	)	$	(0.75	)	$	(1.81	)

Potentially dilutive securities:
Common stock issuable (1) -
Employee and director stock options		1,858			1,900			1,975
Common stock warrants		3,972			1,633			1,624
Non-vested restricted stock units		-			983			1,834
Convertible debt		-			3,306			-
Convertible preferred stock		-			-			-
Dilutive shares		4,820			7,822			5,433

(1) Number of shares issuable is based on maximum number of shares issuable on exercise or conversion of the related securities as of year end. Such amounts have not been adjusted for the treasury stock method or weighted average outstanding calculations required if the securities were dilutive.

13. Stock-Based Compensation

The Company has three stock-based compensation plans covering stock options and restricted stock units for its employees and directors, which are described more fully in Note I.

F-11

On January 1, 2006, the Company adopted Financial Accounting Standards Board Statement No. 123 (revised 2004), “Share-Based Payment”, (“FASB 123R”). This change in accounting replaces existing requirements under Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation (“SFAS 123”) and eliminates the ability to account for share-based compensation transaction using Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and related Interpretations ("APB No. 25"). The compensation cost related to share-based payment transactions is now measured based on fair value of the equity or liability instrument issued. For purposes of estimating the fair value of each stock option unit on the date of grant, the Company utilized the Black-Scholes option-pricing model. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options, which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected volatility factor of the market price of the Company’s common stock (as determined by reviewing its historical public market closing prices). Because the Company’s employee stock options have characteristics significantly different form those of trade options and because changes in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion, the existing models do not necessarily provide a reliable measure of the fair value of its employee stock options.

The Company had previously accounted for stock-based compensation using the intrinsic value method in accordance with APB No. 25 and had adopted the disclosure provisions of Statement of Financial Accounting Standards No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure, ("SFAS No. 148"), an amendment of SFAS 123. Under APB No. 25, when the exercise price of the Company's employee stock options equaled the market price of the underlying common stock on the date of grant, no compensation expense was recognized. Accordingly, no compensation expense had been recognized in the consolidated financial statements in connection with these types of grants for 2005 and earlier. When the exercise price of the Company's employee stock options was less than the market price of the underlying common stock on the date of grant, compensation expense was recognized. Equity instruments issued to nonemployees in exchange for goods, fees and services are accounted for under the fair value-based method of SFAS No. 123(R).

The Company’s accounting for stock-based compensation for restricted stock units (“RSUs”) has been based on the fair-value method. The fair value of the RSUs is the market price of the Company’s common stock on the date of grant, less its exercise cost.

The following table illustrates the effect on net loss and loss per share had the Company applied the fair value recognition provisions of SFAS 123 to stock-based employee compensation for its’ stock option grant awards. Pro forma compensation expense may not be indicative of future expense.

Year ended December 31, 2005
(in thousands except per share data)

Net loss, as reported	$	(12,075	)

Add: total stock-based employee compensation expense included in reported net loss		6,459

Deduct: total stock-based employee compensation expense determined under fair value-based method for all awards		(7,242	)

Net loss, pro forma	$	(12,858	)

Loss per share:
Basic and Diluted EPS - as reported	$	(1.81	)
Basic and Diluted EPS - as pro forma	$	(1.90	)

14. Carrying Amount and Fair Value of Financial Instruments

The carrying amount of cash and cash equivalents approximates fair value due to the short-term maturities of the instruments. The carrying value of the Company’s debt approximates fair value because the debt bears terms that are reflective of those terms should the Company secure additional financing.

F-12

15. New Accounting Pronouncements

Noncontrolling Interests in Consolidated Statements

In December 2007, Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 160 “Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51” (“SFAS 160”). SFAS 160 amends ARB No. 51 to establish accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. It also amends certain of ARB No. 51’s consolidation procedures for consistency with the requirements of SFAS 41 (revised 2007), Business Combinations. SFAS 160 is effective for fiscal years and interim periods within those fiscal years beginning on or after December 15, 2008. Earlier adoption is prohibited. SFAS 160 shall be applied prospectively as of the beginning of the fiscal year in which the Statement is adopted, except for the presentation and disclosure requirements. The presentation and disclosure requirements shall be applied retrospectively for all periods presented.

Business Combinations

In December 2007, the FASB issued SFAS No. 141 (revised 2007) “Business Combinations” (“SFAS (141R)”). SFAS 141R retains the fundamental requirements of the original pronouncement requiring that the purchase method be used for all business combinations. SFAS 141R defines the acquirer as the entity that obtains control of one or more businesses in the business combination, establishes the acquisition date as the date the acquirer achieves control and requires the acquirer to recognize the assets and liabilities assumed and any non-controlling interest at their fair values as of the acquisition date. SFAS 141R requires, among other things, that the acquisition related costs be recognized separately from the acquisition. SFAS 141R is applied prospectively to business combinations for which the acquisition date is on or after January 1, 2009.

Fair Value Option for Financial Assets and Financial Liabilities

In February 2007, the FASB issued SFAS No. 159 “The Fair Value Option for Financial Assets and Financial Liabilities – Including an Amendment of FASB Statement No. 115” (“SFAS 159”). SFAS 159 permits an entity to elect to measure eligible items at fair value (“fair value option”) including many financial instruments. The provisions of SFAS 159 are effective for the Company as of January 1, 2008. If the fair value option is elected, the Company will report unrealized gains and losses on items for which the fair value option has been elected in earning at each subsequent reporting date. Upfront costs and fees related to an item for which the fair value option is elected shall be recognized in earnings as incurred and not deferred. The fair value option may be applied for a single eligible item without electing it for other identical items, with certain exceptions, and must be applied to the entire eligible item and not to a portion of the eligible item. The Company is currently evaluating the irrevocable election of the fair value option pursuant to SFAS 159.

Fair Value Measurements

In September 2006, the FASB issued SFAS No. 157 “Fair Value Measurements” (“SFAS 157”), which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. SFAS 157 is effective for the Company beginning on January 1, 2008. The requirements of SFAS 157 will be applied prospectively except for certain derivative instruments that would be adjusted through the opening balance of retained earnings in the period of adoption. In February 2008, the FASB issued Staff Position No. FAS 157-2 which provides for a one-year deferral of the effective date of SFAS 157 for non-financial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a nonrecurring basis, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis. The Company is evaluating the impact of the adoption of SFAS 157 on its financial statements.

Share-Based Payment

The Company adopted FASB 123R effective January 1, 2006 under the modified prospective method, which recognizes compensation cost beginning with the effective date (a) based on the requirements of FASB 123R for all share-based payments granted after the effective date and to awards modified, repurchased, or cancelled after that date and (b) based on the requirements of FASB Statement No. 123 for all awards granted to employees prior to the effective date of FASB 123R that remain unvested on the effective date. The only cumulative effect of initially applying this Statement for the Company was to reclassify $5,724,000 of previously recorded unearned compensation into paid-in capital. The Company has estimated that an additional $5,827,000 will be expensed over the applicable remaining vesting periods for all share-based payments granted to employees on or before December 31, 2005 which remained unvested on January 1, 2006. The Company anticipates that more compensation costs will be recorded in the future if the use of options and restricted stock units for employees and director compensation continues as in the past.

F-13

NOTE B – LICENSE, DEVELOPMENT, AND COMMERCIALIZATION AGREEMENT

On October 30, 2007, we and King Pharmaceuticals Research and Development, Inc. (“King”), a wholly-owned subsidiary of King Pharmaceuticals, Inc., entered into a License, Development and Commercialization Agreement (the “King Agreement”) to develop and commercialize in the United States, Canada and Mexico (the "King Territory") certain opioid analgesic products utilizing our proprietary Aversion® (abuse deterrent) Technology including ACUROX™ Tablets . The Agreement provides King with an exclusive license in the King Territory for ACUROX™ Tablets and another undisclosed opioid product candidate utilizing Acura's Aversion® Technology. In addition, the King Agreement provides King with an option to license in the King Territory all future opioid analgesic products developed utilizing Acura's Aversion® Technology.

Under the terms of the King Agreement, King made an upfront cash payment to Acura of $30 million which was received in December, 2007. Depending on the achievement of certain development and regulatory milestones, King could also make additional cash payments to Acura of up to $28 million relating to ACUROX™ Tablets and similar amounts with respect to each subsequent Aversion® Technology product developed under the Agreement. King will reimburse Acura for all research and development expenses incurred beginning from September 19, 2007 for ACUROX™ Tablets and all research and development expenses related to future products after King's exercise of its option to an exclusive license for each future product. King will record net sales of all products and for sales occurring following the one year anniversary of the first commercial sale of a licensed product, and King will pay Acura a royalty at one of 6 rates ranging from 5% to 25% based on the level of combined annual net sales for all products subject to the Agreement. King will also make a one-time cash payment to Acura of $50 million in the first year in which the combined annual net sales of all products exceed $750 million.

King and Acura have formed a joint steering committee to coordinate development and commercialization strategies. With King’s oversight, Acura will conduct all ACUROX™ Tablet development activities through approval of a New Drug Application (“NDA”) and thereafter King will commercialize ACUROX™ Tablets in the U.S. With respect to all other products subject to the Agreement, King will be responsible for development and regulatory activities following either acceptance of an Investigational New Drug Application by the U.S. Food and Drug Administration (“FDA”) or Acura's demonstration of certain stability and pharmacokinetic characteristics for each future product. All products developed pursuant to the King Agreement will be manufactured by King or a third party contract manufacturer under the direction of King. Subject to the King Agreement, King will have final decision making authority with respect to all development and commercialization activities for all products licensed.

NOTE C – PREFERRED SHARES

Effective November 10, 2005, all of the issued and outstanding $0.01 par value preferred shares of the Company were automatically and mandatorily converted into the Company’s common stock in accordance with the terms of the Company’s Restated Certification of Incorporation. There is no convertible preferred stock outstanding at either December 31, 2007 or 2006 and share information consists of the following (in thousands):

Convertible Preferred Stock	A uthorized and Available for Issuance at 12/31/07 and 12/31/06
Series A		23,036
Series B Junior		4,754
Series C-1 Junior		13,577
Series C-2 Junior		12,567
Series C-3 Junior		18,093
Total		72,027

F-14

NOTE D - PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment are summarized as follows (in thousands):

	December 31,
	2007			2006
Building and building improvements	$	1,391		$	1,391
Land and land improvements		161			161
Machinery and equipment		598			2,183
Scientific equipment		445			481
Computer hardware and software		201			203
Office equipment		42			42
Other personal property		48			50
		2,886			4,511
Less accumulated depreciation and amortization (including $36 in 2006 on capital leased assets)		(1,758	)		(3,200	)
		1,128			1,311
Less impairment reserve		(82	)		(166	)

Total property, plant and equipment, net	$	1,046		$	1,145

During 2007, the Company acquired its only asset under a capitalized lease. Equipment with a net book value of $111,000 was recorded under capitalized leases in categories of scientific equipment and office equipment at December 31, 2006.

Depreciation and amortization expense for the years ended December 31, 2007, 2006 and 2005 was $130,000, $118,000 and $137,000, respectively.

NOTE E - ACCRUED EXPENSES

Accrued expenses are summarized as follows (in thousands):

	December 31,
	2007		2006
Bonus, payroll, payroll taxes and benefits	$	63	$	62
Legal fees		35		19
Audit examination and tax preparation fees		120		70
Franchise taxes		15		15
Property taxes		34		52
Clinical, regulatory, trademarks, and patent consulting fees		50		60
Other fees and services		17		50

	$	334	$	328

NOTE F – NOTES PAYABLE

The Company does not have any notes payable outstanding at December 31, 2007. At December 31, 2006, notes payable consisted of the following (in thousands):

Senior secured convertible bridge term notes:
Face value	$	7,848
Debt discount		(843	)
		7,005
Conversion feature value		16,750
	$	23,755

Secured term note payable	$	5,000

Capital lease obligations	$	32

(a) Convertible Bridge Term Notes

As of August 19, 2007, the Company had borrowed $10.544 million pursuant to a series of loan agreements dated between June 2005 to January 2006 – all as amended through July 2007 (the “Bridge Loans), between the Company, Galen Partners III, L.P. and its affiliates, Care Capital Investments II, LP and its affiliate, and Essex Woodlands Health Ventures V, L.P. (collectively, the “VC Investors”), and certain other shareholders of the Company. The proceeds from the Bridge Loans were used by the Company to develop its Aversion® Technology and fund related operating expenses. The Bridge Loans carried an interest rate of 10%, payable quarterly which, pursuant a November 2006 amendment, was payable, at the Company’s option, with shares of its Common Stock. The Bridge Loans, as amended in March 2007, had a scheduled maturity date of September 30, 2007. On August 20, 2007, the entire $10.544 million principal amount of the Bridge Loans was converted into the Company’s Units in the Unit Offering pursuant to the terms of the Securities Purchase Agreement dated August 20, 2007 between the Company and each of the investors listed therein.

F-15

Through August 2006, the Bridge Loans did not include conversion provisions. An amendment to the Bridge Loans effected in August 2006 added a conversion feature which allowed, at the lenders’ option, the Bridge Loans to be converted into the Company’s Common Stock upon a qualifying equity financing at a conversion price equal to the per share price implicit in such equity financing. The Company did not assign any value to the new conversion feature as it did not provide the lenders with an opportunity to receive value in a conversion in excess of the face value of the debt regardless of the per share price of that equity financing.

In November 2006 and March 2007, the conversion feature of the Bridge Loans was further amended to allow the bridge loan lenders to convert the Bridge Loans into the Company’s common stock, upon the completion of a third-party equity financing providing gross proceeds to the Company in the aggregate amount of at least $5.0 million (a “Third Party Equity Financing”), a Change of Control Transaction or upon the maturity date of the Bridge Loans (each a “Triggering Event”). Upon the occurrence of a Triggering Event, the bridge lenders could convert $3.8 million (as of August 9, 2007) of Bridge Loans into the Company’s common stock at a conversion price equal to (A) in the case of the completion of a Third Party Equity Financing, the lesser of (i) 80% of the average closing bid and asked prices of the Company’s common stock for the twenty trading days immediately preceding the public announcement of the Third Party Investor Financing, but not less than $2.10 per share (ii) the average price of the securities sold by the Company in such Third Party Equity Financing (80% of such average price in the case of $1.8 million of Bridge Loans), and (iii) $4.40 per share for $2.0 million of Bridge Loans and $4.60 per share for $1.8 million of Bridge Loans and (B) in the case of a Change of Control Transaction or upon the maturity date of the Bridge Loans, the lesser of (i) 80% of the average closing bid and asked prices of the Company’s common stock for the twenty trading days immediately preceding the public announcement of the Change of Control Transaction or the maturity date, as applicable, but not less than $2.10 per share, and (ii) $4.40 per share for $2.0 million of Bridge Loans and $4.60 per share for $1.8 million of Bridge Loans. In addition, upon a Triggering Event, the bridge lenders could convert $2.55 million of Bridge Loans into the Company's common stock at a conversion price of $2.00 per share, $2.3 million of Bridge Loans at a conversion price of $2.25 per share and $1.894 million of Bridge Loans at a conversion price of $2.50 per share.

The November and December 2006 issuances of Bridge Loans for an aggregate face value of $1,104,000 included this amended conversion feature which the Company valued at an aggregate of $1,034,000. This value was recorded as a liability with an offsetting $1,025,000 debt discount (which was amortized over the term of the Bridge Loans) and $9,000 of issuance loss. However, as the debt was issued to shareholders who control the Company, this loss was recorded as a non-cash deemed dividend rather than effecting net loss. Additional issuances of $896,000 of Bridge Loans in January and February 2007 similarly had aggregate conversion feature value of $849,000 and a loss upon issuance of $3,000, which was recorded as a non-cash deemed dividend rather than effecting net loss.

The November 2006 amendment of the conversion feature on all of the then outstanding Bridge Loans, coupled with the requirement under current accounting guidance to separate the value of the conversion feature from the debt, required the Company to record the value of the amended conversion feature on that outstanding debt as a liability and a loss on the modification of debt. The Company assigned a value of $19.951 million to these conversion features at date of modification and reflected that loss as non-cash deemed dividend.

Upon revaluing the aggregate conversion features on all outstanding Bridge Loans as of March 30, 2007 (the date immediately before further amendment to the Bridge Loans), the Company recorded the resulting increase in value as a $3.483 million loss. The increase in the Company’s common stock trading price from December 31, 2006 to March 30, 2007 resulted in the increase in the value of the conversion liability. The Bridge Loan amendment on March 30, 2007 limited the conversion price of the post-October 2006 loans to no lower than $2.10 per share. With this limit in place, the outstanding conversion feature no longer had to be reflected as Company liabilities. As such, the Company recorded a $21.1 million reclassification of that liability to additional paid-in capital.

To compute the estimated value of the conversion features just prior to the reclassification described above and at the previous year end, the Company used the Black-Scholes option-pricing model with the following assumptions on these dates:

	Mar 30, 2007			Dec 31, 2006
Company stock price	$	8.50		$	7.40
Exercise price		(see #1 below)			(see #1 below)
Expected dividend		0.0	%		0.0	%
Risk – free interest rate		5.07	%		5.0	%
Expected volatility		none			88.8	%
Contracted term		1 day			3 months

F-16

(1) The conversion price per share used to estimate fair value of the Bridge Loan conversion rights was equal to the fixed conversion price per share set forth above for each of the specified Bridge Loan amounts. While the Bridge Loan Agreements provide for other than fixed conversion prices under certain circumstances, the Company has judged that the fixed conversion prices will most likely be the lowest price per share under any of the circumstances and the lender would therefore select such fixed price for their conversion.

The conversion features related to $1.8 million Bridge Note issuances (dated March 30, 2007, April 2, 2007, May 17, 2007, and July 10, 2007) were not required to be separated and accounted for at fair value. However, based on the conversion price of those notes, the issuances did include beneficial conversion features whereby the common stock to be issued upon conversion would be worth more than the underlying debt if converted upon issuance. That incremental value, computed as $339,000, $170,000, $443,000 and $600,000, respectively, was recorded as additional paid in capital and as debt discount, which will be amortized over the term of the notes. Upon conversion of the Bridge Loans into Units of the Unit Offering dated August 20, 2007, $544,000 of unamortized beneficial conversion features reflected as debt discount was recorded as a reduction to additional paid in capital.

(b)

Secured Term Note

The Company was a party to a certain loan agreement with each of the VC Investors and certain other shareholders of the Company dated February 10, 2004 (the "2004 Secured Term Note”). The 2004 Secured Term Note was in the principal amount of $5.0 million and was secured by a lien on all of the Company's and its subsidiary’s assets. On June 28, 2007, the 2004 Secured Term Note was amended to extend the maturity date from June 30, 2007 to September 30, 2007 and further amended on August 20, 2007 to extend the maturity date from September 30, 2007 to December 31, 2008. In addition, the August 20, 2007 amendment to the 2004 Secured Term Note reduced the interest rate from a variable rate of prime plus 4.5%, to a fixed rate of 10.0% per annum and to provide for interest payments in the form of cash instead of the Company’s common stock. On September 24, 2007, the 2004 Secured Term Note was further amended to provide for the accrual and deferral of accrued interest payments. Simultaneous with the Company’s receipt of the $30 million upfront cash payment received pursuant to the closing of the Agreement with King , the Company prepaid the principal amount plus $236,000 unpaid interest relating to the 2004 Secured Term Note on December 7, 2007.

NOTE G – COMMON STOCK WARRANTS

As a result of the November 2006 amendment to the outstanding Bridge Loans, the Company’s outstanding common stock purchase warrants commenced being accounted for as mark-to-market liabilities with an initial recorded liability of $12,948,000 and corresponding reduction in additional paid-in capital. The mark to market fair value adjustments to the warrant liability resulted in a $2,164,000 gain recorded in the 4 ^th quarter 2006 and a recorded liability of $10,784,000 at December 31, 2006. Upon revaluing the warrants just before their exercise or as of March 30, 2007 (the date immediately before further amendment to the Bridge Loans), the Company recorded the resulting increase in value as a $1,668,000 loss. The increase in the Company’s common stock trading price from December 31, 2006 to March 30, 2007 resulted in the increase in the value of the warrant liability. A Bridge Loan agreement amendment on March 30, 2007 limited the conversion price of the post-October 2006 loans to no lower than $2.10 per share. With this limit in place, the outstanding warrants were no longer required to be reflected as Company liabilities. As such, the Company recorded a $12,307,000 million reclassification of that liability to additional paid-in capital in addition to a $146,000 reclassification related to warrants exercised during the first quarter of 2007.

At December 31, 2007, the Company had outstanding common stock purchase warrants, exercisable for an aggregate of approximately 3,972,000 shares of common stock, all of which contained cashless exercise features. During 2007, warrants to purchase an aggregate 580,092 shares of Common Stock were exercised at exercise prices between $1.20 and $6.60 per share in a series of cashless exercise transactions resulting in the issuance of aggregate 313,616 shares of Common Stock. At December 31, 2007, outstanding common stock purchase warrants of 47,000, 409,000, 81,000 and 3,435,000 will expire if unexercised during the 2008, 2009, 2010 and years thereafter, respectively, and have a weighted average remaining term of 5.76 years. The exercise prices of these warrants range from $1.20 to $9.90 per share, with a weighted average price of $3.20.

NOTE H - INCOME TAXES

In July 2006, the Financial Accounting Standards Board (“FASB”) issued Interpretation No. 48 regarding "Accounting for Uncertainty in Income Taxes," an interpretation of FASB Statement No. 109 ("FIN 48"), defining the threshold for recognizing the benefits of tax-return positions in the financial statements as "more-likely-than-not" to be sustained by the taxing authorities. The Company has reviewed its tax positions for tax years 2003 through 2005 and the adoption of FIN 48 on January 1, 2007 did not result in establishing a contingent tax liability reserve or a corresponding charge to retained earnings. The Company has substantial tax benefits derived from its net operating loss (“NOL”) carryforwards but has provided 100% valuation allowances against such tax benefits as described in Note A- 11.

F-17

The reconciliations between the statutory federal income tax rate and the Company's effective income tax rate were as follows (in thousands):

	Years Ended December 31,
	2007						2006						2005
	Amount			%			Amount			%			Amount			%
Federal statutory rate	$	(4,731	)		(34.0	)	$	(2,029	)		(34.0	)	$	(4,105	)		(34.0	)
State taxes, net of Federal effect		(413	)		(3.0	)		(537	)		(9.0	)		(609	)		(5.0	)
Research credits		(220	)		(1.6	)		(126	)		(2.1	)		(125	)		(1.0	)
Other		(20	)		(0.1	)		26			0.5			39			0.3

Impact of non-taxable items
Reduction in NOL carryforwards		1,338			9.6			-			-			-			-
Conversion feature fair value change		1,184			8.5			(1,440	)		(24.1	)		-			-
Debt discount amortization		918			6.6			62			1.0			-			-
Warrant fair value change		648			4.7			(736	)		(12.4	)		-			-
Non-deductible financing costs		311			2.2			320			5.4			-			-
Wage limitation		51			0.4			-			-			-			-
Other		(95	)		(0.7	)		-			-			-			-
		(1,029	)		(7.4	)		(4,460	)		(74.7	)		(4,800	)		(39.7	)
Change in valuation allowance		10,629			76.4			4,460			74.7			4,800			39.7
Recorded tax benefit	$	9,600			69.0		$	-			-		$	-			-

The Company has gross Federal, state, and city operating loss carryforwards aggregating $135.3 million, $109.8 million, and $46.3 million, respectively, expiring during the years 2009 through 2027. During 2007, the Company determined it was more likely than not that it would be able to realize some of its net deferred income tax assets in the near future, and a $9.6 million adjustment to the net deferred income tax asset valuation allowance was made causing increased income in our 2007 Fourth Quarter. Future determinations to realize the Company’s net deferred income tax assets would cause reductions in the valuation allowance and further income statement beneficial adjustments. At both December 31, 2007 and 2006, a 100% valuation allowance exists against the remaining net deferred income tax assets as we are uncertain to future utilization of NOL carryforwards.

Significant equity restructuring often results in an Internal Revenue Section 382 ownership change that limits the future use of net operating loss (“NOL”) carryforwards and other tax attributes. Such attributes include general business credits. The Section 382 limitation applies on an annual basis to tax years ending after the date of the ownership change. The Section 382 limitation reduces the value of our pre-ownership change NOL carryforwards by limiting our annual utilization of the NOL carryforwards (and certain other tax attributes) against future income and gains. The tax loss carryforwards of the Company and its subsidiary are subject to limitation by Section 382 with respect to the amount utilizable each year. After our findings have been finalized and the limitation has been quantified, we may seek further specific guidance from the Internal Revenue Service. Our net deferred income tax assets will be adjusted for this limitation; however the Company expects no income statement effect as a 100% valuation allowance has been placed against net deferred income tax assets at December 31, 2007.

The temporary differences that give rise to deferred income tax assets and liabilities are as follows (in thousands):

	December 31,
	2007			2006
Deferred income tax assets:
NOL carryforwards - federal	$	45,993		$	48,026
NOL carryforwards – state/city		8,304			7,837
Research credits		625			382
Stock based compensation		5,852			5,497
Warrant compensation		21			56
Other		55			90
Deferred income tax assets		60,850			61,888

Deferred income tax liabilities:
Depreciation		(16	)		(25	)

Gross deferred income tax assets		60,834			61,863
Valuation allowance		(51,234	)		(61,863	)

Net deferred income tax assets	$	9,600		$	-

F-18

NOTE I - EMPLOYEE BENEFIT PLANS

1.	401(k) and Profit-sharing Plan

Effective October 1, 1998, the Company established a 401(k) and Profit-Sharing Plan (the “Plan”) for all employees other than those covered under collective bargaining agreements. Eligible employees may elect to make a basic contribution of up to 15% of their annual earnings. The Plan provides that the Company can make discretionary matching contributions equal to 25% of the first 6% of employee contributions for an aggregate employee contribution of 1.5%, along with a discretionary profit-sharing contribution. The Company incurred neither matching nor profit sharing contribution expense under the Plan in 2007, 2006 or 2005.

2.	Stock Option Plans

1995 Stock Option Plan

In September 1995, the stockholders of the Company approved the adoption of a stock option and restricted stock purchase plan for its employees and non-employee directors (the "1995 Option Plan"). In May 2005, the 1995 Stock Option Plan expired and the remaining unissued shares allocated to the plan were terminated. At December 31, 2007, stock options to purchase 36,890 shares, previously granted under the 1995 Stock Option Plan, remain outstanding, with an average per share exercise price of $15.82.

1998 Stock Option Plan

In June 1998, the stockholders of the Company approved the adoption of a stock option plan for its employees and non-employee directors (as amended to date, the "1998 Option Plan"). The 1998 Option Plan provides for the granting of (i) nonqualified options to purchase the Company's common stock at a price determined by the Company’s Stock Option Committee (effective second quarter 2004, the duties of the Company’s Stock Option Committee was assigned to the Company’s Compensation Committee), and (ii) incentive stock options to purchase the Company's common stock at not less than the fair market value on the date of the option grant. In June 2002, the shareholders of the Company approved a resolution to increase the total number of shares which may be sold pursuant to options and rights granted under the 1998 Option Plan to 8,100,000. In August 2004, the shareholders of the Company approved a resolution to increase this amount to 20,000,000. No option can be granted under the 1998 Option Plan after April 2008 and no option can be outstanding for more than ten years after its grant. Vesting requirements are generally 4 years. At December 31, 2007, 102,066 shares were available for future grants and stock options to purchase 1,821,609 shares remain outstanding with an average per share exercise price of $2.27.

A summary of the Company's stock option plans as of December 31, 2007, 2006, and 2005, and for the years then ended consisted of the following:

	Years Ended December 31,
	2007					2006					2005
	Number of Options (000’s)			Weighted Average Exercise Price		Number of Options (000’s)			Weighted Average Exercise Price		Number of Options (000’s)			Weighted Average Exercise Price
Outstanding, beginning		1,899		$	2.60		1,975		$	2.70		1,750		$	4.40
Granted		-			-		-			-		400			1.30
Exercised		(31	)		3.80		(40	)		2.50		(4	)		1.30
Forfeited or expired		(10	)		3.60		(36	)		10.40		(171	)		16.50
Outstanding, ending		1,858		$	2.60		1,899		$	2.60		1,975		$	2.70

Options exercisable, end of year		1,827		$	2.56		1,837		$	2.60		1,569		$	3.10

F-19

The following table summarizes information about stock options outstanding at December 31, 2007 (number of options in thousands):

	Options Outstanding						Options Exercisable
Range of Exercise Prices	Number of Options (000’s)		Weighted Average Remaining Contractual Life		Weighted Average Exercise Price		Number of Vested Options (000’s)		Weighted Average Exercise Price

$ 1.30 to $10.00		1,729		6.62	$	1.34		1,698	$	1.34
$10.01 to $20.00		70		2.06		14.29		70		14.29
$20.01 to $25.00		59		0.84		23.81		59		23.81

Total		1,858		6.27	$	2.54		1,827	$	2.56

The following table summarizes information about nonvested stock options outstanding at December 31, 2007 (number of options in thousands):

	Number of Options Not Exercisable			Weighted Average Fair Value
Outstanding at December 31, 2006		62		$	3.10
Granted		-			-
Vested		(31	)		3.10
Forfeited or expired		-			-

Outstanding at December 31, 2007		31		$	3.10

The Company estimated the option’s fair value on the date of grant using the Black - Scholes option-pricing model. Black-Scholes utilizes assumptions related to volatility, the risk-free interest rate, the dividend yield (which is assumed to be zero, as the Company has not paid any cash dividends) and employee exercise behavior. Expected volatilities utilized in the Black-Scholes model are based on the historical volatility of the Company’s common stock price. The risk-free interest rate is derived from the U.S. Treasury yield curve in effect at the time of grant. The expected life of the grants is derived from historical factors. The fair value of the option grants in 2005 is being amortized using a graded vesting method. This method treats the award as if the grant was a series of awards rather than a single award and attributes a higher percentage of the reported fair value to the earlier years than to the later years of the service period because the early years of service are part of the vesting period for later awards in the series. No options were granted in 2007 and 2006. Assumptions used in the 2005 grants were:

	2005
Expected dividend		0.0	%
Risk-free interest rate		4.5	%
Expected volatility		120	%
Weighted average volatility		120	%
Forfeitures		0.0	%
Expected term		4 years
Weighted average grant date fair value	$	4.50

F-20

As of December 31, 2007, 2006 and 2005 the aggregate intrinsic value of the option awards outstanding and exercisable was $8,083,000, $10,253,000 and $1,971,000, respectively. In addition, the aggregate intrinsic value of option awards exercised during the years ended December 31, 2007 and 2006 was $492,000 and $178,000, respectively. The total remaining unrecognized compensation cost related to the unvested option awards amounted to less than $10,000 at December 31, 2007 and is expected to be recognized over the next three month weighted average remaining requisite service period of the unvested option awards. The total fair value of the option awards that vested during the years ended December 31, 2007, 2006 and 2005 were $97,000, $2,800,000 and $1,067,000, respectively. The Company recognized stock-based compensation from the option awards of $36,000, $321,000 and $2,198,000, during the years ended December 31, 2007, 2006 and 2005, respectively. As discussed in Note H, a 100% valuation reserve has been recorded against the Company’s deferred tax assets, which includes the related gross tax benefits of $483,000 and $178,000 recorded in calendar years of 2007 and 2006, respectively, for allowable deductions arising from the exercise of non qualified stock options.

3. Restricted Stock Unit Award Plan

On December 22, 2005, the Board of Directors approved the Company’s 2005 Restricted Stock Unit Award Plan (the “2005 RSU Plan”) for its employees and non-employee directors. A Restricted Stock Unit (“RSU”) represents the contingent obligation of the Company to deliver a share of its common stock to the holder of the RSU on a distribution date. RSUs for up to 3.0 million shares of common stock are authorized for issuance under the 2005 RSU Plan. The Company believed that the 2005 RSU Plan did not require shareholder approval. Nevertheless, the Company’s shareholders ratified the 2005 RSU Plan at its December, 2006 Annual Shareholders’ Meeting.

The RSU Plan is administered by the Company’s Board of Directors or a Committee appointed by the Board of Directors. RSUs granted under the 2005 RSU Plan vest on a schedule determined by the Board of Directors or such Committee as set forth in a restricted stock unit award agreement. Unless otherwise set forth in such award agreement, the RSUs fully vest upon a change in control (as defined in the 2005 RSU Plan) of the Company or upon termination of an employee’s employment with the Company without cause or due to death or disability, and in the case of a non-employee director, such person’s death or disability or if such person is not renominated as a director (other than for “cause” or refusal to stand for re-election) or is not elected by the Company’s stockholders, if nominated. Vesting of an RSU entitles the holder thereof to receive a share of common stock of the Company on a distribution date (after payment of the $0.01 par value per share).

Absent a change of control, one-fourth of vested shares of common stock underlying an RSU award will be distributed (after payment of $0.01 par value per share) on January 1 of each of 2011, 2012, 2013 and 2014. If a change in control occurs (whether prior to or after 2011), the vested shares underlying the RSU award will be distributed at or about the time of the change in control.

During December 2005, an aggregate of 2,750,000 RSUs were granted to the Company’s employees. During February 2006, an aggregate of 200,000 RSUs were granted to the Company’s two independent directors. Of the RSUs granted to date, approximately one third vested upon grant and the other two thirds will vest on a straight-line monthly basis through December 2007. During 2007 and 2006, 983,300 and 1,050,000 RSUs became vested, respectively. As such, of the RSU awards granted, 2,950,000 and 1,966,700 were vested as of December 31, 2007 and 2006, respectively and none and 983,000 were nonvested as of December 31, 2007 and 2006, respectively. The weighted average fair value of both RSU grants is $3.50 per share.

The stock-based compensation cost to be incurred on the RSUs is the RSU’s fair value, the market price of the Company’s common stock on the date of grant, less its exercise cost. The fair value of the RSU grants in 2006 and 2005 was $680,000 and $9,724,000, respectively. The fair value of the 2006 RSU grant was entirely expensed on the grant date as the grant was made for performance of past service. The fair value of the 2005 RSU grant is being amortized using a graded vesting method. This method treats the award as if the grant was a series of awards rather than a single award and attributes a higher percentage of the reported fair value to the earlier years than to the later years of the service period because the early years of service are part of the vesting period for later awards in the series. The total remaining unrecognized compensation cost related to the unvested RSU awards amounted to $879,000 at December 31, 2006. The Company recognized compensation cost from the RSU awards of $879,000 and $5,264,000 during the year ended December 31, 2007 and 2006, respectively. No related tax benefits were recorded in calendar year 2007 and 2006. As of December 31, 2007 and 2006, the aggregate intrinsic value of the RSU awards outstanding and vested was $17,966,000 and $14,357,000, respectively. As discussed above, the RSU awards are distributable only upon the occurrence of certain events or beginning January 1, 2011.

F-21

NOTE J - COMMITMENTS AND CONTINGENCIES

Employment Contracts

Andrew D. Reddick is employed pursuant to an Employment Agreement effective as of August 26, 2003, as amended, which provides that Mr. Reddick will serve as the Company's Chief Executive Officer and President for a term expiring December 31, 2008. The Employment Agreement provides for an annual base salary of $365,000 plus the payment of annual bonus based on the achievement of such targets, conditions, or parameters as may be set from time to time by the Board of Directors or the Compensation Committee of the Board of Directors. For the Company’s 2007 fiscal year , Mr. Reddick was awarded a bonus of $850,000 due to, among other reasons, the successful completion of our Unit Offering and the King Agreement. The Employment Agreement also provides for the Company’s grant of stock options and restricted stock units to Mr. Reddick. The Employment Agreement contains standard termination provisions, including upon death, disability, for Cause, for Good Reason and without Cause, which in certain cases provides for severance payments equal to one year’s salary and other termination benefits

Ron J. Spivey, Ph.D., is employed pursuant to an Employment Agreement effective as of April 5, 2004, as amended, which provides that Dr. Spivey will serve as the Company's Senior Vice President and Chief Scientific Officer for term expiring December 31, 2008 at an annual base salary of $315,000. Pursuant to the Employment Agreement Dr. Spivey is eligible for annual bonuses based on the achievement of such targets, conditions, or parameters as may be set from time to time by the Board of Directors or the Compensation Committee of the Board of Directors. In 2007, Dr. Spivey was awarded a bonus of $650,000 due to, among other reasons, the completion of our Unit Offering and the King Agreement.

Peter A. Clemens is employed pursuant to an Employment Agreement effective as of March 10, 1998, as amended, which provides that Mr. Clemens will serve as the Company's Senior Vice President and Chief Financial Officer for a term expiring December 31, 2008 at an annual base salary of $205,000. Under the Employment Agreement, he may also receive an annual bonus to be determined based on the satisfaction of such targets, conditions or parameters as may be determined from time to time by the Compensation Committee of the Board of Directors. In 2007, Mr. Clemens was awarded a bonus of $180,000 due to, among other reasons, the completion of our Unit Offering and the King Agreement.

The terms of the Employment Agreements with Dr. Spivey and Mr. Clemens are similar to those of Mr. Reddick. The term of the Employment Agreements with each of Messrs. Reddick, Spivey and Clemens provides for automatic one (1) year renewals in the absence of written notice to the contrary from the Company or such executive at least ninety (90) days prior to the expiration.

Financial Advisor Agreement

In connection with the Company’s August 2007 Unit Offering, the Company is obligated to pay a fee to the Company’s financial advisor upon each exercise of the warrants issued in the Unit Offering, in proportion to the number of warrants exercised. The maximum amount of such fee assuming 100% exercise of such warrants, is $255,000. The Company has not reflected this obligation as a liability in its consolidated financial statements as the payment is contingent upon the timing and exercise of the warrants by each of the warrant holders. Such fee, if any, will be paid and charged against earnings as and if the warrants are exercised.

F-22

NOTE K - QUARTERLY FINANCIAL DATA (UNAUDITED)

Selected quarterly consolidated financial data is shown below. On December 5, 2007, the Company affected a one-for-ten reverse stock split. All share and per share information herein reflects this reverse stock split (in thousands, except per share data):

	Three Month Period Ended
Calendar Year 2007	Mar. 31			June 30			Sept. 30			Dec. 31
Total revenue	$	-		$	-		$	-		$	6,404
Loss from operations		(1,974	)		(1,340	)		(1,420	)		( 172	)
Net income (loss)		(9,159	)		(2,199	)		(2,476	)		9,521
Income (loss) per common share (after deemed dividend) (Note A)
Basic	$	(0.26	)	$	(0.06	)	$	(0.06	)	$	0.21
Diluted	$	(0.26	)	$	(0.06	)	$	(0.06	)	$	0.20

Calendar Year 2006		Mar. 31			June 30			Sept. 30			Dec. 31
Total revenue	$	-		$	-		$	-		$	-
Loss from operations		(3,927	)		(2,341	)		(2,661	)		( 1,897	)
Net income (loss)		(4,155	)		(2,615	)		(3,097	)		3,900
Income (loss) per common share (after deemed dividend) (Note A)
Basic	$	(0.12	)	$	(0.08	)	$	(0.11	)	$	(0.44	)
Diluted	$	(0.12	)	$	(0.08	)	$	(0.11	)	$	(0.44	)

Effective August 20, 2007, the Company entered into a Securities Purchase Agreement with an investor group and under the Unit Offering, issued an aggregate 9.5 million shares of the Company’s common stock. The 3rd Quarter 2007 loss per common share amount of $.06 reflects the increased weighted average common shares outstanding from the Unit Offering and the impact of this issuance causes the 2007 quarterly loss per share amounts not to add up to and equal the 2007 annual loss per share amount.

F-23

ACURA PHARMACEUTICALS, INC.

EXHIBIT INDEX

The following exhibits are included as a part of this Annual Report on Form 10-K or incorporated herein by reference.

Exhibit Number		Exhibit Description
3.1		Restated Certificate of Incorporation of the Registrant (incorporated by reference to Appendix C to the Registrant's Proxy Statement filed on July 6, 2004).

3.2		Certificate of Amendment Reverse Splitting Common Stock and restating but not changing text of part of Article III of Restated Certificate of Incorporation (incorporated by Reference to Exhibit 3.1 to the Form 8-K filed December 4, 2007).

3.3		Restated Bylaws of the Registrant (incorporated by reference to Exhibit 3.1 to the Form 8-K filed on October 12, 2007).

10.1		License, Development and Commercialization Agreement by and between the Registrant and King Pharmaceuticals Research and Development, Inc. (incorporated by reference to Exhibit 10.1 of the Form 8-K filed on November 2, 2007). (confidential treatment has been requested for portions of this Exhibit).

10.2		Securities Purchase Agreement dated as of August 20, 2007 (“PIPE SPA”) among the Registrant, Vivo Ventures Fund VI, L.P., Vivo Ventures VI Affiliates Fund, L.P. (collectively “Vivo”), GCE Holdings LLC, and certain other signatories thereto (incorporated by reference to Exhibit 10.1 to the Form 8-K filed on August 21, 2007).

10.3		Form of Warrant dated as of August 20, 2007 issued pursuant to the PIPE SPA (incorporated by reference to Exhibit 4.1 to the Form 8-K filed on August 21, 2007).

10.4		Common Stock Purchase Warrant issued to Watson Pharmaceuticals, Inc. (“WPI”) dated December 20, 2002 (incorporated by reference to Exhibit 10.15 to the Form 8-K filed on December 27, 2002).

10.5		Form of Warrants dated August 15, 2001 issued to Galen Partners III, L.P., Galen Partners International, III, L.P. and Galen Employee Fund III, L.P. (currently exercisable at $9.90 per share) (incorporated by reference to Exhibit 10.3 to the Form S-3 filed on October 1, 2007 (the “October 2007 S-3”)).

10.6		Form of Warrants dated January 9, 2002, February 1, 2002, March 1, 2002, and April 5, 2002 issued to Galen Partners III, L.P., Galen Partners International, III, L.P. and Galen Employee Fund III, L.P. (currently exercisable at an exercise price of $3.40 per share) (incorporated by reference to Exhibit 10.4 to the October 2007 S-3).

10.7		Form of Warrants dated May 8, 2002, June 3, 2002, July 1, 2002, July 23, 2002, August 5, 2002, September 3, 2002, October 1, 2002, November 4, 2002, November 12, 2002, November 21, 2002 and December 5, 2002 issued to Galen Partners III, L.P., Galen Partners International, III, L.P. and Galen Employee Fund III, L.P. (currently exercisable at an exercise price of $3.40 per share) (incorporated by reference to Exhibit 10.5 to the October 2007 S-3).

10.8		Form of Warrants dated May 5, 2003 issued to Galen Partners III, L.P., Galen Partners International, III, L.P., Galen Employee Fund III, L.P., Essex Woodlands Health Ventures Fund V, L.P. and Care Capital Investments II, LP and others (currently exercisable at an exercise price of $1.285 per share) (incorporated by reference to Exhibit 10.6 to the October 2007 S-3).

Exhibit Index - 1

Exhibit Number		Exhibit Description
10.9		Amended and Restated Voting Agreement dated as of February 6, 2004 among the Registrant, Care Capital Investments II, LP, Essex Woodlands Health Ventures Fund V, L.P., Galen Partners III, L.P., and others (incorporated by reference to Exhibit 10.5 of the Form 8-K filed on February 10, 2004 (the “February 2004 Form 8-K”)).

10.10		Joinder and Amendment to Amended and Restated Voting Agreement dated November 9, 2005 between the Registrant, GCE Holdings, Essex Woodlands Health Ventures Fund V, L.P., Care Capital Investments II, LP, Galen Partners III, L.P. and others (incorporated by reference to Exhibit 10.1 to the Form 8-K dated November 9, 2005).

10.11		Second Amendment to Amended and Restated Voting Agreement dated as of January 24, 2008 between the Registrant and GCE Holdings, LLC (incorporated by reference to Exhibit 10.1 to the Form 8-K filed January 28, 2008).

10.12		Amended and Restated Registration Rights Agreement dated February 6, 2004 among the Registrant, WPI, Care Capital Investments II, LP, Essex Woodlands Health Ventures Fund V, L.P., Galen Partners III, L.P. and others (incorporated by reference to Exhibit 10.6 of the February 2004 Form 8-K).

10.13		Registrant’s 1995 Stock Option and Restricted Stock Purchase Plan (incorporated by reference to Exhibit 4.1 to the Registrant's Registration Statement on Form S-8, File No. 33-98396).

10.14		Registrant’s 1998 Stock Option Plan, as amended (incorporated by reference to Appendix C to the Registrant’s Proxy Statement filed on November 16, 2006).

10.15		Registrant’s 2005 Restricted Stock Unit Award Plan, as amended (incorporated by reference to Appendix D to the Registrant’s Proxy Statement filed on November 16, 2006).

10.16		Executive Employment Agreement dated as of August 26, 2003 between the Registrant and Andrew D. Reddick (“Reddick”) (incorporated by reference to Exhibit 10.2 to the Form 10-Q for the quarter ended June 30, 2004 (the “June 2004 10-Q”)).

10.17		Amendment to Executive Employment Agreement between the Registrant and Reddick, dated May 27, 2004 (incorporated by reference to Exhibit 10.4 to the June 2004 10-Q).

10.18		Second Amendment to Executive Employment Agreement between the Registrant and Reddick, dated May 24, 2005 incorporated by reference to Exhibit 10.116 to the Form 10-K for the year ending December 31, 2005 filed on February 21, 2006).

10.19		Third Amendment to Executive Employment Agreement between the Registrant and Reddick, dated December 22, 2005 (incorporated by reference to Exhibit 10.1 to the Form 8-K filed December 23, 2005 (the “December 2005 Form 8-K”)).

*10.20		Fourth Amendment to Executive Employment Agreement between the Registrant and Reddick dated December 16, 2007.

10.21		Executive Employment Agreement dated as of April 5, 2004 between the Registrant and Ron J. Spivey (incorporated by reference to Exhibit 10.3 to the June 2004 10-Q).

10.22		Amendment to Executive Employment Agreement dated December 22, 2005 between Registrant and Ron J. Spivey (incorporated by reference to Exhibit 10.2 to the December 2005 Form 8-K).

*10.23		Second Amendment to Executive Employment Agreement dated December 19, 2007 between the Registrant and Ron J. Spivey.

Exhibit Index - 2

Exhibit Number		Exhibit Description
10.24		Employment Agreement dated as of March 10, 1998 between the Registrant and Peter Clemens (“Clemens”) (incorporated by reference to Exhibit 10.44 to the 1997 Form 10-K, File No. 001-10113).

10.25		First Amendment to Employment Agreement made as of June 28, 2000 between the Registrant and Clemens (incorporated by reference to Exhibit 10.44A to the Registrant’s 2005 Form 10-K).

10.26		Second Amendment to Executive Employment Agreement between Registrant and Clemens, dated as of January 5, 2005 (incorporated by reference to Exhibit 10.1 to the Registrant's Form 8-K dated January 28, 2005).

10.27		Third Amendment to Executive Employment Agreement dated December 22, 2005 between Registrant and Clemens (incorporated by reference to Exhibit 10.3 to the December 2005 Form 8-K).

*10.28		Fourth Amendment to Executive Employment Agreement dated December 16, 2007 between Registrant and Clemens.

10.29		Loan Agreement among the Registrant Essex Woodlands Health Ventures Fund V, L.P., Care Capital Investments II, LP, Galen Partners III, L.P. and others dated January 31, 2006 (the “Loan Agreement,” and together with certain other bridge loan agreements, the “Loan Agreements”) (incorporated by reference to the Form 8-K filed on January 31, 2006).

10.30		Form of Secured Promissory Note of the Registrant relating to January 31, 2006 Loan Agreement.

10.31		Subordination Agreement among Essex Woodlands Health Ventures Fund V, L.P., Care Capital Investments II, LP, Galen Partners III, L.P., and others dated January 31, 2006 (incorporated by reference to the Form 8-K filed on January 31, 2006).

10.32		Guarantor Security Agreement among Acura Pharmaceutical Technologies, Inc. (“APT”) and Galen Partners III, L.P., as Agent, dated January 31, 2006 (incorporated by reference to the Form 8-K filed on January 31, 2006).

10.33		Omnibus Amendment effective as of May 24, 2006 among the Registrant and APT and certain lenders amending the Loan Agreements (incorporated by reference to the Form 8-K filed on May 24, 2006).

10.34		Omnibus Amendment effective as of August 16, 2006 among the Registrant, APT and certain lenders, amending among other things, the Loan Agreements (incorporated by reference to the Form 8-K filed on August 16, 2006).

10.35		Omnibus Amendment effective as of September 22, 2006 among the Registrant, APT and certain lenders, amending among other things, the Loan Agreements (incorporated by reference to the Form 8-K filed on September 25, 2006).

10.36		Omnibus Amendment effective as of October 20, 2006 among the Registrant, APT and certain lenders, amending among other things, the Loan Agreements (incorporated by reference to the Form 8-K filed on October 20, 2006).

10.37		Omnibus Amendment effective as of November 30, 2006 among the Registrant and APT and certain lenders, amending among other things, the Loan Agreements (incorporated by reference to the Form 8-K filed on December 4, 2006).

Exhibit Index - 3

Exhibit Number		Exhibit Description
10.38		Omnibus Amendment and Consent dated March 30, 2007 among the Registrant, Galen Partners III, L.P., Care Capital Investments II, LP, Essex Woodlands Health Ventures Fund V, L.P. and the other signatories thereto (incorporated by referenced to Exhibit 10.1 of the Form 8-K filed April 2, 2007).

10.39		Omnibus Amendment and Consent effective as of July 10, 2007 among the Registrant, Galen Partners III, L.P., Care Capital Investments II, LP, Essex Woodlands Health Ventures Fund V, L.P. and the other signatories thereto (incorporated by reference to Exhibit 10.1 of the Form 8-K filed on July 10, 2007).

10.40		Fourth Amendment, Waiver and Consent to Loan Agreement dated as of June 28, 2007 between the Registrant and Galen Partners III, LP, as agent (incorporated by reference to Exhibit 10.1 of the Form 8-K filed on July 5, 2007 (the “July 5, 2007 8-K”)).

10.41		Consent and Amendment to Noteholders Agreement among Essex Woodlands Health Ventures Fund V, L.P., Galen Partners III, L.P. and Care Capital Investments II, LP, and certain other signatories thereto (incorporated by reference to Exhibit 10.2 of the July 5, 2007 8-K).

10.42		Amended Secured Promissory Note dated as of December 20, 2002 in the principal amount of $5,000,000 issued by the Registrant, as the maker, in favor of Galen Partners III, L.P., as agent (incorporated by reference to Exhibit 10.3 of the July 5, 2007 8-K).

10.43		Fifth Amendment, Waiver and Consent to Loan Agreement dated as of August 20, 2007 between the Registrant and Galen Partners III, L.P., as agent (incorporated by reference to Exhibit 10.2 to the Form 8-K filed on August 21, 2007).

10.44		Amended Secured Promissory Note dated as of December 20, 2002 in the principal amount of $5,000,000 issued by the Registrant, as the maker, in favor of Galen Partners III, L.P., as agent (incorporated by reference to Exhibit 10.3 of the Form 8-K filed on August 21, 2007).

10.45		Sixth Amendment, Waiver and Consent to Loan Agreement dated as of September 27, 2007 between the Registrant and Galen Partners III, L.P., as agent (incorporated by reference to Exhibit 10.1 to the Form 8-K filed on September 24, 2007).

10.46		Amended Secured Promissory Note originally issued as of December 20, 2002 in the principal amount of $5,000,000 issued by the Registrant, as the maker, in favor of Galen Partners III, L.P., as Agent (incorporated by reference to Exhibit 10.2 of the Form 8-K filed on September 24, 2007).

14.1		Code of Ethics (incorporated by reference to Exhibit 14.1 of the Form 8-K filed on December 10, 2007).

21		Subsidiaries of the Registrant (incorporated by reference to the Form 10-K for the fiscal year ended December 31, 2006 filed on March 15, 2007).

*23.1		Consent of Independent Registered Public Accounting Firm.

*31.1		Certification of Periodic Report by Chief Executive Officer pursuant to Rule 13a-14 and 15d-14 of the Securities Exchange Act of 1934.

*31.2		Certification of Periodic Report by Chief Financial Officer pursuant to Rule 13a-14 and 15d-14 of the Securities Exchange Act of 1934.

Exhibit Index - 4

Exhibit Number		Exhibit Description
*32		Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

*Filed or furnished herewith.

Exhibit Index - 5

(Mark One)
x	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2007
Or
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from _____ to _____

New York	11-0853640
(State or other jurisdiction of Incorporation or organization)	(I.R.S. Employer Identification No.)

616 N. North Court, Suite 120, Palatine, Illinois	60067
(Address of principal executive office)	(Zip code)

		PAGE
	PART I
Item 1.	Business	3
Item 1A.	Risk Factors	19
Item 1B.	Unresolved Staff Comments	30
Item 2.	Properties	30
Item 3.	Legal Proceedings	30
Item 4.	Submission of Matters to a Vote of Security Holders	30
	PART II
Item 5.	Market for Registrant's Common Equity and Related Stockholder Matters and Issuer Purchases of Equity Securities	30
Item 6.	Selected Financial Data	31
Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations	32
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	42
Item 8.	Financial Statements and Supplementary Data	42
Item 9.	Changes in and Disagreement with Accountants on Accounting and Financial Disclosure	43
Item 9A.	Controls and Procedures	43
Item 9B.	Other Information	44
	PART III
Item 10.	Directors, Executive Officers and Corporate Governance	44
Item 11.	Executive Compensation	46
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	62
Item 13.	Certain Relationships and Related Transactions, and Director Independence	65
Item 14.	Principal Accountant Fees and Services	67
	PART IV
Item 15.	Exhibits and Financial Statement Schedules	68
	Signatures	69
	Index to Financial Statements	F-1

Opioid Active Ingredients (Generic Names)		Frequently Prescribed Opioid Analgesics (Common Brand Names)
Oxycodone		Percocet®, OxyContin®, Roxicet®, Tylox®, Endocet®
Hydrocodone		Vicodin®, Lortab®, Lorcet®
Morphine		Avinza®, Kadian®, MSContin®
Hydromorphone		Dilaudid®
Codeine		Tylenol® with Codeine
Tramadol		Ultram®, Ultram® ER, Ultracet®
Propoxyphene		Darvon®, Darvocet®

Category	During Lifetime (millions)	During Past Year (millions)	Frequently Prescribed (Common Brand Names)
CNS Depressants	30.1	6.0	Valium®, Xanax®, Halcion®, Klonopin®, Ativan®, Nembutal®
Stimulants	20.1	3.4	Dexadrine®, Adderall®, Ritalin®, Concerta®

Technical and Pre-Clinical Development		Status and Expectations
Formulation development		Complete
Pilot bioequivalence study		Complete
Pivotal oxycodone laboratory extraction study		Complete (results summarized in this Report)
Tablet stability for NDA submission		Testing in process. 24 month real time data demonstrates stability acceptable for NDA submission
Toxicology studies		Not required per FDA written guidance to us

Regulatory Affairs		Status and Expectations
Investigational New Drug Application (IND)		Active
End of Phase II meeting with FDA		Complete
Factorial design clinical studies		Not required per FDA written guidance to us
Phase III pivotal clinical trial		A single phase III efficacy and safety trial is required per FDA written guidance to us.
Type of regulatory submission for U.S. regulatory approval and commercial distribution in the U.S.		Acurox™ Tablets are eligible for submission as a 505(b)(2) NDA per FDA written guidance to us
505(b)(2) NDA submission		Anticipate submission H2-08

	Approximate laboratory time
Product Tested,	required to produce a form		Difficulty Rating
Oxycodone HCl Strength and Product Supplier	suitable for intravenous injection	Extraction Scheme and Yield	1 = Easy to 10 = Difficult
OxyContin® Tablets 1x 40mg tablet Purdue Pharma	3 minutes	3 steps ~92% Yield	1
Oxycodone HCl Tablets 8 x 5mg tablets, Mallinckrodt	6 minutes	3 Steps ~71% Yield	2
Percocet Tablets 8 x 5/325mg tablets Endo Labs	<10 minutes with vacuum assisted filtration	3 Steps ~75% Yield	3-4
Acurox Tablets 8 x 5/30mg tablets Acura Pharmaceuticals	355 minutes with no success	23 Steps ~0% Yield	10

Clinical Studies to Evaluate Pharmacokinetics in Normal Subjects		Status and Expectations
AP-ADF-104	Phase I : Bioequivalence to non Aversion® Technology Reference Listed Drug	Final study report complete. Acurox™ Tablets are bioequivalent to the Reference Listed Drug
AP-ADF-108	Phase I: Single dose linearity and food effect	Summary report complete. Acurox Tablets demonstrate single dose linearity. Absorption is delayed by food.
AP-ADF-109	Phase I: Multi-dose linearity	Expect subject enrollment Q1-08
AP-ADF-110	Phase I: Required only if there is not dose linearity in Study AP-ADF-108 and Study AP-ADF-109	As of the date of this Report, we do not anticipate this study will be required

Clinical Studies to Evaluate Niacin Dose Response in Normal Subjects		Status and Expectations
AP-ADF-101	Phase I: Niacin dose-response (0-75mg)	Final study report complete
AP-ADF-103	Phase II: Repeat dose safety and tolerability	Final study report complete. Refer to summary in this Report
AP-ADF-107	Phase II: Niacin dose-response (0-600mg)	Final study report complete. Refer to summary in this Report

Clinical Studies to Evaluate Tolerability of Nasal Snorting and Excess Oral Doses in Subjects with a History of Opioid Abuse		Status and Expectations
AP-ADF-106	Phase I: Evaluate effects of nasal snorting in subjects with a history of snorting and nasal drug abuse	Expect subject enrollment Q2-08
AP-ADF-102	Phase II: Evaluate relative dislike of oxycodone HCl/niacin versus oxycodone HCl alone	Final study report complete Refer to summary in this Report
AP-ADF-111	Phase II: Evaluate abuse liability of oxycodone HCl/niacin versus oxycodone HCl alone	Expect subject enrollment Q1 and Q2-08

(1)	In the fasting state, all three doses of niacin [240mg, 480mg and 600mg] in combination with oxycodone 40mg produced significant (p ≤ .05) disliking scores compared to oxycodone 40mg alone. The linear regression across niacin dose was not significant. No other subjective measure was significantly affected by the niacin addition to oxycodone.

(2)	The high fat meal eliminated the niacin effect on oxycodone 40 mg. The high fat meal also delayed the time to oxycodone peak blood levels.

(3)	The addition of niacin to oxycodone alters the subjective response to oxycodone as indicated by the significant responses on the disliking scale. This observation in conjunction with the results from the Treatment Enjoyment Questionnaire indicates that the addition of niacin reduces the attractiveness of oxycodone to opiate abusers.

(4)	There were no serious adverse events. Niacin produced a dose related attenuation of pupillary constriction, diastolic blood pressure increase and probably systolic blood pressure increase produced by oxycodone. The alterations by niacin on the vital sign responses to oxycodone 40 mg were minimal, were seen primarily with the 600 mg niacin dose and were not clinically significant.

Clinical Study to Evaluate Efficacy and Safety in Patients with Acute Moderate to Severe Pain			Status and Expectations
AP-ADF-105	Phase III: Pivotal efficacy and safety		Special Protocol Assessment (SPA) agreed by FDA. Patient enrollment in progress. Anticipate final clinical study report in H2-08

	Immediate Release Products	Extended Release Products
Dispensed Rx’s ¹	221 Million	14 Million
Ratio of Dispensed Rx’s ¹	16:1
Ratio of Abuse ²	10:1
Estimated Ratio of $ Market Potential ³	4:1
Identified Competitors	Acura in collaboration with King	1. Alpharma 2. Pain Therapeutics 3. Purdue 4. Endo 5. Elite 6. Neuromed 7. Collegium

NAME	AGE	POSITION
Andrew D. Reddick	55	President, Chief Executive Officer and Director
Ron J. Spivey	61	Senior Vice President and Chief Scientific Officer
Peter A. Clemens	55	Senior Vice President, Chief Financial Officer and Secretary
James F. Emigh	52	Vice President of Marketing and Administration
Robert A. Seiser	44	Vice President, Corporate Controller and Treasurer
Bruce F. Wesson	65	Director
William A. Sumner	70	Director
Richard J. Markham	57	Director
William G. Skelly	56	Director
Immanuel Thangaraj	37	Director
George K. Ross	66	Director

PERIOD	Bid Prices
	High $		Low $
2006 Fiscal Year
First Quarter		9.10		2.50
Second Quarter		7.90		5.00
Third Quarter		10.90		5.90
Fourth Quarter		9.20		5.60
2007 Fiscal Year
First Quarter		9.50		6.90
Second Quarter		11.50		7.60
Third Quarter		28.40		9.30
Fourth Quarter		22.40		6.00
2008 Fiscal Year
First Quarter (through February 1, 2008)		8.60		5.90

PERIOD	Sale Prices
	High $		Low $
2008 Fiscal Year
First Quarter (from February 4, 2008 through February 29, 2008)		10.50		7.53

OPERATING DATA (in thousands) except per share data	2007			2006			2005			2004			2003
Net revenues	$	6,404			—			—		$	838		$	5,750
Operating Costs:
Cost of manufacturing		—			—			—			1,435			11,705
Research and development		7,169			5,172			6,265			4,130			1,460
Selling, marketing, general and administrative expenses		4,141			5,654			5,296			5,238			7,903
Plant shutdown costs		—			—			—			—			1,926
Interest expense		(1,207	)		(1,140	)		(636	)		(2,962			(6,001	)
Interest income		268			18			36			59			25
Write-off of debt discount and deferred private debt offering costs		—			—			—			(41,807	)		—
Amortization of debt discount and deferred private debt offering costs		(2,700	)		(183	)		—			(30,684	)		(24,771
Gain on debt restructuring		—			—			—			12,401			—
(Loss) Gain on fair value change of conversion features		(3,483	)		4,235			—			—			—
(Loss) Gain on fair value change of common stock warrants		(1,905	)		2,164			—			—			—
(Loss) gain on asset disposals		22			(22	)		81			2,359			—
Other (expense) income		(3	)		(213	)		5			603			464
Loss before income tax benefit		(13,914	)		(5,967	)		(12,075	)		(69,996	)		(48,455	)
Income tax benefit		9,600			—			—			—			—
Net loss	$	(4,314	)	$	(5,967	)	$	(12,075	)	$	(69,996	)	$	(48,455	)
Basic and diluted loss per common share applicable to common stockholders	$	(0.11	)	$	(0.75	)	$	(1.81	)	$	(32.00	)	$	(22.80	)
Weighted average number of outstanding common shares		39,157			34,496			6,680			2,186			2,123

BALANCE SHEET DATA (3) (in thousands)	2007			2006			2005			2004			2003
Working capital (deficiency)	$	22,306		$	(28,641	)	$	(2,478	)	$	2,423		$	(3,770	)
Total assets		45,628			1,619			1,792			4,967			6,622
Total debt, net (2)		—			28,787			7,613			5,093			53,142
Total liabilities		26,908			39,899			7,954			6,052			58,689
Accumulated deficit		(321,860	)		(317,543	)		(291,616	)		(279,541	)		(209,546	)
Stockholders' equity (deficit)		18,720			(38,280	)	$	(6,162	)	$	(1,085	)	$	(52,067	)

($ in thousands):	Year Ended December 31,				Change
	2007		2006		Dollars		%
Revenue – Program fee revenue	$	3,427		—	$	3,427		N/A

(in thousands)	Total		Due in 2008		Due in 2009		Due Thereafter
Operating leases		37		30		7		—
Clinical studies ¹		3,991		3,991		—		—
Employment agreements		885		885		—		—
Total contractual obligations	$	4,913	$	4,906	$	7		—

Name and Principal Position	Year	Base Salary ($)		Bonus ($)		Stock Awards ¹ ($)		Option Awards ² ($)		Total ($)
Andrew D. Reddick	2006		300,000		—		1,375,000	$	77,000		1,752,000
President & CEO	2007		300,000		850,000		264,000		0		1,414,000
Peter A. Clemens	2006		180,000		—		733,000		23,000		936,000
SVP & CFO	2007		180,000		180,000		141,000		11,000		512,000
Ron J. Spivey	2006		260,000		—		1,110,000		166,000		1,536,000
SVP and Chief Scientific Officer	2007		260,000		650,000		211,000		0		1,121,000
James F. Emigh	2006		140,000		—		229,000		16,000		385,000
VP, Marketing & Administration	2007		140,000		140,000		44,000		7,000		331,000
Robert A. Seiser	2006		133,000		—		275,000		16,000		424,000
VP, Corporate Controller & Treasurer	2007		133,000		140,000		53,000		7,000		333,000

	Vesting of All Options	Exercisability of Options not subject to Section 409A	Exercisability of Options Subject to Section 409A
Termination due to Death	No additional vesting	Vested options immediately exercisable for one year following termination	Vested options immediately exercisable for the lesser of (a) one year following termination or (b) the last day of the year in which they become exercisable

Termination by Company Without Cause or by Employee for Good Reason or following Change of Control (not qualifying under Section 409A)	All options fully vest	Vested options immediately exercisable for one year following termination	Vested options exercisable commencing six months after termination for the lesser of (a) one year following termination or (b) the last day of the year in which they become exercisable

Termination due to Disability	No additional vesting	Vested options immediately exercisable for one year following termination	Vested options exercisable commencing six months after termination for the lesser of (a) one year following termination or (b) the last day of the year in which they become exercisable

Termination by the Company for Cause or by executive other than for Good Reason	No additional vesting	Vested options immediately exercisable for 40 days following termination	Vested options exercisable commencing six months after termination for the lesser of (a) 40 days thereafter or (b) the last day of the calendar year in which they first become exercisable

Change of Control, Qualifying under Section 409A	Options fully vest	Vested options immediately exercisable	Vested options exercisable upon Change of Control qualifying under Section 409A during the year in which the Change of Control occurs

	Option Awards
Name	Number of Securities Underlying Unexercised Options (#) Exercisable		Number of Securities Underlying Unexercised Options (#) Unexercisable		Option Exercise Price ($)		Option Expiration Date
Andrew D. Reddick		875,000		—	$	1.30		08/12/2014
Peter A. Clemens		30,000 10,000 12,500 10,000 28,125		— — — — 9,375	$ $ $ $ $	23.75 11.25 18.75 11.125 1.30		02/19/2008 03/08/2009 02/17/2010 06/29/2010 03/09/2014
Ron J. Spivey		300,000 400,000		—	$ $	1.30 1.30		04/15/2014 12/09/2015
Robert A. Seiser		4,000 1,600 3,000 4,000 2,500 18,675		— — — — — 6,225	$ $ $ $ $ $	25.00 11.25 18.75 11.125 24.60 1.30		05/29/2008 03/08/2009 02/17/2010 06/29/2010 11/15/2011 03/09/2014
James F. Emigh		1,000 1,000 1,600 5,000 4,000 2,500 18,675		— — — — — — 6,225	$ $ $ $ $ $ $	25.00 15.00 11.25 18.75 11.125 24.60 1.30		05/29/2008 10/13/2008 03/08/2009 02/17/2010 06/29/2010 11/15/2011 03/09/2014

	Stock Awards
Name	Number of Shares Vested (#) ⁽¹⁾		Value Realized on Vesting ($) ⁽²⁾
Andrew D. Reddick		275,000	$	3,331,625
Peter A. Clemens		146,667		1,776,859
Ron J. Spivey		220,000		2,665,300
James F. Emigh		45,833		555,267
Robert A. Seiser		55,000		666,325

Plan Category	Number Of Securities to Be Issued Upon Exercise of Outstanding Options, Warrants and Rights (a)		Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights (b)		Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column(a) (c)
Stock Option Equity Compensation Plans Approved by Security Holders		1,858,499	$	2.53		102,666
Stock Option Equity Compensation Plans Not Approved by Security Holders		0		0		0
Restricted Stock Unit Equity Compensation Plans Approved by Security Holders		2,950,000		0.01		50,000
Restricted Stock Unit Equity Compensation Plans Not Approved by Security Holders		0		0		0
TOTAL		4,808,499	$	0.99		152,666

Triggering Event	Executive	Severance		Bonus		Value of Options Vesting (4)		Medical, Dental, Health, Disability and Life Insurance Benefits		Total (7)
Termination by Company without Cause or by	Andrew D. Reddick	300,000	(1)(8)	—	(3)		(5)	26,270	(6)	326,270
Employee for Good Reason or after a	Ron J. Spivey	260,000	(1)(9)	—	(3)		(5)	7,875	(6)	267,875
Change of Control	Peter A. Clemens	360,000	(2)(10)	—	(3)	666		52,540	(11)	413,206
Termination for	Andrew D. Reddick	—		—	(3)	—		—		—
Death	Ron J. Spivey	—		—		—		—		—
	Peter A. Clemens	—		—		—		—		—
Termination for	Andrew D. Reddick	—		—	(3)	—		—		—
Disability	Ron J. Spivey	—		—		—		—		—
	Peter A. Clemens	—		—		—		—		—
Termination	Andrew D. Reddick	—		—		—		—		—
with	Ron J. Spivey	—		—		—		—		—
Cause	Peter A. Clemens	—		—		—		—		—
Change of Control	Andrew D. Reddick	—		—			(5)	—		—
Without	Ron J. Spivey	—		—			(5)	—		—
Termination	Peter A. Clemens	—		—		666		—		666

Director	Fees Earned or Paid in Cash ($)			Stock Awards ($) ⁽¹⁾		Option Awards ($) ⁽²⁾		Total ($)
William G. Skelly		11,500			—		—		11,500
William A. Sumner		12,000			—		—		12,000
Bruce F. Wesson		5,250			—		—		5,250
Richard J. Markham		6,250			—		—		6,250
Immanuel Thangaraj			(3)		—		—		—

NAME OF BENEFICIAL OWNER	AMOUNT OWNED			PERCENT OF CLASS (1)
GCE Holdings LLC, c/o Galen Partners III, L.P. 680 Washington Boulevard, Stamford, CT 06901		34,564,956	(2)		77.7	%
Vivo Ventures Fund VI, L.P. 575 High St, Suite 201 Palo Alto, CA 9430131		2,450,000	(3)		5.7	%
Andrew D. Reddick		875,000	(4)		2.0	%
Ron J. Spivey		700,000	(5)		1.6	%
William G. Skelly		33,333	(6)		*
Bruce F. Wesson		—	(2)(7)		*
William A. Sumner		24,000	(8)		*
Peter A. Clemens		105,080	(9)		*
Richard J. Markham		—	(2)(10)		*
Immanuel Thangaraj		—	(2)(11)		*
Robert A. Seiser		40,000	(12)		*
James F. Emigh		44,500	(13)		*
George K. Ross		5,000	(14)		*
All Officers and Directors as a Group (11 persons)		1,826,913	(15)		4.1	%

	2006		2007
Audit Fees	$	87,600	$	85,825
Audit-Related Fees		-		-
Total Audit and Audit-Related Fees		87,600		85,825
Tax Fees		25,600		30,168
All Other Fees		1,333		-

Total for BDO Seidman, LLP	$	114,533	$	115,993

A.	The Corporation and the Employee executed an employment agreement dated as of August 26, 2003, which was amended three times (as amended, the “ Employment Agreement ”).
B.	The Corporation and the Employee now desire to further amend the Employment Agreement as provided herein.

	ACURA PHARMACEUTICALS, INC.

	By:	/s/ Peter A. Clemens
		Name: Peter A. Clemens
		Title: Senior Vice President and
		Chief Financial Officer

	EMPLOYEE

	By:	/s/ Andrew D. Reddick
		Andrew D. Reddick

	ACURA PHARMACEUTICALS, INC.

	By:	/s/ Andrew D. Reddick
		Name: Andrew D. Reddick
		Title: President and
		Chief Executive Officer

	EMPLOYEE

	By:	/s/ Ron J. Spivey
		Ron J. Spivey

	/s/ Andrew D. Reddick
	Andrew D. Reddick
	President and Chief Executive Officer