##### Table of Contents



---

---

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549




---

FORM 10-Q

(MARK ONE)

|  |  |                                                                                         
|- |  | ----------------------------------------------------------------------------------------
|x |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2003

OR

|  |  |                                                                                          
|- |  | -----------------------------------------------------------------------------------------
|o |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.

FOR THE TRANSITION PERIOD
FROM              TO

COMMISSION FILE NUMBER:
0-20772

QUESTCOR PHARMACEUTICALS, INC.

(Exact name of Registrant as specified in its charter)


|                                  |  |                    
|--------------------------------- |  | -------------------
|CALIFORNIA                        |  | 33-0476164         
|(State or other jurisdiction      |  | (I.R.S.Employer    
|of incorporation or organization) |  | Identification No.)

3260 Whipple Road
Union City, CA 94587-1217
(Address of Principal Executive Offices)

REGISTRANTS TELEPHONE NUMBER, INCLUDING AREA CODE: (510) 400-0700



---

Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter prior that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes x
No o

Indicate by check mark whether Registrant is an accelerated filer (as
defined in Rule 12B-2 of the Act). Yes o
 No x

At
May 9, 2003 there were 38,992,419 shares of the Registrants common
stock, no par value per share, outstanding.



---

---





---

TABLE OF CONTENTS



|                           |                                                                                               |                                                                     |  |  |  |  |  | 
|-------------------------- | --------------------------------------------------------------------------------------------- | ------------------------------------------------------------------- |  |  |  |  |  | 
|                           | ITEM 1. FINANCIAL STATEMENTS                                                                 
|                           |                                                                                               | CONDENSED CONSOLIDATED BALANCE SHEETS                              
|                           |                                                                                               | CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS                    
|                           |                                                                                               | CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS                    
|                           |                                                                                               | NOTES TO CONDENSED CONSOLIDATED MARCH 31, 2003 FINANCIAL STATEMENTS
|                           |                                                                                               | INDEPENDENT ACCOUNTANTS REVIEW REPORT                             
|                           | ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|                           | ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                           
|                           | ITEM 4. DISCLOSURE CONTROLS AND PROCEDURES                                                   
|PART II. OTHER INFORMATION
|                           | ITEM 1. LEGAL PROCEEDINGS                                                                    
|                           | ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS                                            
|                           | ITEM 3. DEFAULTS UPON SENIOR SECURITIES                                                      
|                           | ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                  
|                           | ITEM 5. OTHER INFORMATION                                                                    
|                           | ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K                                                     
|SIGNATURES                
|CERTIFICATIONS            
|EXHIBIT 15.1              
|EXHIBIT 99.1              



---



##### Table of Contents



QUESTCOR PHARMACEUTICALS, INC.

FORM 10-Q

TABLE OF CONTENTS

|               |    |                                                                                                    |      | 
|-------------- | -- | -------------------------------------------------------------------------------------------------- | ---- | 
|               |    |                                                                                                    | Page
|               |    |                                                                                                    |     
|               |    | PART I. FINANCIAL INFORMATION                                                                      |      | 
|Item 1         |    | Financial Statements and Notes (Unaudited)                                                         |      | 
|               |    | Condensed Consolidated Balance SheetsMarch 31, 2003 and December 31, 2002                         | 3    | 
|               |    | Condensed Consolidated Statements of Operationsfor the three months ended March 31, 2003 and 2002 | 4    | 
|               |    | Condensed Consolidated Statements of Cash Flowsfor the three months ended March 31, 2003 and 2002 | 5    | 
|               |    | Notes to Condensed Consolidated Financial Statements                                               | 6    | 
|               |    | Independent Accountants Review Report                                                             | 11   | 
|Item 2         |    | Managements Discussion and Analysis of Financial Condition and Results of Operations              | 12   | 
|Item 3         |    | Quantitative and Qualitative Disclosures about Market Risk                                         | 16   | 
|Item 4         |    | Disclosure Controls and
Procedures                                                                 | 16   | 
|               |    | PART II. OTHER INFORMATION                                                                         |      | 
|Item 1         |    | Legal Proceedings                                                                                  | 17   | 
|Item 2         |    | Changes in Securities and Use of Proceeds                                                          | 17   | 
|Item 3         |    | Defaults upon Senior Securities                                                                    | 17   | 
|Item 4         |    | Submission of Matters to a Vote of Security Holders                                                | 17   | 
|Item 5         |    | Other Information                                                                                  | 17   | 
|Item 6         |    | Exhibits and Reports                                                                               | 17   | 
|Signatures     | 18 |                                                                                                   
|Certifications | 19 |                                                                                                   

2



---



##### Table of Contents






ITEM 1. FINANCIAL STATEMENTS

QUESTCOR PHARMACEUTICALS, INC.




CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARES)

|                                                                                                                                                                                                                               |                                                                                                                                                                         |                                            |       |         |        |             |       |              |        |  |  | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ----- | ------- | ------ | ----------- | ----- | ------------ | ------ |  |  | 
|                                                                                                                                                                                                                               |                                                                                                                                                                         |                                            |       |         |        | March 31,   |       | December 31,
|                                                                                                                                                                                                                               |                                                                                                                                                                         |                                            |       |         |        | 2003        |       | 2002        
|                                                                                                                                                                                                                               |                                                                                                                                                                         |                                            |       |         |        |             |       |             
|                                                                                                                                                                                                                               |                                                                                                                                                                         |                                            |       |         |        | (Unaudited) |       | (Note 1)    
|ASSETS                                                                                                                                                                                                                        
|Current assets:                                                                                                                                                                                                                |                                                                                                                                                                         |                                            |       |         |        |             |       |             
|                                                                                                                                                                                                                               | Cash and cash equivalents                                                                                                                                               |                                            | $     | 11,822  |        |             | $     | 6,156        |       
|                                                                                                                                                                                                                               | Short-term investments                                                                                                                                                  |                                            |       | 3,113   |        |             |       | 1,350        |       
|                                                                                                                                                                                                                               | Accounts receivable, net of allowance for doubtful accounts of $20 at March 31, 2003 and
December 31, 2002                                                              |                                            |       | 1,561   |        |             |       | 1,590        |       
|                                                                                                                                                                                                                               | Inventories, net                                                                                                                                                        |                                            |       | 1,063   |        |             |       | 391          |       
|                                                                                                                                                                                                                               | Prepaid expenses and other current assets                                                                                                                               |                                            |       | 911     |        |             |       | 979          |       
|                                                                                                                                                                                                                               |                                                                                                                                                                         |                                            |       |         |        |             |       |             
|                                                                                                                                                                                                                               |                                                                                                                                                                         | Total current assets                       |       |         | 18,470 |             |       |              | 10,466 | 
|Property and equipment, net                                                                                                                                                                                                    |                                                                                                                                                                         |                                            | 696   |         |        |             | 585   |             
|Purchased technology, net                                                                                                                                                                                                      |                                                                                                                                                                         |                                            | 269   |         |        |             | 382   |             
|Goodwill and other indefinite lived intangible assets                                                                                                                                                                          |                                                                                                                                                                         |                                            | 479   |         |        |             | 479   |             
|Deposits and other assets                                                                                                                                                                                                      |                                                                                                                                                                         |                                            | 846   |         |        |             | 854   |             
|                                                                                                                                                                                                                               |                                                                                                                                                                         |                                            |       |         |        |             |       |             
|                                                                                                                                                                                                                               |                                                                                                                                                                         | Total assets                               |       | $       | 20,760 |             |       | $            | 12,766 | 
|                                                                                                                                                                                                                               |                                                                                                                                                                         |                                            |       |         |        |             |       |              |       
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                                                                          
|Current liabilities:                                                                                                                                                                                                           |                                                                                                                                                                         |                                            |       |         |        |             |       |             
|                                                                                                                                                                                                                               | Accounts payable                                                                                                                                                        |                                            | $     | 2,111   |        |             | $     | 1,230        |       
|                                                                                                                                                                                                                               | Accrued compensation                                                                                                                                                    |                                            |       | 428     |        |             |       | 794          |       
|                                                                                                                                                                                                                               | Other accrued liabilities                                                                                                                                               |                                            |       | 1,046   |        |             |       | 1,205        |       
|                                                                                                                                                                                                                               | Short-term debt and current portion of long-term debt                                                                                                                   |                                            |       | 230     |        |             |       | 218          |       
|                                                                                                                                                                                                                               | Current portion of capital lease obligations                                                                                                                            |                                            |       |        |        |             |       | 1            |       
|                                                                                                                                                                                                                               |                                                                                                                                                                         |                                            |       |         |        |             |       |             
|                                                                                                                                                                                                                               |                                                                                                                                                                         | Total current liabilities                  |       |         | 3,815  |             |       |              | 3,448  | 
|Convertible debentures, (face amount of $4,000), net of deemed discount of $969 at March 31, 2003
and $1,092 at December 31, 2002                                                                                              |                                                                                                                                                                         |                                            | 3,031 |         |        |             | 2,908 |             
|Other non-current liabilities                                                                                                                                                                                                  |                                                                                                                                                                         |                                            | 822   |         |        |             | 833   |             
|Commitments                                                                                                                                                                                                                    |                                                                                                                                                                         |                                            |       |         |        |             |       |             
|Preferred stock, no par value, 7,500,000 shares authorized; 2,155,715 Series A shares issued and
outstanding at March 31, 2003 and December 31, 2002 (aggregate liquidation of $10,000 at March
31, 2003 and December 31,2002) |                                                                                                                                                                         |                                            | 5,081 |         |        |             | 5,081 |             
|Stockholders equity:                                                                                                                                                                                                          |                                                                                                                                                                         |                                            |       |         |        |             |       |             
|                                                                                                                                                                                                                               | Preferred stock, no par value, 10,000 Series B shares issued and outstanding at March 31, 2003, net of issuance costs                                                   |                                            |       | 9,178   |        |             |       |             |       
|                                                                                                                                                                                                                               | Common
stock, no par value, 75,000,000 shares authorized; 38,992,419 and 38,676,592 shares issued
and outstanding at March 31, 2003 and December 31, 2002, respectively |                                            |       | 79,070  |        |             |       | 77,528       |       
|                                                                                                                                                                                                                               | Deferred compensation                                                                                                                                                   |                                            |       | (30     | )      |             |       | (22          | )     
|                                                                                                                                                                                                                               | Accumulated deficit                                                                                                                                                     |                                            |       | (80,206 | )      |             |       | (76,968      | )     
|                                                                                                                                                                                                                               | Accumulated other comprehensive loss                                                                                                                                    |                                            |       | (1      | )      |             |       | (42          | )     
|                                                                                                                                                                                                                               |                                                                                                                                                                         |                                            |       |         |        |             |       |             
|                                                                                                                                                                                                                               |                                                                                                                                                                         | Total stockholders equity                 |       |         | 8,011  |             |       |              | 496    | 
|                                                                                                                                                                                                                               |                                                                                                                                                                         |                                            |       |         |        |             |       |             
|                                                                                                                                                                                                                               |                                                                                                                                                                         | Total liabilities and stockholders equity |       | $       | 20,760 |             |       | $            | 12,766 | 
|                                                                                                                                                                                                                               |                                                                                                                                                                         |                                            |       |         |        |             |       |              |       

See accompanying notes.

3



---



##### Table of Contents



QUESTCOR PHARMACEUTICALS, INC.




CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

|                                                                                              |                                     |   |                                    |       |                    |       |           |       |  |       | 
|--------------------------------------------------------------------------------------------- | ----------------------------------- | - | ---------------------------------- | ----- | ------------------ | ----- | --------- | ----- |  | ----- | 
|                                                                                              |                                     |   |                                    |       | Three Months Ended
|                                                                                              |                                     |   |                                    |       |                   
|                                                                                              |                                     |   |                                    |       | March 31,          |       | March 31,
|                                                                                              |                                     |   |                                    |       | 2003               |       | 2002     
|                                                                                              |                                     |   |                                    |       |                    |       |          
|Revenues:                                                                                     |                                     |   |                                    |       |                    |       |           |      
|                                                                                              | Net product sales                   |   | $                                  | 2,362 |                    |       | $         | 3,806 | 
|                                                                                              | Contract research and grant revenue |   |                                    | 9     |                    |       |           | 45    | 
|                                                                                              | Technology revenue                  |   |                                    | 250   |                    |       |           |      | 
|                                                                                              | Royalty revenue                     |   |                                    |      |                    |       |           | 3     | 
|                                                                                              |                                     |   |                                    |       |                    |       |           |      
|                                                                                              |                                     |   | Total revenues                     |       |                    | 2,621 |           |       |  | 3,854 | 
|Operating costs and expenses:                                                                 |                                     |   |                                    |       |                    |       |           |      
|                                                                                              | Cost of product sales               |   |                                    | 675   |                    |       |           | 634   | 
|                                                                                              | Sales and marketing                 |   |                                    | 1,485 |                    |       |           | 1,375 | 
|                                                                                              | General and administrative          |   |                                    | 1,318 |                    |       |           | 1,531 | 
|                                                                                              | Research and development            |   |                                    | 611   |                    |       |           | 428   | 
|                                                                                              | Depreciation and amortization       |   |                                    | 169   |                    |       |           | 344   | 
|                                                                                              |                                     |   |                                    |       |                    |       |           |      
|                                                                                              |                                     |   | Total operating costs and expenses |       |                    | 4,258 |           |       |  | 4,312 | 
|                                                                                              |                                     |   |                                    |       |                    |       |           |      
|Loss from operations                                                                          |                                     |   | (1,637                             | )     |                    |       | (458      | )    
|Non-cash amortization of deemed discount on convertible debentures                            |                                     |   | (131                               | )     |                    |       | (44       | )    
|Interest income, net                                                                          |                                     |   | 4                                  |       |                    |       | 27        |      
|Other income (expense), net                                                                   |                                     |   | (77                                | )     |                    |       | 71        |      
|Rental income, net                                                                            |                                     |   | 71                                 |       |                    |       | 72        |      
|                                                                                              |                                     |   |                                    |       |                    |       |           |      
|Net loss                                                                                      |                                     | $ | (1,770                             | )     |                    | $     | (332      | )    
|Non-cash deemed dividend related to beneficial conversion feature of Series B Preferred Stock |                                     |   | 1,301                              |       |                    |       |          |      
|Dividends
on Series B Preferred Stock                                                         |                                     |   | 167                                |       |                    |       |          |      
|                                                                                              |                                     |   |                                    |       |                    |       |           |      
|Net loss available to common stockholders                                                     |                                     | $ | (3,238                             | )     |                    | $     | (332      | )    
|                                                                                              |                                     |   |                                    |       |                    |       |           |      
|Basic
and diluted net loss per share available to common stockholders                         |                                     | $ | (0.08                              | )     |                    | $     | (0.01     | )    
|                                                                                              |                                     |   |                                    |       |                    |       |           |      
|Weighted average shares of common stock outstanding                                           |                                     |   | 38,677                             |       |                    |       | 37,843    |      
|                                                                                              |                                     |   |                                    |       |                    |       |           |      

See accompanying notes.

4



---



##### Table of Contents



QUESTCOR PHARMACEUTICALS, INC.




CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

(IN THOUSANDS)

|                                                                            |                                                           |   |                    |      |           |   |        |      |  
|--------------------------------------------------------------------------- | --------------------------------------------------------- | - | ------------------ | ---- | --------- | - | ------ | ---- | -
|                                                                            |                                                           |   | Three Months Ended
|                                                                            |                                                           |   |                   
|                                                                            |                                                           |   | March 31,          |      | March 31,
|                                                                            |                                                           |   | 2003               |      | 2002     
|                                                                            |                                                           |   |                    |      |          
|OPERATING ACTIVITIES                                                        |                                                           |   |                    |      |           |   |        |     
|Net loss                                                                    |                                                           | $ | (1,770             | )    |           | $ | (332   | )   
|Adjustments to reconcile net loss to net cash used in operating activities: |                                                           |   |                    |      |           |   |        |     
|                                                                            | Stock based compensation expense                          |   |                    | 8    |           |   |        | 263  |  
|                                                                            | Amortization of deemed discount on convertible debentures |   |                    | 131  |           |   |        | 44   |  
|                                                                            | Amortization of deferred compensation                     |   |                    | 7    |           |   |        | 4    |  
|                                                                            | Depreciation and amortization                             |   |                    | 169  |           |   |        | 344  |  
|                                                                            | Deferred rent expense                                     |   |                    | (11  | )         |   |        | (11  | )
|                                                                            | Other-than-temporary loss on investment                   |   |                    | 51   |           |   |        |     |  
|                                                                            | Loss on the sale of investments                           |   |                    | 13   |           |   |        |     |  
|                                                                            | (Gain)/loss on the sale of equipment, net                 |   |                    | 13   |           |   |        | (2   | )
|Changes in operating assets and liabilities:                                |                                                           |   |                    |      |           |   |        |     
|                                                                            | Accounts receivable                                       |   |                    | 29   |           |   |        | (280 | )
|                                                                            | Inventories                                               |   |                    | (672 | )         |   |        | 64   |  
|                                                                            | Prepaid expenses and other current assets                 |   |                    | 59   |           |   |        | (817 | )
|                                                                            | Accounts payable                                          |   |                    | 881  |           |   |        | 424  |  
|                                                                            | Accrued compensation and employee benefits                |   |                    | (366 | )         |   |        | (108 | )
|                                                                            | Other accrued liabilities                                 |   |                    | (327 | )         |   |        | 46   |  
|                                                                            |                                                           |   |                    |      |           |   |        |     
|Net cash flows used in operating activities                                 |                                                           |   | (1,785             | )    |           |   | (361   | )   
|INVESTING ACTIVITIES                                                        |                                                           |   |                    |      |           |   |        |     
|Purchase of property and equipment                                          |                                                           |   | (194               | )    |           |   | (67    | )   
|Purchases of short-term investments                                         |                                                           |   | (2,048             | )    |           |   |       |     
|Proceeds from maturities and sales of short-term investments                |                                                           |   | 263                |      |           |   |       |     
|Proceeds from sale of property and equipment                                |                                                           |   | 15                 |      |           |   | 13     |     
|Decrease in other assets                                                    |                                                           |   |                   |      |           |   | 44     |     
|                                                                            |                                                           |   |                    |      |           |   |        |     
|Net cash flows used in investing activities                                 |                                                           |   | (1,964             | )    |           |   | (10    | )   
|FINANCING ACTIVITIES                                                        |                                                           |   |                    |      |           |   |        |     
|Issuance of common stock, net                                               |                                                           |   |                   |      |           |   | 348    |     
|Issuance
of Series B preferred stock and warrants, net                      |                                                           |   | 9,404              |      |           |   |       |     
|Issuance of convertible debentures                                          |                                                           |   |                   |      |           |   | 4,000  |     
|Short-term borrowings                                                       |                                                           |   | 288                |      |           |   | 1,019  |     
|Repayment of note payable to bank                                           |                                                           |   |                   |      |           |   | (5,000 | )   
|Repayment of short-term and long-term debt                                  |                                                           |   | (276               | )    |           |   | (102   | )   
|Repayments of capital lease obligations                                     |                                                           |   | (1                 | )    |           |   | (14    | )   
|                                                                            |                                                           |   |                    |      |           |   |        |     
|Net cash flows provided by financing activities                             |                                                           |   | 9,415              |      |           |   | 251    |     
|                                                                            |                                                           |   |                    |      |           |   |        |     
|Increase/(decrease) in cash and cash equivalents                            |                                                           |   | 5,666              |      |           |   | (120   | )   
|Cash and cash equivalents at beginning of period                            |                                                           |   | 6,156              |      |           |   | 10,183 |     
|                                                                            |                                                           |   |                    |      |           |   |        |     
|Cash and cash equivalents at end of period                                  |                                                           | $ | 11,822             |      |           | $ | 10,063 |     
|                                                                            |                                                           |   |                    |      |           |   |        |     
|SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:                          |                                                           |   |                    |      |           |   |        |     
|Cash paid for interest                                                      |                                                           | $ | 87                 |      |           | $ | 33     |     
|                                                                            |                                                           |   |                    |      |           |   |        |     

See accompanying notes.

5



---



##### Table of Contents



QUESTCOR PHARMACEUTICALS, INC.




NOTES TO CONDENSED CONSOLIDATED MARCH 31, 2003 FINANCIAL STATEMENTS
(UNAUDITED)

1.     BASIS OF PRESENTATION

Questcor Pharmaceuticals, Inc. (The Company) is a specialty
pharmaceutical company that markets and sells brand name prescription drugs and
ethically promoted healthcare products. The Company focuses on the treatment of
acute and critical care conditions, including central nervous system (CNS)
diseases and gastroenterological disorders. The Companys strategy is to
acquire pharmaceutical products that it believes have sales growth potential,
are promotion sensitive and complement the Companys existing products. In
addition, through corporate collaborations, the Company intends to develop new
patented intranasal formulations of previously FDA approved drugs. The Company
currently markets five products in the U.S.: HP Acthar® Gel (Acthar), an
injectable drug that is commonly used in treating patients with infantile
spasm, and is approved for the treatment of certain CNS disorders with an
inflammatory component including the treatment of flares associated with
Multiple Sclerosis (MS); Ethamolin®, an injectable drug used to treat
enlarged weakened blood vessels at the entrance to the stomach that have
recently bled, known as esophageal varices; Glofil®-125 and Inulin in Sodium
Chloride, which are both injectable agents that assess how well the kidney is
working by measuring glomerular filtration rate, or kidney function; and
VSL#3, a patented probiotic marketed as a dietary supplement to promote normal
gastrointestinal function. Probiotics are living organisms in food and dietary
supplements, which, upon ingestion in certain numbers, improve the health of
the host beyond their inherent basic nutrition. Emitasol is used for the
treatment of acute chemotherapy induced nausea and vomiting, as well as
functional dyspepsia and other motor disturbances of the gastrointestinal
tract. Emitasol is currently marketed in Korea and is available under the trade name
Pramidin® in Italy.

The accompanying unaudited consolidated financial statements of the
Company have been prepared in accordance with accounting principles generally
accepted in the United States and applicable Securities and Exchange Commission
regulations for interim financial information. These financial statements do
not include all of the information and footnotes required by accounting
principles generally accepted in the United States for complete financial
statements. The unaudited financial statements should be read in conjunction
with the audited financial statements and related footnotes included in the
Companys Annual Report on Form 10-K for the year ended December 31, 2002, as
filed on March 26, 2003 with the Securities and Exchange
Commission. The accompanying balance sheet at December 31, 2002
has been derived from the audited financial statements at that date. In the
opinion of the Companys management, all adjustments (consisting of normal
recurring adjustments) considered necessary for fair presentation of interim
financial information have been included. Operating results for the interim
periods presented are not necessarily indicative of the results that may be
expected for the year ending December 31, 2003. Certain amounts in the prior
quarters financial statements have been reclassified to conform with the
current quarters presentation. The consolidated financial statements include
the accounts of the Company and its wholly owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated.

2.     STOCK-BASED COMPENSATION

The Company generally grants stock options to its employees for a fixed
number of shares with an exercise price equal to the fair value of the shares
on the date of grant. As allowed under the Statement of Financial Accounting
Standards No. 123, Accounting for Stock-Based Compensation (SFAS 123), the
Company has elected to follow Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees (APB 25) and related
interpretations in accounting for stock awards to employees. Accordingly, no
compensation expense is recognized in the Companys financial statements in
connection with stock options granted to employees with exercise prices not
less than fair value. Deferred compensation for options granted to employees is
determined as the difference between the deemed fair market value of the
Companys common stock on the date options were granted and the exercise price.
For purposes of disclosures pursuant to SFAS 123, as amended by SFAS 148, the
estimated fair value of options is amortized to expense over the
options'
vesting periods.

Compensation expense for options granted to non-employees has been
determined in accordance with SFAS 123 as the fair value of the consideration
received or the fair value of the equity instruments issued, whichever is more
reliably measured. Compensation expense for options granted to non-employees is
periodically re-measured as the underlying options vest.

The following table illustrates the effect on net loss per share if we had
applied the fair value recognition provisions of SFAS 123 to stock-based
employee compensation (in thousands, except per share amounts):

|                                                                       |                                                                                                           |   |                              |        |      |   |      |       |  
|---------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------- | - | ---------------------------- | ------ | ---- | - | ---- | ----- | -
|                                                                       |                                                                                                           |   | Three
months ended March 31,
|                                                                       |                                                                                                           |   |                             
|                                                                       |                                                                                                           |   | 2003                         |        | 2002
|                                                                       |                                                                                                           |   |                              |        |     
|Net loss available to common stockholders as reported                  |                                                                                                           | $ | (3,238                       | )      |      | $ | (332 | )    
|                                                                      
|                                                                      
|                                                                      
|                                                                       | Add: Stock-based employee compensation expense included in
reported net loss                              |   |                              | 7      |      |   |      | 4     |  
|                                                                      
|                                                                      
|                                                                      
|                                                                       | Deduct: Total stock-based employee compensation expense
determined under fair value method for all awards |   |                              | (356   | )    |   |      | (355  | )
|                                                                       |                                                                                                           |   |                              |        |      |   |      |      
|                                                                       | Pro forma net loss available to common stockholders                                                       |   | $                            | (3,587 | )    |   | $    | (683  | )
|                                                                       |                                                                                                           |   |                              |        |      |   |      |      
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|Basic and diluted net loss per share available to common
stockholders: |                                                                                                           |   |                              |        |      |   |      |      
|                                                                      
|                                                                      
|                                                                      
|                                                                       | As reported                                                                                               |   | $                            | (0.08  | )    |   | $    | (0.01 | )
|                                                                       |                                                                                                           |   |                              |        |      |   |      |      
|                                                                       | Pro forma                                                                                                 |   | $                            | (0.09  | )    |   | $    | (0.02 | )
|                                                                       |                                                                                                           |   |                              |        |      |   |      |      

3.     REVENUE RECOGNITION

Revenues from product sales of Acthar, Ethamolin, Glofil-125, Inulin and
VSL#3 are recognized based upon shipping terms, net of estimated reserves for
sales returns, government chargebacks, Medicaid rebates, and discounts. Revenue
is recognized upon shipment of product, provided the title to the products has
been transferred at the point of shipment. If title of product transfers at
point of receipt by the customer, revenue is recognized upon customer receipt
of the shipment. The Company records estimated sales allowances against product
revenues for expected returns, chargebacks, Medicaid rebates and discounts
based on historical sales returns, chargebacks, and Medicaid rebates, analysis
of return merchandise authorization and other known factors such as shelf life
of products, as required. The Company continually assesses the historical
returns and other experience including customers compliance with return goods
policy and adjusts its allowances as appropriate. The Companys return policy
allows customers to return expired product for exchange within six months
beyond the expiration date. Effective August 12, 2002 the Company changed its
return goods policy such that it no longer issues credit memorandums for
returns. Rather, returns are exchanged for replacement product, and estimated
costs for such exchanges, which include actual product material costs and
related shipping charges, are included in Cost of product sales. Returns are
subject to quality assurance reviews prior to acceptance. The Company sells
product to wholesalers, who in turn sell its products to pharmacies and
hospitals. In the case of VSL#3, the Company sells directly to consumers. The
Company does not require collateral from its customers.

Revenue earned under collaborative research agreements is recognized as
the research services are performed. Amounts received in advance of services to
be performed are recorded as deferred revenue until the services are performed.

The Company has received government grants which support the Companys
research effort in specific research projects. These grants provide for
reimbursement of approved costs incurred as defined in the various awards.

6



---



##### Table of Contents



The Company has received payments in exchange for proprietary licenses
related to technology and patents. The Company classifies these payments as
Technology Revenue. These payments are recognized as revenues upon receipt of
cash and the transfer of intellectual property, data and other rights licensed,
assuming no continuing material obligations exist.

Shipping and handling costs are included in Cost of product sales.

4.     CASH AND CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS

The Company considers highly liquid investments with maturities from the
date of purchase of three months or less to be cash equivalents. At March 31,
2003, the Company had cash, cash equivalents and short-term investments of
$14,935,000.

Following is a summary of investments, at fair value, based on quoted
market prices for these investments (in thousands):

|                        |                              |                |        |                 |       |            |           |    |   |   |        |       | 
|----------------------- | ---------------------------- | -------------- | ------ | --------------- | ----- | ---------- | --------- | -- | - | - | ------ | ----- | 
|                        |                              |                | Gross  |                 | Gross |            | Estimated
|March 31, 2003          |                              | Amortized Cost |        | Unrealized Loss |       | Fair Value
|                        |                              |                |        |                 |       |           
|Cash equivalents:       |                              |                |        |                 |       |            |           |    |   |   |        |      
|                        | Money Market Funds           |                | $      | 7,581           |       |            | $         |   |   |   | $      | 7,581 | 
|                        | Commercial Paper             |                |        | 3,247           |       |            |           |   |   |   |        | 3,247 | 
|                        | Corporate Bonds              |                |        | 752             |       |            |           |   |   |   |        | 752   | 
|                        |                              |                |        |                 |       |            |           |    |   |   |        |      
|                        |                              | $              | 11,580 |                 |       |            |          |    |   | $ | 11,580 |      
|                        |                              |                |        |                 |       |            |           |    |   |   |        |       | 
|Short-term investments: |                              |                |        |                 |       |            |           |    |   |   |        |      
|                        | Commercial Paper             |                | $      | 499             |       |            | $         | (1 | ) |   | $      | 498   | 
|                        | Corporate Bonds              |                |        | 2,559           |       |            |           |   |   |   |        | 2,559 | 
|                        | Corporate Equity Investments |                |        | 56              |       |            |           |   |   |   |        | 56    | 
|                        |                              |                |        |                 |       |            |           |    |   |   |        |      
|                        |                              | $              | 3,114  |                 |       | $          | (1        | )  |   | $ | 3,113  |      
|                        |                              |                |        |                 |       |            |           |    |   |   |        |       | 

|                        |                              |                |       |                 |       |            |           |     |   |   |       |       | 
|----------------------- | ---------------------------- | -------------- | ----- | --------------- | ----- | ---------- | --------- | --- | - | - | ----- | ----- | 
|                        |                              |                | Gross |                 | Gross |            | Estimated
|December 31, 2002       |                              | Amortized Cost |       | Unrealized Loss |       | Fair Value
|                        |                              |                |       |                 |       |           
|Cash equivalents:       |                              |                |       |                 |       |            |           |     |   |   |       |      
|                        | Money Market Funds           |                | $     | 5,400           |       |            | $         |    |   |   | $     | 5,400 | 
|                        | Commercial Paper             |                |       | 499             |       |            |           |    |   |   |       | 499   | 
|                        |                              |                |       |                 |       |            |           |     |   |   |       |      
|                        |                              | $              | 5,899 |                 |       | $          |          |     |   | $ | 5,899 |      
|                        |                              |                |       |                 |       |            |           |     |   |   |       |       | 
|Short-term investments: |                              |                |       |                 |       |            |           |     |   |   |       |      
|                        | Commercial Paper             |                | $     | 498             |       |            | $         |    |   |   | $     | 498   | 
|                        | Corporate Bonds              |                |       | 761             |       |            |           |    |   |   |       | 761   | 
|                        | Corporate Equity Investments |                |       | 133             |       |            |           | (42 | ) |   |       | 91    | 
|                        |                              |                |       |                 |       |            |           |     |   |   |       |      
|                        |                              | $              | 1,392 |                 |       | $          | (42       | )   |   | $ | 1,350 |      
|                        |                              |                |       |                 |       |            |           |     |   |   |       |       | 

In 2003, the Company recognized an other-than-temporary loss of $51,000
and a realized loss of $13,000 related to its Rigel equity investment. These
amounts are included in other income (expense) on the
Consolidated Statement of Operations.

5.     INVENTORIES

Inventories are stated at the lower of cost (first-in, first-out method)
or market and consist of the following (in thousands):

|                                                   |  |           |       |              |  |   |     |  
|-------------------------------------------------- |  | --------- | ----- | ------------ |  | - | --- | -
|                                                   |  | March 31, |       | December 31,
|                                                   |  | 2003      |       | 2002        
|                                                   |  |           |       |             
|Raw
materials                                      |  | $         | 658   |              |  | $ | 70  |  
|Finished
goods                                     |  |           | 518   |              |  |   | 397 |  
|Less
allowance for excess and obsolete inventories |  |           | (113  | )            |  |   | (76 | )
|                                                   |  |           |       |              |  |   |     |  
|                                                   |  | $         | 1,063 |              |  | $ | 391 |  
|                                                   |  |           |       |              |  |   |     |  

6.     INTANGIBLE ASSETS

7



---



##### Table of Contents



Goodwill and assembled workforce no longer subject to amortization
amounted to $479,000 at March 31, 2003. Purchased
technologys
net balance of $269,000 at March 31, 2003 and $382,000 at
December 31, 2002 is being amortized over the estimated sales
life of the associated product (seven years), which will be amortized in full
during 2003.

In accordance with SFAS 141 and 142, the Company discontinued the
amortization of goodwill on January 1, 2002. The Company performed an
impairment test of goodwill as of January 1, 2003, which did not result in an
impairment charge. The Company will continue to monitor the
carrying value of goodwill through the annual impairment tests.

7.     LINE OF CREDIT

In January 2002, the Company entered into a revolving accounts receivable
line of credit with Pacific Business Funding, a division of Greater Bay
Bancorp. Under the agreement, the Company can borrow up to the lesser of 80% of
its eligible accounts receivable balance or $3,000,000. Interest accrues on
outstanding advances at an annual rate equal to prime rate plus four and
one-half percent. The term of the agreement is one year and the agreement
automatically renews annually, unless terminated by the Company. There were no
borrowings under this line of credit as of March 31, 2003. The line of credit
is secured by a blanket lien on all assets including intellectual property. As
of March 31, 2003, $1,100,000 was available for borrowing under the line of
credit.

8.     NET
LOSS PER SHARE AVAILABLE TO COMMON STOCKHOLDERS

Basic
and diluted net loss per share available to common stockholders is based on net loss
available to common stockholders for the relevant
period, divided by the weighted average number of common shares outstanding
during the period. Diluted earnings per share available to common
stockholders gives effect to all potentially
dilutive common shares outstanding during the period such as options, warrants,
convertible preferred stock, and contingently issuable shares. Diluted net loss
per share available to common
stockholders has not been presented separately as, due to the Companys net loss
position, it is anti-dilutive. Had the Company been in a net income position at
March 31, 2003, shares used in calculating diluted earnings per share available to common
stockholders would
have included the dilutive effect of an additional 9,439,322 stock options,
12,780,446 convertible preferred shares, 2,531,646 shares issuable upon
conversion of debentures (if dilutive), placement unit options for 300,143
shares and 8,037,487 warrants.

9.     EQUITY TRANSACTIONS

In March 2003 a warrant was exercised through a cashless exercise in
accordance with the terms of the warrant, and 315,827 shares of common stock
were issued.

8



---



##### Table of Contents



10.     SERIES B CONVERTIBLE PREFERRED STOCK

In January 2003, the Company completed a private placement of Series B
Convertible Preferred Stock and warrants to purchase common stock to various
investors. Gross proceeds to the Company from the private placement were $10
million. The Series B Preferred Stock has an aggregate stated value of $10
million and each holder is entitled to a quarterly dividend at an initial rate of 8% per
year, which rate will increase to 10% per year on and after January 1, 2006,
and to 12% on and after January 1, 2008. The dividends are paid in cash on a
quarterly basis. In addition, on the occurrence of designated events,
including the failure to maintain Net Cash, Cash Equivalent and Eligible
Investment Balances, as defined, of at least 50% of the aggregate stated value
of the outstanding shares of Series B Preferred Stock, the dividend rate will
increase by an additional 6% per year. The Series B Preferred Stock is entitled
to a liquidation preference over the Companys common stock and Series A
Preferred Stock upon a liquidation, dissolution or winding up of the Company.
The Series B Preferred Stock is convertible at the option of the holder into
the Companys common stock at a conversion price of $0.9412 per share, subject
to certain anti-dilution adjustments. The Company has the right commencing on
January 1, 2006 (assuming specified conditions are met) to redeem the Series B
Preferred Stock at a price of 110% of stated value, together with all accrued
and unpaid dividends and accrued interest. In addition, upon the occurrence
of designated Optional Redemption Events (as defined below), the holders have
the right to require the Company to redeem the Series B Preferred Stock at 100%
of stated value, together with all accrued and unpaid dividends and interest.
The Optional Redemption Events include any of the following:



| |  |  | If the Company consolidates or merges with or into another
entity where the shareholders of the Company do not own at least 51%
of the surviving entity and such consolidation or merger is approved
by the Companys Board of Directors;                                                                                                                                                                                        
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | If the Company adopts any amendment to its Amended and
Restated Articles of Incorporation which materially and adversely
affects the rights of the holders of Series B Preferred Stock in respect of their interests in
shares of Common Stock that can be acquired upon conversion of
shares of Series B Preferred Stock in a manner different and more
adverse than it affects the rights of holders of Common Stock
generally;
|
| |  |  | If the Company fails to declare or pay dividends in full on
the applicable dividend date, other than in circumstances where such
declaration or payment would not be permitted by Section 500 or 501
of the California Corporations Code, or fails to pay certain
redemption prices on any share of Series B Preferred Stock when due;                                                                                           
|
| |  |  | If the Company fails to issue shares of Common Stock to any
Series B holder upon conversion or upon exercise of warrants when
due;                                                                                                                                                                                                                                                                                               
|
| |  |  | If the Company commits certain breaches under, or otherwise
violates certain terms of, the transaction documents entered into in
connection with the issuance of the Series B Preferred Stock;                                                                                                                                                                                                                                   
|
| |  |  | If the Companys representations and warranties made in the
transaction documents entered into in connection with the issuance
of the Series B Preferred Stock are false or misleading in any
material way when made or deemed made; and                                                                                                                                                                                         
|
| |  |  | If the Company institutes a voluntary bankruptcy or similar
proceeding;                                                                                                                                                                                                                                                                                                                                                          

The redemption events described above are all within the control of the
Company. Therefore, in accordance with EITF Topic D-98, the Company has
classified the Series B Preferred Stock in permanent equity. In addition, the
Company initially recorded the Series B Preferred Stock at its fair value on
the date of issuance. The Company has elected not to adjust the carrying value
of the Series B Preferred Stock to the
redemption value of such shares, since it is uncertain whether or when the
redemption events described above will occur. Subsequent adjustments to
increase the carrying value to the redemption value will be made when it
becomes probable that such redemption will occur. As of March 31, 2003, the
redemption value of the Series B Preferred Stock was $10 million.

The terms of the Series B Preferred Stock contain a variety of affirmative
and restrictive covenants, including limitations on indebtedness and liens.
Each share of Series B Preferred Stock is generally entitled to a number of
votes equal to 0.875 times the number of shares of Common Stock issuable upon
conversion of such share of Series B Preferred Stock. In addition, the Company
agreed that two of the investors are each entitled to appoint a representative
to attend Company Board of Directors meetings in a nonvoting observer capacity.

The purchasers of the Series B Preferred Stock also received for no additional
consideration warrants exercisable for an aggregate of 3,399,911 shares of
Common Stock at an exercise price of $1.0824 per share, subject to certain
anti-dilution adjustments. The warrants expire in January 2007. The warrants
issued to the Series B holders were assigned a value of $1,527,000 which
decreased the carrying value of the preferred stock. The warrants were valued
using the Black-Scholes method with the following assumptions: a risk free
interest rate of 3%; an expiration date of January 15, 2007; volatility of 82%
and a dividend yield of 0%. In connection with the issuance of the Series B
Preferred Stock and warrants, the Company recorded $1,301,000 related to the
beneficial conversion feature on the Series B Preferred Stock as a deemed dividend,
which increased the carrying value of the preferred stock. A beneficial conversion
feature is present because the effective conversion price of the Series B
Preferred Stock was less than the fair value of the Common Stock on the
commitment date. The deemed dividend increased the loss available to common
stockholders in the calculation of basic and diluted net loss per common share.

11.     RELATED PARTY TRANSACTIONS

In December 2001, the Company entered into a promotion agreement with VSL
Pharmaceuticals Inc. (VSL), a private company owned in part by the major
shareholders of Sigma Tau. Sigma Tau beneficially owned approximately 38% of
the Companys outstanding stock as of March 31, 2003. In June 2002, the Company
signed an amendment to the promotion agreement. Under these agreements, the
Company has agreed to purchase VSL#3 from VSL at a stated price, and has also
agreed to promote, sell, warehouse and distribute the VSL#3 product direct to
customers at its cost and expense, subject to certain expense reimbursements.
Revenues from sales of VSL#3 are recognized when product is shipped to the
customer. The Company does not accept returns of VSL#3. VSL#3 revenue for the
quarter ending March 31, 2003 was $238,000 and is included in Net product
sales. Included in Accounts Payable is $152,000 for amounts owed to
VSL at March 31, 2003. An
access fee to VSL is calculated quarterly, which varies based upon sales and
costs incurred by the Company subject to reimbursement under certain
circumstances. For the quarter ended March 31, 2003 the amount of costs
incurred by the Company was greater than the amount owing to VSL. This net
reimbursement to the Company for the quarter ended March 31, 2003 of $65,000 is
included as a deduction in Sales and marketing expense in the Consolidated
Statement of Operations. During the quarter ended March 31, 2003
the Company paid $164,000 to VSL for the purchase of VSL#3 product.

In January 2002, the Company entered into a royalty agreement with
Glenridge Pharmaceuticals LLC (Glenridge). Kenneth R. Greathouse, the
Companys Vice President of Commercial Operations, is a part owner of
Glenridge. This agreement calls for the payment of royalties on a quarterly
basis on the net sales of Acthar®. The Company paid Glenridge
$95,000 and $104,000 in the
quarter ended March 31, 2003 and 2002, respectively, related to royalties on Acthar® sales. The Company
has accrued $57,000 for royalties earned in the quarter ended March 31, 2003,
which is included in Other accrued liabilities on the Balance Sheet.

9



---



##### Table of Contents



12.     COMPREHENSIVE LOSS

Comprehensive
loss is comprised of net loss and the change in unrealized holding gains
and losses on available-for-sale securities.

|                                  |  |                    |        |      |  |   |      |  
|--------------------------------- |  | ------------------ | ------ | ---- |  | - | ---- | -
|                                  |  | Three Months Ended
|                                  |  | March 31,         
|                                  |  |                   
|                                  |  | 2003               |        | 2002
|                                  |  |                    |        |     
|Net loss                          |  | $                  | (1,770 | )    |  | $ | (332 | )
|Other comprehensive income (loss) |  |                    | 41     |      |  |   | (91  | )
|                                  |  |                    |        |      |  |   |      |  
|Comprehensive loss                |  | $                  | (1,729 | )    |  | $ | (423 | )
|                                  |  |                    |        |      |  |   |      |  

13.     SHAREHOLDER RIGHTS PLAN

On February 11, 2003 the Board of Directors of the Company adopted a
Shareholder Rights Plan. In connection with the Rights Plan, the Board of
Directors declared a dividend of one preferred share purchase right (the
Rights) for each outstanding share of common stock, no par value per share
(the Common Shares), of the Company outstanding at the close of business on
February 21, 2003 (the Record Date). Each Right will entitle the registered
holder thereof, after the Rights become exercisable and until February 10, 2013
(or the earlier redemption, exchange or termination of the Rights), to purchase
from the Company one one-hundredth ( 1/100th) of a share of Series C Junior
Participating Preferred Stock, no par value per share (the Preferred Shares),
at a price of $10 per one one-hundredth ( 1/100th) of a Preferred Share,
subject to certain anti-dilution adjustments (the Purchase Price). Until the
earlier to occur of (i) ten (10) days following a public announcement that a
person or group of affiliated or associated persons has acquired, or obtained
the right to acquire, beneficial ownership of 15% or more of the Common Shares
(an Acquiring Person) or (ii) ten (10) business days (or such later date as
may be determined by action of the Board of Directors prior to such time as any
person or group of affiliated persons becomes an Acquiring Person) following
the commencement or announcement of an intention to make a tender offer or
exchange offer the consummation of which would result in the beneficial
ownership by a person or group of 15% or more of the Common Shares (the earlier
of (i) and (ii) being called the Distribution Date), the Rights will be
evidenced, with respect to any of the Common Share certificates outstanding as
of the Record Date, by such Common Share certificate. An Acquiring Person does
not include any Existing Holder (defined as Sigma-Tau Finanziaria S.p.A.,
together with all of its Affiliates and Associates, including, without
limitation Defiante Farmaceutica L.D.A., Sigma-Tau International S.A., Paolo
Cavazza
and Claudio Cavazza,), unless and until such time as
such Existing Holder shall become the beneficial owner of one or more
additional Common Shares of the Company (other than (i) pursuant to a dividend
or distribution paid or made by the Company on the outstanding Common Shares in
Common Shares or pursuant to a split or subdivision of the outstanding Common
Shares or (ii) additional Common Shares purchased prior to June 15, 2003 in
accordance with the terms of that certain Letter Agreement dated December 1,
2001 by and between the Company and Sigma-Tau Finanziaria S.p.A., Paolo Cavazza
and Claudio Cavazza), unless, upon becoming the beneficial owner of such
additional Common Shares, such Existing Holder is not then the beneficial owner
of 15% or more of the Common Shares then outstanding.

In the event that a Person becomes an Acquiring Person or if the Company
were the surviving corporation in a merger with an Acquiring Person or any
affiliate or associate of an Acquiring Person and the Common Shares were not
changed or exchanged, each holder of a Right, other than Rights that are or
were acquired or beneficially owned by the Acquiring persons (which Rights will
thereafter be void), will thereafter have the right to receive upon exercise
that number of Common Shares having a market value of two times the then
current Purchase Price of one Right. In the event that, after a person has
become an Acquiring Person, the Company were acquired in a merger or other
business combination transaction or more than 50% of its assets or earning
power were sold, proper provision shall be made so that each holder of a Right
shall thereafter have the right to receive, upon the exercise thereof at the
then current Purchase Price of the Right, that number of shares of common stock
of the acquiring company which at the time of such transaction would have a
market value of two times the then current purchase price of one Right.

10



---



##### Table of Contents






Independent Accountants Review Report

The Board of Directors
Questcor Pharmaceuticals, Inc.

We have reviewed the accompanying condensed consolidated balance sheet of
Questcor Pharmaceuticals, Inc. as of March 31, 2003, and the related condensed
consolidated statements of operations for the three-month periods ended March
31, 2003 and 2002, and the condensed consolidated statements of cash flows for
the three-month periods ended March 31, 2003 and 2002. These financial
statements are the responsibility of the Companys management.

We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data, and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
in accordance with auditing standards generally accepted in the United States,
which will be performed for the full year with the objective of expressing an
opinion regarding the financial statements taken as a whole. Accordingly, we do
not express such an opinion.

Based on our review, we are not aware of any material modifications that should
be made to the accompanying condensed consolidated financial statements
referred to above for them to be in conformity with accounting principles
generally accepted in the United States.

We have previously audited, in accordance with auditing standards generally
accepted in the United States, the consolidated balance sheet of Questcor
Pharmaceuticals, Inc. as of December 31, 2002, and the related consolidated
statements of operations, preferred stock and stockholders equity (deficit),
and cash flows for the year then ended and in our report dated February 11,
2003, we expressed an unqualified opinion on those consolidated financial
statements. In our opinion, the information set forth in the accompanying
condensed consolidated balance sheet as of December 31, 2002, is fairly stated,
in all material respects, in relation to the consolidated balance sheet from
which it has been derived.

/s/ ERNST & YOUNG LLP

Palo Alto, California
April 29, 2003

11



---



##### Table of Contents






ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Except for the historical information contained herein, the following
discussion contains forward-looking statements that involve risks and
uncertainties, including statements regarding the period of time during which
our existing capital resources and income from various sources will be adequate
to satisfy our capital requirements. Our actual results could differ materially
from those discussed herein. Factors that could cause or contribute to such
differences include, but are not limited to, those discussed in this section,
as well as those discussed in our annual report on form 10-K for the fiscal
year ended December 31, 2002, including Item 1 Business of Questcor, and
including without limitation Risk Factors, as well as factors discussed in
any documents incorporated by reference herein or therein. Whenever
used in this
Quarterly Report, the terms Questcor, Company, we, our, ours, and
us refer to Questcor Pharmaceuticals, Inc. and its consolidated subsidiaries.

Overview

We are a specialty pharmaceutical company that markets and sells brand
name prescription drugs and ethically promoted healthcare products. We focus on
the treatment of acute and critical care conditions, including central nervous
system (CNS) diseases and gastroenterological disorders. Our strategy is to
acquire pharmaceutical products that other companies do not actively market
that we believe have sales growth potential, are promotion sensitive and
complement our existing products. In addition, through corporate
collaborations, we intend to develop new patented intranasal formulations of
previously FDA approved drugs. We currently market five products in the U.S.:
HP Acthar® Gel (Acthar), an injectable drug that is commonly used in treating
patients with infantile spasm, and is approved for the treatment of certain CNS
disorders with an inflammatory component including the treatment of flares
associated with multiple sclerosis; Ethamolin®, an injectable drug used to
treat enlarged weakened blood vessels at the entrance to the stomach that have
recently bled, known as esophageal varices; Glofil®-125 and Inulin in Sodium
Chloride, which are both injectable agents that assess how well the kidney is
working by measuring glomerular filtration rate, or kidney function; and
VSL#3, a patented probiotic marketed as a dietary supplement to promote normal
gastrointestinal (GI) function. Probiotics are living organisms in food and
dietary supplements, which, upon ingestion in certain numbers, improve the
health of the host beyond their inherent basic nutrition.

Consistent with our efforts to focus on sales and marketing, our spending
on research and development activities is minimal. Expenses incurred for the
manufacturing site transfer and medical and regulatory affairs are classified
as Research and development expenses in the accompanying statement of
operations. We have entered into several agreements with pharmaceutical and
biotechnology companies to further the development of certain technology
acquired from RiboGene. In June 2002, we signed a definitive License Agreement
with Fabre Kramer Pharmaceuticals, Inc. (Fabre Kramer) for the exclusive
worldwide development and commercialization of Hypnostat (intranasal triazolam
for insomnia) and Panistat (intranasal alprazolam for panic disorders). Under
the License Agreement, Fabre Kramer assumed the primary responsibility for the
development of Hypnostat and Panistat. Our antifungal drug discovery program
has been partnered with Tularik, Inc. of South San Francisco, CA., our
antiviral drug discovery program has been partnered with Rigel Pharmaceuticals,
Inc. of South San Francisco, CA. and the antibacterial program has been
partnered with Dainippon Pharmaceuticals Co., Ltd. of Osaka, Japan.

We have sustained an accumulated deficit of $80.2 million from inception
through March 31, 2003. At March 31, 2003, we had $14.9 million in cash, cash
equivalents and short-term investments. Results of operations may vary
significantly from quarter to quarter depending on, among other factors, the
results of our sales efforts, timing of expiration of our products and the
resulting shipment of replacement product under our exchange policy, the
availability of finished goods from our sole-source manufacturers, the timing
of certain expenses, the acquisition of marketed products, the establishment of
strategic alliances and corporate partnering and the receipt of milestone
payments.

Critical Accounting Policies

Our management discussion and analysis of our financial condition and
results of operations is based upon our consolidated financial statements,
which have been prepared in accordance with accounting principles generally
accepted in the United States. The preparation of these financial statements
requires us to make estimates and judgments that affect the reported amounts of
assets, liabilities, revenues and expenses, and related disclosures. On an
on-going basis, we evaluate our estimates, including those related to product
returns, sales allowances, bad debts, inventories, investments and intangible
assets. We base our estimates on historical experience and on various other
assumptions that we believe are reasonable under the circumstances, the results
of which form the basis for making judgments about the carrying values of
assets and liabilities that are not readily apparent from other sources. Actual
results may differ from these estimates under different assumptions or
conditions.

We believe the following critical accounting policies affect our more
significant judgments and estimates used in the preparation of our consolidated
financial statements.

12



---



##### Table of Contents



Sales Allowances and Product Returns and Rebates

We have estimated allowances for product returns, government chargebacks,
Medicaid rebates and cash discounts for prompt payment. We estimate our
allowances by utilizing historical information for existing products. For new
products, we estimate our allowances for product returns and rebates on
specific terms for product returns and rebates and our experience with similar
products. Effective August 12, 2002, we changed our return goods policy such
that we no longer issue credit memorandums for returns, rather all returns are
exchanged for replacement product. The estimated costs for such exchanges,
which include actual product costs and related shipping charges, are included
in cost of product sales. In estimating returns, we analyze (i) historical
returns and sales patterns, (ii) current inventory on hand at wholesalers and
in the distribution channel and the remaining shelf life of that inventory
(ranging from 45 days to 3 years), and (iii) changes in demand. We continually
assess the historical experience including customers compliance with return
goods policy and adjust our allowances as appropriate. In estimating Medicaid
rebates, we match the actual rebates to the actual sale on a product-by-product
basis to arrive at an actual rebate percentage. This actual percentage is
applied to current period sales to arrive at the rebate expense for the period.
In particular, we consider allowable prices by Medicaid. If actual product
returns, chargebacks, rebates and cash discounts are greater than our
estimates, additional allowances may be required.

Inventories

We maintain inventory reserves primarily for obsolescence (due to the
expiration of shelf life). In estimating inventory obsolescence reserves, we
analyze on a product-by-product basis (i) the shelf life and the expiration
date, and (ii) sales forecasts. Judgment is required in determining whether the
forecasted sales information is sufficiently reliable to enable us to estimate
inventory obsolescence.

Intangible Assets

We have intangible assets related to goodwill and other acquired
intangibles. The determination of related estimated useful lives and whether or
not these assets are impaired involves significant judgment. Changes in
strategy and/or market conditions could significantly impact these judgments
and require adjustments to recorded asset balances. We review intangible
assets, as well as other long-lived assets, for impairment whenever events or
circumstances indicate that the carrying amount may not be fully recoverable.

Results of Operations

For
the quarter ended March 31, 2003, we incurred a net loss of
$1,770,000
as compared to a net loss of $332,000 for the quarter ended March 31, 2002, an
increase of $1,438,000. Net loss available to common stockholders was
$3,238,000 for the quarter ended March 31, 2003, and included the impact of the
non-cash deemed dividend related to the beneficial conversion feature on the
Series B Preferred Stock of $1,301,000 and Preferred Stock dividends of $167,000. Net
loss available to common stockholders was the same as net loss for the quarter
ended March 31, 2002.

Total revenues for the quarter ended March 31, 2003 decreased $1,233,000,
or 32%, to $2,621,000 from total revenues of $3,854,000 for the quarter ended
March 31, 2002.

For the quarter ended March 31, 2003, net product sales decreased
$1,444,000, or 38%, to $2,362,000 from $3,806,000 for the quarter ended March
31, 2002. The product revenues for the first quarter of 2002 included $742,000
of net product sales resulting from the shipment of backorders incurred during
the fourth quarter of 2001 for Acthar and Ethamolin. After deducting the
effect of the shipment of these backorders, net product sales would have been
$3,064,000. Net of the impact of these backorders, the decrease in quarter
over quarter product sales was $702,000 or 23%. This remaining decrease in
product sales is due primarily to our decision to not ship short-dated
materials during the quarter and may also be attributed to the replacement of previously expired product
at no cost to the customer in accordance with our exchange policy. In the first quarter of
2003, due to the relatively short dating of Acthar in our inventories and at
the wholesale level, we briefly limited Acthar shipments to critical care and
emergency situations. After we
obtained approval in November 2002 to extend the expiration
date on Acthar to 18 months from 12 months, we resumed shipments of Acthar with
a January 2004 expiration date when the extended dated material was released
late in the first quarter of 2003. During the quarter ended
March 31, 2003, we
replaced vials at no cost for the returned product and the remaining on-hand
inventories of Acthar batches that expired in November 2002, and we will do so
again for the Acthar product that expires in May 2003 and January 2004. We
believe the shipment of replacement product may have displaced sales in the first
quarter of 2003, and the replacement of product expiring in May 2003,
January 2004 and future expiring product may displace future
quarter sales although the extent of this displacement is not
ascertainable at this time. We reviewed the external demand data for
Acthar for the first quarter and noted an increase in the monthly
demand in March 2003 as compared to February 2003 which leads us to believe the
impact of the restricted shipping of short-dated product may be limited to the first quarter of
2003, however, there can be no assurance that this trend will continue. Contributing to the decline in product sales was the decrease in Ethamolin
shipments as compared to the first quarter of 2002 due to the strategic
buying that occurred in the middle of 2002, as a result of the notification to
customers of a price increase. We believe that the decrease in Ethamolin
shipments can be attributed in part to customers previously purchasing
Ethamolin in excess of their normal demand due to our announced price increase.
As a result, these customers did not need to purchase

13



---



##### Table of Contents



Ethamolin to meet their
normal demand in the first quarter of 2003. Data obtained from external
sources indicate that demand may be decreasing for Ethamolin at this
time.

Contract research and grant revenue decreased by $36,000, or 80%, to
$9,000 for the quarter ended March 31, 2003 from $45,000 for the quarter ended
March 31, 2002. This decrease was a result of lower reimbursement under our
Small Business Innovation Research (SBIR) grant due to less activity taking
place with the GERI compound research projects in the quarter ended March 31,
2003, as compared to the quarter ended March 31, 2002.

For the quarter ended March 31, 2003, we recognized $250,000 in technology
revenue relating to our License Agreement with Fabre Kramer. For the quarter
ended March 31, 2002, we did not recognize any technology revenue.

Cost of product sales increased
slightly to $675,000 for the quarter ended
March 31, 2003 from $634,000 for the quarter ended
March 31, 2002. The increase
in dollars is due to an
increase to the excess inventory allowance,  increased per unit material
costs and costs related to the replacement of expired product. We expect per
unit material costs to increase in the future due to higher contract
manufacturing costs. Cost of
product sales as a percentage of net product sales increased to 29% for the
quarter ended March 31, 2003 as compared to 17% for the prior period, primarily
due to a change of product mix. In April 2003, we decided to
outsource certain functions
previously performed in our Carlsbad, California distribution center,
including, but not limited to, warehousing,
shipping and quality control studies. We have identified vendors to
distribute our Acthar, Ethamolin, Glofil and Inulin products, and we plan to distribute VSL#3
from our Union City facility.

Sales and marketing expenses for the quarter ended March 31, 2003
increased $110,000 or 8% to $1,485,000 from $1,375,000 for the quarter ended
March 31, 2002. The increase is primarily due to salary and other costs
associated with the expansion of our sales and marketing departments, partially
offset by reduced marketing costs in the current quarter.

General and administrative expenses for the quarter ended March 31, 2003
decreased $213,000, or 14%, to $1,318,000, from $1,531,000 for the quarter
ended March 31, 2002. For the quarter ended March 31, 2003,
we incurred $190,000
of additional legal fees related to various corporate matters, unique
to activities in the first quarter of 2003. For the
quarter ended March 31, 2002, non-cash stock based compensation charges of
$199,000 were included in general and administrative expense.

Research and development expenses for the quarter ended March 31, 2003
increased $183,000, or 43%, to $611,000, from $428,000 for the quarter ended
March 31, 2002. This increase is primarily due to consulting and outside
testing costs incurred related to the Acthar site transfer in the current
quarter. The costs related to the Acthar site transfer will fluctuate,
depending on the timing of work performed and the costs related to such
activities.

Depreciation and amortization expense decreased by $175,000, or 51%, to
$169,000 for the quarter ended March 31, 2003 from $344,000 for the quarter
ended March 31, 2002 due to minimal new capital purchases made in the period,
as well as assets becoming fully depreciated and a portion of purchased
technology becoming fully amortized. The remaining balance of purchased
technology will be fully amortized in 2003.

Non-cash amortization of deemed discount on convertible debentures for the
quarter ended March 31, 2003 was $131,000 as compared to $44,000 for the
quarter ended March 31, 2002 due to the current period representing a full
quarters amortization of deemed discount related to the convertible
debentures. The convertible debentures were issued March 15, 2002.

Interest income, net decreased $23,000, or 85%, to $4,000 for the quarter
ended March 31, 2003, from $27,000 for the quarter ended March 31, 2002 due to
greater interest expense in the current quarter as a result of the 8%
convertible debentures issued in March of 2002.

Other expense, net increased $148,000 to $77,000 for the quarter ended
March 31, 2003 from $71,000 of other income, net for the quarter ended March
31, 2002. The expense in the current quarter was primarily due to the
other-than-temporary loss of $51,000 and realized losses of $13,000 on the Rigel
equity investment. In the quarter ended March 31, 2002, other income was
primarily the result of receipt of profits arising from short swing stock
trades executed by one of our 10% shareholders.

Rental income, net remained flat for the quarter ended March 31, 2003 as
compared to the quarter ended March 31, 2002.

Non-cash deemed dividend of $1,301,000 at March 31, 2003 is related to the
beneficial conversion feature in connection with the Series B Preferred Stock
and warrants issued in January 2003. A beneficial conversion feature
is present because the effective conversion price of the Preferred
Stock was less than the fair value of the Common Stock on the
commitment date.

Preferred
Stock dividends of $167,000 represents the accrual of the 8% cash
dividends payable to the Series B Preferred Stock holders. These dividends are
required to be paid in cash quarterly.

14



---



##### Table of Contents



Liquidity and Capital Resources

We have funded our activities to date principally through various
issuances of equity securities. Through March 31, 2003, we have raised total
net proceeds of $64.9 million. We have also funded our activities to date to a
lesser extent through product sales.

At March 31, 2003, we had cash, cash equivalents and short-term
investments of $14,935,000 compared to $7,506,000 at December 31, 2002. At
March 31, 2003, our working capital was $14,655,000 compared to $7,018,000 at
December 31, 2002. The increase in our working capital was principally due to
proceeds received in the issuance of $10,000,000 Series B Convertible Preferred
Stock.

In January 2002, we entered into a revolving accounts receivable line of
credit with Pacific Business Funding, a division of Greater Bay Bancorp. Under
the agreement, we can borrow up to the lesser of 80% of our eligible accounts
receivable balance or $3,000,000. Interest accrues on outstanding advances at
an annual rate equal to prime rate plus four and one-half percent. The term of
the agreement is one year and the note automatically renews annually, unless we
terminate the agreement. There were no borrowings under this line of credit as
of March 31, 2003. The line of credit is secured by a blanket lien on all of
our assets including intellectual property. As of March 31,
2003, $1,100,000
was available for borrowing under the line of credit.

At March 31, 2003 we also held 67,133 shares of Rigel Pharmaceuticals Inc.
(NASD: RIGL) common stock that we received in conjunction with the agreement to
sell Rigel exclusive rights to certain of our proprietary antiviral drug
research technology. Subsequent to March 31, 2003, all of these shares were sold at an
average per share price of $0.84, which approximated the carrying value
subsequent to the other-than-temporary write down recorded on the equity
investment as of March 31, 2003.

In the
quarter ended March 31, 2003 we purchased $467,000 of active
pharmaceutical ingredient, (API) from Aventis
Pharmaceuticals, Inc. as provided for under our Asset Purchase
agreement.  This amount is included in Accounts Payable in the
accompanying balance sheet as of March 31, 2003.

In January 2003, we completed a private placement of Series B Convertible
Preferred Stock and warrants to purchase common stock to various healthcare
investors. Our gross proceeds from the private placement were $10 million. The
Series B Preferred Stock has an aggregate stated value of $10 million and is
entitled to a quarterly dividend at an initial rate of 8% per year, which rate
will increase to 10% per year on and after January 1, 2006, and to 12% on and
after January 1, 2008. In addition, on the occurrence of designated events the
dividend rate will increase by an additional 6% per year. The Series B
Preferred Stock is entitled to a liquidation preference over our common stock
and Series A Preferred Stock upon a liquidation, dissolution or winding up of
Questcor. The Series B Preferred Stock is convertible at the option of the
holder into our common stock at a conversion price of $0.9412 per share,
subject to certain anti-dilution adjustments. We have the right commencing on
January 1, 2006 (assuming specified conditions are met) to redeem the Series B
Preferred Stock at a price of 110% of stated value, together with all accrued
and unpaid dividends and arrearage interest. In addition, upon the occurrence
of designated Optional Redemption Events, the holders have the right to require
us to redeem the Series B Preferred Stock at 100% of stated value, together
with all accrued and unpaid dividends and accrued interest. The terms of the
Series B Preferred Stock contain a variety of affirmative and restrictive
covenants, including limitations on indebtedness and liens. Each share of
Series B Preferred Stock is generally entitled to a number of votes equal to
0.875 times the number of shares of common stock issuable upon conversion of
such share of Series B Preferred Stock. The purchasers of the Series B
Preferred Stock also received for no additional consideration warrants
exercisable for an aggregate of 3,399,911 shares of our common stock at an
exercise price of $1.0824 per share, subject to certain anti-dilution
adjustments. The warrants expire in January 2007.

Our future funding requirements will depend on many factors, including;
the timing and extent of product sales, returns of expired product, any
expansion or acceleration of our development programs; the acquisition and
licensing of products, technologies or compounds, if any; our ability to manage
growth; competing technological and market developments; costs

15



---



##### Table of Contents



involved in
filing, prosecuting, defending and enforcing patent and intellectual property
claims; the receipt of licensing or milestone fees from current or future
collaborative and license agreements, if established; the timing of regulatory
approvals; payment of dividends and compliance to prevent additional dividend
events or optional redemption events, and other factors.

We are funding a portion of our operating expenses through our cash flow
from operations, but may seek additional funds through public or private equity
financing or from other sources. There can be no assurance that additional
funds can be obtained on desirable terms or at all. We may seek to raise
additional capital whenever conditions in the financial markets are favorable,
even if we do not have an immediate need for additional cash at that time.

RISK FACTORS

The following risk factors supplement the risk factors contained in our Annual
Report on Form 10-K for the fiscal year ended December 31, 2002. You should
carefully consider the following risk factors as well as those contained our
Annual Report on Form 10-K. Each of these risks could adversely affect our
business, financial condition and results of operations, as well as adversely
affect the value of an investment in our common stock.

If we are unsuccessful in completing the Acthar site transfer, we may be
unable to meet the demand for Acthar and lose potential revenues.

Under our agreement with Aventis Pharmaceuticals, Inc. (Aventis), Aventis
manufactured and supplied Acthar through July 2002. Aventis filled one final
lot of Acthar that is included in inventories at March 31, 2003. It is
anticipated that the inventory of Acthar on hand at March 31, 2003, will be
sufficient to meet expected demand through late 2003. We have signed
a definitive agreement with Chesapeake Biological Laboratories
(CBL) a contract manufacturer for Acthar finished product
and will continue to transfer
the final fill and labeling process from Aventis to CBL.
Under our agreement with Aventis, we purchased the active
pharmaceutical ingredient (API) and other inventory
residing at Aventis. We believe this API will be sufficient to meet our
forecasted demand through 2005. This API originally manufactured by
Aventis has been transferred to CBL, the new final fill manufacturer. It is
anticipated that CBL will complete the transfer and
begin supplying to us finished product using the API manufactured by Aventis
during 2003. We have identified a potential new manufacturer,
BioVectra dcl (BioVectra) for the API. We have entered into an equipment and
materials transfer agreement with BioVectra and we are currently
negotiating a definitive API supply
agreement with BioVectra. The
process of manufacturing Acthar is complex and problems associated with the
site transfer may be encountered. Once the site transfer to CBL and the new API manufacturer has been completed and they begin
supplying Acthar to us, the cost of the product is expected to increase.

If the site transfers and the corresponding approval by the FDA and other
regulatory authorities do not occur on a timely basis at the appropriate costs
to us, we will lose sales. Moreover, contract manufacturers that we may use
must continually adhere to current good manufacturing practices regulations
enforced by the FDA. If the facilities of these manufacturers cannot pass an
inspection, we may lose the FDA approval of our products. Failure to obtain
products for sale for any reason may result in an
inability to meet product demand and a loss of potential revenues.

If we are unable to transfer distribution functions to third parties, we will
lose potential revenues.

In April 2003, we decided to outsource
certain functions previously performed in our Carlsbad, California
distribution center, including, but not
limited to: warehousing, shipping and quality control studies. The
outsourcing of these functions is complex, and includes such activities as
transferring all existing on-hand inventory to the new distribution center, writing
new Standard Operating Procedures, disposing of expired inventory on
hand in the
Carlsbad facility, transfer of retained samples and existing quality
control studies, in addition to many other items. We have identified
vendors to distribute our Acthar, Ethamolin, Glofil and Inulin products, and we plan to
distribute VSL#3 from our Union City facility. If we encounter problems with
the outsourcing of these critical functions, we could lose revenues, or the products could
become unavailable or the costs could become more than we anticipated.




ITEM 3.     QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our exposure to market risk at March 31, 2003 has not changed materially
from December 31, 2002, and reference is made to the more detailed disclosures
of market risk included in our 2002 Form 10-K as filed with the Securities and
Exchange Commission on March 26, 2003.




ITEM 4.     DISCLOSURE CONTROLS AND PROCEDURES

Within the 90 days prior to the date of this report, we carried out an
evaluation, under the supervision of our management, including our Chief
Executive Officer and Chief Financial Officer, of the effectiveness of the
design and operation of our disclosure controls and procedures pursuant to
Exchange Act Rule 13a-14. Based upon that evaluation, the Chief
Executive

16



---



##### Table of Contents



Officer and Chief Financial Officer concluded that our disclosure controls and
procedures are effective in timely alerting them to material information
required to be included in our periodic SEC filings. There were no significant
changes in our internal controls or in other factors that could significantly
affect our internal controls subsequent to the date we carried out our
evaluation.




PART II. OTHER INFORMATION




ITEM 1. LEGAL PROCEEDINGS

Not applicable




ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

Not applicable




ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable




ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Not applicable




ITEM 5. OTHER INFORMATION

Not applicable




ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

|     |  |                                                                                                        
|---- |  | -------------------------------------------------------------------------------------------------------
|15.1 |  | Letter regarding Unaudited Financial Information.                                                      
|     |  |                                                                                                        
|99.1 |  | Certification pursuant to Section 906 of the Public Company
Accounting Reform and Investor
Act of 2002.

(b) Reports on Form 8-K

On January 16, 2003, Questcor reported on Form 8-K, reporting under Item
5, that it had consummated a $10 million private placement of Series B
Convertible Preferred Stock and Warrants to purchase Common Stock.

On February 14, 2003, Questcor reported on Form 8-K, reporting under Item
5, that on February 11, 2003 its Board of Directors adopted a Shareholder
Rights Plan.

17



---



##### Table of Contents






SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.

PHARMACEUTICALS, INC.


|                   |  |     |  |                          
|------------------ |  | --- |  | -------------------------
|Date: May 15, 2003 |  | By: |  | /s/ CHARLES J. CASAMENTO 
|                   |  |     |  |                          
|                   |  |     |  | Charles J. Casamento     
|                   |  |     |  | Chairman, President & CEO

|                   |  |     |  |                                         
|------------------ |  | --- |  | ----------------------------------------
|Date: May 15, 2003 |  | By: |  | /s/ TIMOTHY E. MORRIS                   
|                   |  |     |  |                                         
|                   |  |     |  | Timothy E. Morris                       
|                   |  |     |  | Vice President, Finance & Administration
|                   |  |     |  | And Chief Financial Officer (Principal  
|                   |  |     |  | Financial and Accounting Officer)       

18



---



##### Table of Contents






CERTIFICATIONS

Certification requirements set forth in Section 302 (a) of the Sarbanes-Oxley
Act.

I, Charles J. Casamento, certify that:



|1. |  | I have reviewed this quarterly report on Form 10-Q of Questcor
Pharmaceuticals, Inc.;                                                                                                                                                                                                                                         
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
|  
|3. |  | Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;                   
|  
|4. |  | The registrants other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:                                                                                                         



| | a) |  | designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | evaluated the effectiveness of the registrants disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the Evaluation Date); and                                                                                                  
|
| | c) |  | presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                        



|5. |  | The registrants other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent functions):
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to
record, process, summarize and report financial data and have identified
for the registrants auditors any material weakness in internal
controls; and
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal
controls; and                                                                                                                                      



|6. |  | The registrants other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                   |  |                          |  |                        
|------------------ |  | ------------------------ |  | -----------------------
|                   |  | /s/ Charles J. Casamento
|                   |  |                         
|Date: May 15, 2003 |  | Name:                    |  | Charles J. Casamento   
|                   |  | Title:                   |  | Chairman, President and
|                   |  |                          |  | Chief Executive Officer

19



---



##### Table of Contents



I, Timothy E. Morris, certify that:



|1. |  | I have reviewed this quarterly report on Form 10-Q of Questcor
Pharmaceuticals, Inc.;                                                                                                                                                                                                                                         
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
|  
|3. |  | Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;                   
|  
|4. |  | The registrants other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:                                                                                                         



| | a) |  | designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | evaluated the effectiveness of the registrants disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the Evaluation Date); and                                                                                                  
|
| | c) |  | presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                        



|5. |  | The registrants other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent functions):
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to
record, process, summarize and report financial data and have identified
for the registrants auditors any material weakness in internal
controls; and
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal
controls; and                                                                                                                                      



|6. |  | The registrants other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                   |  |                               
|------------------ |  | ------------------------------
|Date: May 15, 2003 |  | /s/ Timothy E. Morris         
|                   |  |                               
|                   |  | Name: Timothy E. Morris       
|                   |  | Title: Chief Financial Officer

20



---



##### Table of Contents



Exhibit Index

|     |  |                                                                                                        
|---- |  | -------------------------------------------------------------------------------------------------------
|15.1 |  | Letter regarding Unaudited Financial Information                                                       
|     |  |                                                                                                        
|99.1 |  | Certification pursuant to Section 906 of the Public Company Accounting Reform and Investor
Act of 2002.

21