##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
 (MARK ONE)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2007
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
 FOR THE TRANSITION PERIOD
FROMTO
 COMMISSION FILE NUMBER: 001-14758
 QUESTCOR PHARMACEUTICALS, INC.
 (Exact name of Registrant as specified in its charter)
 CALIFORNIA
(State or other jurisdiction 
of incorporation or organization)
    
    33-0476164
(I.R.S. Employer
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
 þ o
  o o þ
 o þ




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QUESTCOR PHARMACEUTICALS, INC.
 FORM 10-Q
 TABLE OF CONTENTS
 PART I. FINANCIAL INFORMATIONItem 1 Financial Statements and Notes (Unaudited)
    
    
    3Consolidated Balance Sheets  March 31, 2007 and December 31, 2006
    
    
    3Consolidated Statements of Operations  for the three months ended March 31, 2007 and 2006
    
    
    4Consolidated Statements of Cash Flows  for the three months ended March 31, 2007 and 2006
    
    
    5Notes to Consolidated Financial Statements
    
    
    6Item 2 Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    10Item 3 Quantitative and Qualitative Disclosures about Market Risk
    
    
    16Item 4 Controls and Procedures
    
    
    16PART II. OTHER INFORMATIONItem 1 Legal Proceedings
    
    
    16Item 1A Risk Factors
    
    
    16Item 2 Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    16Item 3 Defaults Upon Senior Securities
    
    
    16Item 4 Submission of Matters to a Vote of Security Holders
    
    
    16Item 5 Other Information
    
    
    16Item 6 Exhibits
    
    
    16Signatures
    
    
    17EXHIBIT 31EXHIBIT 32
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PART I. FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 QUESTCOR PHARMACEUTICALS, INC.
 
 CONSOLIDATED BALANCE SHEETS
 (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
 March 31,
    
    
    December 31,2007
    
    
    2006(Unaudited)
    
    
    (Note 1)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    6,014
    
    
    $
    15,937Short-term investments
    
    
    8,660
    
    
    
    2,488Accounts receivable, net of allowance for doubtful accounts
of $89 and $55 at March 31, 2007 and December 31, 2006,
respectively
    
    
    2,531
    
    
    
    1,783Inventories, net
    
    
    2,621
    
    
    
    2,965Prepaid expenses and other current assets
    
    
    1,008
    
    
    
    811Total current assets
    
    
    20,834
    
    
    
    23,984Property and equipment, net
    
    
    674
    
    
    
    665Purchased technology, net
    
    
    4,192
    
    
    
    3,965Goodwill
    
    
    299
    
    
    
    299Deposits and other assets
    
    
    727
    
    
    
    722Total assets
    
    $
    26,726
    
    
    $
    29,635LIABILITIES, PREFERRED STOCK AND SHAREHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    2,015
    
    
    $
    2,154Accrued compensation
    
    
    821
    
    
    
    1,019Sales-related reserves
    
    
    3,399
    
    
    
    2,784Other accrued liabilities
    
    
    501
    
    
    
    521Total current liabilities
    
    
    6,736
    
    
    
    6,478Lease termination and deferred rent liabilities
    
    
    1,773
    
    
    
    1,961Other non-current liabilities
    
    
    16
    
    
    
    18Preferred stock, no par value, 7,500,000 shares authorized;
2,155,715 Series A shares issued and outstanding at March 31,
2007 and December 31, 2006 (aggregate liquidation preference of
$10,000 at March 31, 2007 and December 31, 2006)
    
    
    5,081
    
    
    
    5,081Shareholders equity:Common stock, no par value, 105,000,000 shares authorized;
69,041,282 and 68,740,804 shares issued and outstanding at
March 31, 2007 and December 31, 2006, respectively
    
    
    106,132
    
    
    
    105,352Accumulated deficit
    
    
    (93,015
    )
    
    
    (89,256
    )Accumulated other comprehensive gain
    
    
    3
    
    
    
    1Total shareholders equity
    
    
    13,120
    
    
    
    16,097Total liabilities, preferred stock and shareholders equity
    
    $
    26,726
    
    
    $
    29,635
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QUESTCOR PHARMACEUTICALS, INC.
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
 Three Months EndedMarch 31,2007
    
    
    2006Net product sales
    
    $
    3,701
    
    
    $
    2,010Operating costs and expenses:Cost of product sales (exclusive of amortization of purchased technology)
    
    
    850
    
    
    
    626Selling, general and administrative
    
    
    5,550
    
    
    
    4,170Research and development
    
    
    1,140
    
    
    
    380Depreciation and amortization
    
    
    123
    
    
    
    46Total operating costs and expenses
    
    
    7,663
    
    
    
    5,222Loss from operations
    
    
    (3,962
    )
    
    
    (3,212
    )Other income (expense):Interest income
    
    
    210
    
    
    
    181Other expense, net
    
    
    (7
    )
    
    
    (6
    )Total other income
    
    
    203
    
    
    
    175Net loss
    
    $
    (3,759
    )
    
    $
    (3,037
    )Net loss per share  basic and diluted
    
    $
    (0.05
    )
    
    $
    (0.06
    )Shares used in computing net loss per share  basic and diluted
    
    
    68,773
    
    
    
    54,562
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QUESTCOR PHARMACEUTICALS, INC.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (IN THOUSANDS)
 (UNAUDITED)
 Three Months EndedMarch 31,2007
    
    
    2006OPERATING ACTIVITIESNet loss
    
    $
    (3,759
    )
    
    $
    (3,037
    )Adjustments to reconcile net loss to net cash used in operating activities:Share-based compensation expense
    
    
    496
    
    
    
    146Depreciation and amortization
    
    
    123
    
    
    
    46Changes in operating assets and liabilities:Accounts receivable
    
    
    (748
    )
    
    
    (221
    )Inventories
    
    
    344
    
    
    
    (120
    )Prepaid expenses and other current assets
    
    
    (197
    )
    
    
    (185
    )Accounts payable
    
    
    (139
    )
    
    
    (77
    )Accrued compensation
    
    
    (198
    )
    
    
    (144
    )Sales-related reserves
    
    
    615
    
    
    
    (39
    )Other accrued liabilities
    
    
    (20
    )
    
    
    (196
    )Income taxes payable
    
    
    
    
    
    
    (200
    )Other non-current liabilities
    
    
    (190
    )
    
    
    144Net cash flows used in operating activities
    
    
    (3,673
    )
    
    
    (3,883
    )INVESTING ACTIVITIESPurchase of property and equipment
    
    
    (59
    )
    
    
    (46
    )Acquisition of purchased technology
    
    
    (300
    )
    
    
    Purchase of short-term investments
    
    
    (8,670
    )
    
    
    (3,498
    )Maturities of short-term investments
    
    
    2,500
    
    
    
    3,140Changes in deposits and other assets
    
    
    (5
    )
    
    
    68Net cash flows used in investing activities
    
    
    (6,534
    )
    
    
    (336
    )FINANCING ACTIVITIESIssuance of common stock, net
    
    
    284
    
    
    
    303Redemption of Series B preferred stock
    
    
    
    
    
    
    (7,841
    )Repayment of capital lease obligation
    
    
    
    
    
    
    (2
    )Net cash flows provided by (used in) financing activities
    
    
    284
    
    
    
    (7,540
    )Decrease in cash and cash equivalents
    
    
    (9,923
    )
    
    
    (11,759
    )Cash and cash equivalents at beginning of period
    
    
    15,937
    
    
    
    20,438Cash and cash equivalents at end of period
    
    $
    6,014
    
    
    $
    8,679
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QUESTCOR PHARMACEUTICALS, INC.
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 1. BASIS OF PRESENTATION
 ® ®
   2. SHARE-BASED COMPENSATION
 Share-Based Payment Accounting for Stock-Based Compensation
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Three Months EndedMarch 31,2007
    
    
    2006Cost of product sales
    
    $
    1
    
    
    $
    4Selling, general and administrative
    
    
    405
    
    
    
    120Research and development
    
    
    67
    
    
    
    4Total
    
    $
    473
    
    
    $
    128
   Three Months EndedMarch 31,2007
    
    2006Expected volatility
    
    
    86
    %
    
    
    98
    %Expected term (in years)
    
    
    6.25
    
    
    
    6.25Risk-free interest rate
    
    
    4.6
    %
    
    
    4.8
    %Expected dividends
    
    
    
    
    
    
    
   Three Months EndedMarch 31,2007
    
    2006Expected volatility
    
    
    65
    %
    
    
    98
    %Expected term (in years)
    
    
    0.53
    
    
    
    0.25Risk-free interest rate
    
    
    5.0
    %
    
    
    4.6
    %Expected dividends
    
    
    
    
    
    
    
  3. REVENUE RECOGNITION
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4. CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
  5. INVENTORIES
  March 31,
    
    
    December 31,2007
    
    
    2006Raw materials
    
    $
    2,186
    
    
    $
    2,120Finished goods
    
    
    844
    
    
    
    1,082Less allowance for excess and obsolete inventories
    
    
    (409
    )
    
    
    (237
    )$
    2,621
    
    
    $
    2,965
 6. PURCHASED TECHNOLOGY
  7. COMMITMENTS, INDEMNIFICATIONS AND CONTINGENCIES
  8




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8. NET INCOME (LOSS) PER SHARE
  9. INCOME TAXES
 Financial Accounting Standards Board Interpretation 48 Accounting for Uncertainty in Income Taxes  an interpretation of
FASB Statement No. 109. Accounting for
Income Taxes
    9




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10. COMPREHENSIVE LOSS
  Three Months EndedMarch 31,2007
    
    
    2006($000s)Net loss
    
    $
    (3,759
    )
    
    $
    (3,037
    )Change in unrealized gains on available-for-sale securities
    
    
    2
    
    
    
    Comprehensive loss
    
    $
    (3,757
    )
    
    $
    (3,037
    )
 11. RECENTLY ISSUED ACCOUNTING STANDARDS
 The Fair Value Option for Financial
Assets and Financial Liabilities
 Fair Value Measurements
 
 ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  Overview
   10




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Critical Accounting Policies
  Sales Reserves
      Inventories
  11




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Intangible and Long-Lived Assets
 Goodwill and Other Intangible
Assets Accounting for
the Impairment or Disposal of Long-Lived Assets
 Share-Based Compensation Expense
   Lease Termination Liability
  Accounting for a
Loss on a Sublease, an interpretation of FASB 13 and APB Opinion No. 30 Accounting
for the Loss on a Sublease Not Involving the Disposal of a Segment.
 12




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Results of Operations
 Three months ended March 31, 2007 compared to the three months ended March 31, 2006:
 Total Net Product Sales
 Three Months EndedMarch 31,
    
    
    
    
    
    %2007
    
    2006
    
    Increase
    
    Change(in $000s)Net product sales
    
    $
    3,701
    
    
    $
    2,010
    
    
    $
    1,691
    
    
    
    84
    %
   Cost of Product Sales
 Three Months EndedMarch 31,
    
    
    
    
    
    %2007
    
    2006
    
    Increase
    
    Change(in $000s)Cost of product sales
    
    $
    850
    
    
    $
    626
    
    
    $
    224
    
    
    
    36
    %
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Selling, General and Administrative
 Three Months EndedMarch 31,
    
    
    
    
    
    %2007
    
    2006
    
    Increase
    
    Change(in $000s)Selling, general and administrative expense
    
    $
    5,550
    
    
    $
    4,170
    
    
    $
    1,380
    
    
    
    33
    %
  Research and Development
 Three Months EndedMarch 31,
    
    
    
    
    
    %2007
    
    2006
    
    Increase
    
    Change(in $000s)Research and development
    
    $
    1,140
    
    
    $
    380
    
    
    $
    760
    
    
    
    200
    %
  Depreciation and Amortization
 Three Months EndedMarch 31,
    
    
    
    
    
    %2007
    
    2006
    
    Increase
    
    Change(in $000s)Depreciation and amortization
    
    $
    123
    
    
    $
    46
    
    
    $
    77
    
    
    
    167
    %
  Other Income, net
 Three Months EndedMarch 31,
    
    
    
    
    
    %2007
    
    2006
    
    Increase
    
    Change(in $000s)Other income, net
    
    $
    203
    
    
    $
    175
    
    
    $
    28
    
    
    
    16
    %
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Liquidity and Capital Resources
      Recently Issued Accounting Standards
 The Fair Value Option for Financial Assets and Financial Liabilities
 Fair Value Measurements
 15




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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  
 ITEM 4. CONTROLS AND PROCEDURES
    
 PART II. OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  
 ITEM 1A. RISK FACTORS
  
 ITEM 2. UNREGISTERED SALES OF EQUITY 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
 Exhibit No
    
    Description31
    
    Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32*
    
    Certifications pursuant to Section 906 of the Public Company Accounting Reform and Investor Act of 2002.
 
 *
    
    These certifications are being furnished solely to accompany this quarterly report pursuant
to 18 U.S.C. Section 1350, and are not being filed for purposes of Section 18 of the
Securities Exchange Act of 1934 and are not to be incorporated by reference into any filing of
Questcor Pharmaceuticals, Inc., whether made before or after the date hereof, regardless of
any general incorporation language in such filing. 16




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SIGNATURES
  QUESTCOR PHARMACEUTICALS, INC.Date: May 11, 2007
    By:
    /s/ James L. FaresJames L. FaresPresident and Chief Executive Officer By:
    /s/ George StuartGeorge StuartSenior Vice President, Finance and Chief Financial Officer 17




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Exhibit Index
 Exhibit No
    
    Description31
    
    Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32*
    
    Certifications pursuant to Section 906 of the Public Company Accounting Reform and Investor Act of 2002.
 
 *
    
    These certifications are being furnished solely to accompany this quarterly report pursuant
to 18 U.S.C. Section 1350, and are not being filed for purposes of Section 18 of the
Securities Exchange Act of 1934 and are not to be incorporated by reference into any filing of
Questcor Pharmaceuticals, Inc., whether made before or after the date hereof, regardless of
any general incorporation language in such filing. 18