##### Table of Contents



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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 SEPTEMBER 30, 2002

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

At
November 7, 2002 there were 38,672,583 shares of the Registrants
common stock, no par value per share, outstanding.



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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 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                  
|Exhibit Index               
|Exhibit 3.1                 
|Exhibit 15.1                



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##### Table of Contents



QUESTCOR PHARMACEUTICALS, INC.
FORM 10-Q
TABLE OF CONTENTS

|       |  |                                                                                                   |      |  |    |  |  | 
|------ |  | ------------------------------------------------------------------------------------------------- | ---- |  | -- |  |  | 
|       |  |                                                                                                   | Page
|       |  |                                                                                                   |      |  |    |  |  | 
|       |  | PART I.   FINANCIAL INFORMATION                                                                   |      |  |    | 
|      
|      
|      
|      
|Item 1 |  | Financial Statements and Notes (Unaudited)                                                        |      |  | 3  | 
|      
|      
|      
|      
|       |  | Condensed Consolidated Balance SheetsSeptember 30, 2002 and December 31, 2001                    |      |  | 3  | 
|      
|      
|      
|      
|       |  | Condensed Consolidated Statements of Operationsfor the three and nine months ended September 30, |      |  |    | 
|       |  | 2002 and September 30, 2001                                                                       |      |  | 4  | 
|      
|      
|      
|      
|       |  | Condensed Consolidated Statements of Cash Flowsfor the nine months ended September 30, 2002 and  |      |  |    | 
|       |  | September 30, 2001                                                                                |      |  | 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                                        |      |  | 18 | 
|      
|      
|      
|      
|Item 4 |  | Disclosure Controls and Procedures                                                                |      |  | 18 | 
|      
|      
|      
|      
|       |  | PART II.   OTHER INFORMATION                                                                      |      |  |    | 
|      
|      
|      
|      
|Item 1 |  | Legal Proceedings                                                                                 |      |  | 19 | 
|      
|      
|      
|      
|Item 2 |  | Changes in Securities and Use of Proceeds                                                         |      |  | 19 | 
|      
|      
|      
|      
|Item 3 |  | Defaults upon Senior Securities                                                                   |      |  | 19 | 
|      
|      
|      
|      
|Item 4 |  | Submission of Matters to a Vote of Security Holders                                               |      |  | 19 | 
|      
|      
|      
|      
|Item 5 |  | Other Information                                                                                 |      |  | 19 | 
|      
|      
|      
|      
|Item 6 |  | Exhibits and Reports                                                                              |      |  | 20 | 
|      
|      
|      
|      
|       |  | Signatures                                                                                        |      |  | 21 | 

2



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##### Table of Contents






ITEM 1.   FINANCIAL STATEMENTS

QUESTCOR PHARMACEUTICALS, INC.





CONDENSED CONSOLIDATED BALANCE SHEETS


(IN THOUSANDS)


|                                                                                  |                                                                                                                       |                                                |        |                                                      |   |               |        |              |   |   |        |  
|--------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------- | ------ | ---------------------------------------------------- | - | ------------- | ------ | ------------ | - | - | ------ | -
|                                                                                  |                                                                                                                       |                                                |        |                                                      |   | September 30, |        | December 31,
|                                                                                  |                                                                                                                       |                                                |        |                                                      |   | 2002          |        | 2001        
|                                                                                  |                                                                                                                       |                                                |        |                                                      |   |               |        |             
|                                                                                  |                                                                                                                       |                                                |        |                                                      |   | (Unaudited)   |        | (Note 1)    
|                                                                                  |                                                                                                                       |                                                | ASSETS |                                                      |   |               |        |              |   |   |       
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|Current assets:                                                                   |                                                                                                                       |                                                |        |                                                      |   |               |        |             
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                  | Cash and cash equivalents (which included a compensating balance of $5,000 at
December 31, 2001)                      |                                                | $      | 9,203                                                |   |               | $      | 10,183       |  
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                  | Short-term investments                                                                                                |                                                |        | 133                                                  |   |               |        | 388          |  
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                  | Accounts receivable, net of allowance for doubtful accounts of $20 at September
30, 2002 and $78 at December 31, 2001 |                                                |        | 445                                                  |   |               |        | 672          |  
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                  | Inventories, net                                                                                                      |                                                |        | 436                                                  |   |               |        | 96           |  
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                  | Prepaid expenses and other current assets                                                                             |                                                |        | 963                                                  |   |               |        | 265          |  
|                                                                                  |                                                                                                                       |                                                |        |                                                      |   |               |        |             
|                                                                                  |                                                                                                                       |                                                |        | Total current assets                                 |   |               | 11,180 |              |   |   | 11,604 |  
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|Property and equipment, net                                                       |                                                                                                                       |                                                | 633    |                                                      |   |               | 602    |             
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|Purchased technology, net                                                         |                                                                                                                       |                                                | 518    |                                                      |   |               | 1,159  |             
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|Goodwill
and other indefinite lived intangible assets                             |                                                                                                                       |                                                | 479    |                                                      |   |               | 479    |             
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|Deposits and other assets                                                         |                                                                                                                       |                                                | 1,024  |                                                      |   |               | 1,228  |             
|                                                                                  |                                                                                                                       |                                                |        |                                                      |   |               |        |             
|                                                                                  |                                                                                                                       |                                                |        | Total assets                                         |   | $             | 13,834 |              |   | $ | 15,072 |  
|                                                                                  |                                                                                                                       |                                                |        |                                                      |   |               |        |             
|                                                                                  |                                                                                                                       | LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT) |        |                                                      |   |               |        |              |   |  
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|Current liabilities:                                                              |                                                                                                                       |                                                |        |                                                      |   |               |        |             
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                  | Accounts payable                                                                                                      |                                                | $      | 1,370                                                |   |               | $      | 1,095        |  
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                  | Accrued compensation                                                                                                  |                                                |        | 767                                                  |   |               |        | 575          |  
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                  | Unissued common stock                                                                                                 |                                                |        |                                                     |   |               |        | 960          |  
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                  | Other accrued liabilities                                                                                             |                                                |        | 1,600                                                |   |               |        | 1,070        |  
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                  | Note payable to bank                                                                                                  |                                                |        |                                                     |   |               |        | 5,000        |  
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                  | Short-term
debt and current portion of long-term debt                                                                 |                                                |        | 365                                                  |   |               |        | 368          |  
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                  | Current portion of capital lease obligations                                                                          |                                                |        | 16                                                   |   |               |        | 57           |  
|                                                                                  |                                                                                                                       |                                                |        |                                                      |   |               |        |             
|                                                                                  |                                                                                                                       |                                                |        | Total current liabilities                            |   |               | 4,118  |              |   |   | 9,125  |  
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|Convertible debentures, (face amount of $4,000), net of deemed discount of $1,195 |                                                                                                                       |                                                | 2,805  |                                                      |   |               |       |             
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|Long-term debt                                                                    |                                                                                                                       |                                                |       |                                                      |   |               | 121    |             
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|Other non-current liabilities                                                     |                                                                                                                       |                                                | 1,018  |                                                      |   |               | 1,045  |             
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|Commitments                                                                       |                                                                                                                       |                                                |        |                                                      |   |               |        |             
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|Preferred stock, subject to redemption                                            |                                                                                                                       |                                                | 5,081  |                                                      |   |               | 5,081  |             
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|Stockholders equity (deficit):                                                   |                                                                                                                       |                                                |        |                                                      |   |               |        |             
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                  | Common stock                                                                                                          |                                                |        | 77,435                                               |   |               |        | 74,018       |  
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                  | Deferred compensation                                                                                                 |                                                |        | (10                                                  | ) |               |        | (20          | )
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                  | Accumulated deficit                                                                                                   |                                                |        | (76,613                                              | ) |               |        | (74,183      | )
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                 
|                                                                                  | Accumulated other comprehensive income (loss)                                                                         |                                                |        |                                                     |   |               |        | (115         | )
|                                                                                  |                                                                                                                       |                                                |        |                                                      |   |               |        |             
|                                                                                  |                                                                                                                       |                                                |        | Total stockholders equity (deficit)                 |   |               | 812    |              |   |   | (300   | )
|                                                                                  |                                                                                                                       |                                                |        |                                                      |   |               |        |             
|                                                                                  |                                                                                                                       |                                                |        | Total liabilities and stockholders equity (deficit) |   | $             | 13,834 |              |   | $ | 15,072 |  
|                                                                                  |                                                                                                                       |                                                |        |                                                      |   |               |        |             

See accompanying notes.

3



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##### Table of Contents



QUESTCOR PHARMACEUTICALS, INC.





CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS


(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)


|                                                                   |                                                     |                                    |        |                    |       |                   |        |               |       |               |        |        |        |   |        |       |        | 
|------------------------------------------------------------------ | --------------------------------------------------- | ---------------------------------- | ------ | ------------------ | ----- | ----------------- | ------ | ------------- | ----- | ------------- | ------ | ------ | ------ | - | ------ | ----- | ------ | 
|                                                                   |                                                     |                                    |        | Three Months Ended |       | Nine Months Ended
|                                                                   |                                                     |                                    |        |                    |       |                  
|                                                                   |                                                     |                                    |        | September 30,      |       | September 30,     |        | September 30, |       | September 30,
|                                                                   |                                                     |                                    |        | 2002               |       | 2001              |        | 2002          |       | 2001         
|                                                                   |                                                     |                                    |        |                    |       |                   |        |               |       |              
|Revenues:                                                          |                                                     |                                    |        |                    |       |                   |        |               |       |               |        |        |        |   |        |      
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|                                                                   | Net product sales                                   |                                    | $      | 3,772              |       |                   | $      | 1,258         |       |               | $      | 10,885 |        |   | $      | 2,930 |       
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|                                                                   | Contract research and grant revenue                 |                                    |        | 17                 |       |                   |        | 59            |       |               |        | 143    |        |   |        | 341   |       
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|                                                                   | Technology revenue                                  |                                    |        |                   |       |                   |        |              |       |               |        | 250    |        |   |        | 90    |       
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|                                                                   | Royalty revenue                                     |                                    |        | 9                  |       |                   |        | 4             |       |               |        | 15     |        |   |        | 9     |       
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|                                                                   | Services revenue from a related party (see Note 11) |                                    |        | 50                 |       |                   |        |              |       |               |        | 150    |        |   |        |      |       
|                                                                   |                                                     |                                    |        |                    |       |                   |        |               |       |               |        |        |        |   |        |      
|                                                                   |                                                     | Total revenues                     |        |                    | 3,848 |                   |        |               | 1,321 |               |        |        | 11,443 |   |        |       | 3,370  | 
|                                                                   |                                                     |                                    |        |                    |       |                   |        |               |       |               |        |        |        |   |        |      
|Operating costs and expenses:                                      |                                                     |                                    |        |                    |       |                   |        |               |       |               |        |        |        |   |        |      
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|                                                                   | Cost of product sales                               |                                    |        | 645                |       |                   |        | 369           |       |               |        | 1,800  |        |   |        | 1,008 |       
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|                                                                   | Sales and marketing (Note A)                        |                                    |        | 1,713              |       |                   |        | 738           |       |               |        | 4,741  |        |   |        | 2,216 |       
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|                                                                   | General and administrative (Note A)                 |                                    |        | 1,206              |       |                   |        | 1,293         |       |               |        | 3,953  |        |   |        | 3,060 |       
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|                                                                   | Research and development (Note A)                   |                                    |        | 791                |       |                   |        | 639           |       |               |        | 2,107  |        |   |        | 2,176 |       
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|                                                                   | Depreciation and amortization                       |                                    |        | 262                |       |                   |        | 547           |       |               |        | 921    |        |   |        | 1,659 |       
|                                                                   |                                                     |                                    |        |                    |       |                   |        |               |       |               |        |        |        |   |        |      
|                                                                   |                                                     | Total operating costs and expenses |        |                    | 4,617 |                   |        |               | 3,586 |               |        |        | 13,522 |   |        |       | 10,119 | 
|                                                                   |                                                     |                                    |        |                    |       |                   |        |               |       |               |        |        |        |   |        |      
|Loss from operations                                               |                                                     |                                    | (769   | )                  |       |                   | (2,265 | )             |       |               | (2,079 | )      |        |   | (6,749 | )    
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|Non-cash amortization of deemed discount on convertible debentures |                                                     |                                    | (130   | )                  |       |                   |       |               |       |               | (305   | )      |        |   |       |      
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|Interest income (expense), net                                     |                                                     |                                    | (11    | )                  |       |                   | (45    | )             |       |               | 3      |        |        |   | 14     |      
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|Other income (expense), net                                        |                                                     |                                    | (151   | )                  |       |                   | 11     |               |       |               | (261   | )      |        |   | 4      |      
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|Rental income, net                                                 |                                                     |                                    | 66     |                    |       |                   | 38     |               |       |               | 212    |        |        |   | 600    |      
|                                                                   |                                                     |                                    |        |                    |       |                   |        |               |       |               |        |        |        |   |        |      
|Net loss                                                           |                                                     | $                                  | (995   | )                  |       | $                 | (2,261 | )             |       | $             | (2,430 | )      |        | $ | (6,131 | )    
|                                                                   |                                                     |                                    |        |                    |       |                   |        |               |       |               |        |        |        |   |        |      
|Basic and diluted net loss per common share                        |                                                     | $                                  | (0.03  | )                  |       | $                 | (0.07  | )             |       | $             | (0.06  | )      |        | $ | (0.21  | )    
|                                                                   |                                                     |                                    |        |                    |       |                   |        |               |       |               |        |        |        |   |        |      
|Shares used in calculation of basic and diluted net loss per share |                                                     |                                    | 38,632 |                    |       |                   | 34,566 |               |       |               | 38,317 |        |        |   | 29,438 |      
|                                                                   |                                                     |                                    |        |                    |       |                   |        |               |       |               |        |        |        |   |        |      
|Note A:                                                            |                                                     |                                    |        |                    |       |                   |        |               |       |               |        |        |        |   |        |      
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|Includes non-cash charges for stock-based compensation as follows: |                                                     |                                    |        |                    |       |                   |        |               |       |               |        |        |        |   |        |      
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|                                                                   | Sales and marketing                                 |                                    | $      |                   |       |                   | $      |              |       |               | $      | 44     |        |   | $      |      |       
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|                                                                   | General and administrative                          |                                    |        |                   |       |                   |        | 8             |       |               |        | 243    |        |   |        | 31    |       
|                                                                  
|                                                                  
|                                                                  
|                                                                  
|                                                                   | Research and development                            |                                    |        |                   |       |                   |        | 1             |       |               |        | 24     |        |   |        | 5     |       
|                                                                   |                                                     |                                    |        |                    |       |                   |        |               |       |               |        |        |        |   |        |      
|Total                                                              |                                                     | $                                  |       |                    |       | $                 | 9      |               |       | $             | 311    |        |        | $ | 36     |      
|                                                                   |                                                     |                                    |        |                    |       |                   |        |               |       |               |        |        |        |   |        |      

See accompanying notes.

4



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##### Table of Contents



QUESTCOR PHARMACEUTICALS, INC.




CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


(UNAUDITED)
(IN THOUSANDS)


|                                                                            |                                                           |   |                                 |      |      |   |        |       |  
|--------------------------------------------------------------------------- | --------------------------------------------------------- | - | ------------------------------- | ---- | ---- | - | ------ | ----- | -
|                                                                            |                                                           |   | Nine Months Ended September 30,
|                                                                            |                                                           |   |                                
|                                                                            |                                                           |   | 2002                            |      | 2001
|                                                                            |                                                           |   |                                 |      |     
|OPERATING ACTIVITIES                                                        |                                                           |   |                                 |      |      |   |        |      
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|Net loss                                                                    |                                                           | $ | (2,430                          | )    |      | $ | (6,131 | )    
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|Adjustments to reconcile net loss to net cash used in operating activities: |                                                           |   |                                 |      |      |   |        |      
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                            | Stock-based compensation expense                          |   |                                 | 311  |      |   |        | 36    |  
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                            | Amortization of deemed discount on convertible debentures |   |                                 | 305  |      |   |        |      |  
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                            | Depreciation and amortization                             |   |                                 | 921  |      |   |        | 1,659 |  
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                            | Other-than-temporary loss on investment                   |   |                                 | 367  |      |   |        |      |  
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                            | Deferred rent expense                                     |   |                                 | (24  | )    |   |        | 78    |  
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                            | (Gain)/Loss on the sale of equipment                      |   |                                 | (37  | )    |   |        | 37    |  
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|Changes in operating assets and liabilities:                                |                                                           |   |                                 |      |      |   |        |      
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                            | Accounts receivable                                       |   |                                 | 227  |      |   |        | (686  | )
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                            | Inventories                                               |   |                                 | (340 | )    |   |        | (44   | )
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                            | Prepaid expenses and other current assets                 |   |                                 | (665 | )    |   |        | 281   |  
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                            | Accounts payable                                          |   |                                 | 275  |      |   |        | 525   |  
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                            | Accrued compensation                                      |   |                                 | 192  |      |   |        | 98    |  
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                            | Accrued development costs                                 |   |                                 |     |      |   |        | (541  | )
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                            | Other accrued liabilities                                 |   |                                 | 530  |      |   |        | 143   |  
|                                                                            |                                                           |   |                                 |      |      |   |        |      
|Net cash flows used in operating activities                                 |                                                           |   | (368                            | )    |      |   | (4,545 | )    
|                                                                            |                                                           |   |                                 |      |      |   |        |      
|INVESTING ACTIVITIES                                                        |                                                           |   |                                 |      |      |   |        |      
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|Proceeds from the maturity of short-term investments, net                   |                                                           |   |                                |      |      |   | 499    |      
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|Purchase of property and equipment                                          |                                                           |   | (323                            | )    |      |   | (183   | )    
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|Proceeds from sale of property and equipment                                |                                                           |   | 51                              |      |      |   | 37     |      
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|Decrease in other assets                                                    |                                                           |   | 270                             |      |      |   | 54     |      
|                                                                            |                                                           |   |                                 |      |      |   |        |      
|Net cash flows (used in) provided by investing activities                   |                                                           |   | (2                              | )    |      |   | 407    |      
|                                                                            |                                                           |   |                                 |      |      |   |        |      
|FINANCING ACTIVITIES                                                        |                                                           |   |                                 |      |      |   |        |      
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|Issuance of common stock, net                                               |                                                           |   | 557                             |      |      |   | 6,925  |      
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|Issuance of convertible debentures                                          |                                                           |   | 4,000                           |      |      |   |       |      
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|Short-term borrowings                                                       |                                                           |   | 1,172                           |      |      |   |       |      
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|Repayment of note payable to bank                                           |                                                           |   | (5,000                          | )    |      |   |       |      
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|Repayment
of short-term and long-term debt                                  |                                                           |   | (1,296                          | )    |      |   | (240   | )    
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|Repayments of capital lease obligations                                     |                                                           |   | (43                             | )    |      |   | (75    | )    
|                                                                            |                                                           |   |                                 |      |      |   |        |      
|Net cash flows (used in) provided by financing activities                   |                                                           |   | (610                            | )    |      |   | 6,610  |      
|                                                                            |                                                           |   |                                 |      |      |   |        |      
|Increase (decrease) in cash and cash equivalents                            |                                                           |   | (980                            | )    |      |   | 2,472  |      
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|Cash and cash equivalents at beginning of period                            |                                                           |   | 10,183                          |      |      |   | 6,818  |      
|                                                                            |                                                           |   |                                 |      |      |   |        |      
|Cash and cash equivalents at end of period                                  |                                                           | $ | 9,203                           |      |      | $ | 9,290  |      
|                                                                            |                                                           |   |                                 |      |      |   |        |      
|SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:                           |                                                           |   |                                 |      |      |   |        |      
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                            | Cash paid for interest                                    |   | $                               | 150  |      |   | $      | 359   |  
|                                                                            |                                                           |   |                                 |      |      |   |        |      

See accompanying notes.

5



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QUESTCOR PHARMACEUTICALS, INC.




NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2002
(UNAUDITED)




|1. |  | BASIS OF PRESENTATION
|-- |  | ---------------------

Questcor Pharmaceuticals, Inc. (the Company) was incorporated in
California in 1990. The Company is an integrated specialty pharmaceutical
company focused on the acquisition and marketing of acute care and critical
care hospital/specialty pharmaceutical and related healthcare products. 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, or West Syndrome; 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.

The
accompanying unaudited condensed 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 generally accepted
accounting principles 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, 2001, as filed on March 19, 2002 with
the Securities and Exchange Commission. 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, 2002. Certain amounts in the prior quarters financial statements
have been reclassified to conform to the current quarters presentation. The
condensed consolidated financial statements include the accounts of the Company and its
wholly owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated.



|2. |  | 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 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.
Revenues from Glofil-125 unit dose sales are recognized when the product is
sold to end-users in accordance with the distribution agreement with the
third-party distributor. The Company records estimated sales allowances
against product revenues for expected returns, chargebacks and discounts based
on historical sales returns, analysis of return merchandise authorization and
other known factors such as shelf life of products, as required. The Company
continually assesses the historical returns experience and adjusts its
allowances as appropriate. The Companys return policy allows customers to
return expired product 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 all 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. All 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 we sell
direct 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.

6



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##### Table of Contents



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.

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 obligations exist.



|3. |  | 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 September
30, 2002, the Company had cash, cash equivalents and short-term investments of
$9,336,000. Following is a summary of cash equivalents and short-term
investments (in thousands) based on quoted market prices for these investments:

|                                            |  |               |        |              |  |   |        |  
|------------------------------------------- |  | ------------- | ------ | ------------ |  | - | ------ | -
|                                            |  | September 30, |        | December 31,
|                                            |  | 2002          |        | 2001        
|                                            |  |               |        |             
|Money market funds                          |  | $             | 9,097  |              |  | $ | 4,943  |  
|                                           
|                                           
|                                           
|                                           
|Certificates of deposit                     |  |               |       |              |  |   | 5,000  |  
|                                           
|                                           
|                                           
|                                           
|Corporate equity investments                |  |               | 133    |              |  |   | 388    |  
|                                            |  |               |        |              |  |   |        |  
|                                            |  |               | 9,230  |              |  |   | 10,331 |  
|                                           
|                                           
|                                           
|                                           
|Less amounts classified as cash equivalents |  |               | (9,097 | )            |  |   | (9,943 | )
|                                            |  |               |        |              |  |   |        |  
|Short-term investments                      |  | $             | 133    |              |  | $ | 388    |  
|                                            |  |               |        |              |  |   |        |  

In September 2000, the Company entered into an agreement with Rigel
Pharmaceuticals, Inc. (Rigel), to sell exclusive rights to certain
proprietary antiviral research technology in exchange for cash and 83,333
shares of Rigel stock. The Company has recorded an other-than-temporary loss
of $186,000 on these shares for the quarter ended September 30, 2002. This
write-down is included in Other Expense on the Statements of Operations. The
write-down reduced the cost of the equity investment to $1.60 per share or
$133,000 at September 30, 2002. At December 31, 2001, the equity investment
had a cost of $500,000 and an unrealized loss of $112,000.



|4. |  | INVENTORIES
|-- |  | -----------

Inventories are stated at the lower of cost (first-in, first-out method)
or market and are comprised of finished goods of $452,000 and $152,000 and raw
materials of $56,000 and $0, at September 30, 2002 and December 31, 2001,
respectively. These amounts are shown net of an allowance for obsolete/excess
inventories of $72,000 and $56,000 at September 30, 2002 and December 31, 2001,
respectively.



|5. |  | PURCHASED TECHNOLOGY AND INTANGIBLE ASSETS
|-- |  | ------------------------------------------

In July 2001, the FASB issued Statement No. 141, Business Combinations
(SFAS 141) and Statement No. 142, Goodwill and Other Intangible Assets (SFAS
142). SFAS 141 establishes new standards for accounting and reporting for
business combinations and will require that the purchase method of accounting
be used for all business combinations initiated after June 30, 2001 and also
specifies the criteria for the recognition of intangible assets separately from
goodwill. SFAS 142 establishes new standards for goodwill, including the
elimination of goodwill amortization to be replaced with methods of
periodically evaluating goodwill for impairment. The Companys adoption of SFAS
142 as of January 1, 2002 did not have a material impact on its financial
statements. Goodwill and other indefinite lived intangible assets no longer
subject to amortization amounted to $479,000 at September 30, 2002. The
remaining net balance of $518,000 relates to purchased technology and is being
amortized over the estimated sales life of the associated product (seven
years).

In accordance with SFAS 141 and 142, the Company discontinued the
amortization of goodwill on January 1, 2002, which would have resulted in an
increase of reported net loss of approximately $409,000 for the nine months
ended September 30, 2002, as compared with the accounting prior to the adoption
of SFAS 141 and SFAS 142. The Company performed an impairment test of goodwill
as of January 1, 2002, which did not result in an impairment charge at
transition. The Company will continue to monitor the carrying value of
goodwill through the annual impairment tests.

7



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##### Table of Contents



A reconciliation of previously reported net loss and net loss per share to
the amounts adjusted for the exclusion of goodwill amortization, follows (in
thousands, except per share amounts).

|                                                        |                                 |   |                                 |        |                         |   |        |        |      |   |        |        |   |   |         |         |  
|------------------------------------------------------- | ------------------------------- | - | ------------------------------- | ------ | ----------------------- | - | ------ | ------ | ---- | - | ------ | ------ | - | - | ------- | ------- | -
|                                                        |                                 |   | Nine months ended September 30, |        | Year Ended December 31,
|                                                        |                                 |   |                                 |        |                        
|                                                        |                                 |   | 2002                            |        | 2001                    |   | 2001   |        | 2000
|                                                        |                                 |   |                                 |        |                         |   |        |        |     
|Reported net loss                                       |                                 | $ | (2,430                          | )      |                         | $ | (6,131 | )      |      | $ | (8,697 | )      |   | $ | (13,762 | )      
|                                                        | Add back: Goodwill amortization |   |                                 |       |                         |   |        | 409    |      |   |        | 546    |   |   |         | 523     |  
|                                                        |                                 |   |                                 |        |                         |   |        |        |      |   |        |        |   |   |         |        
|                                                        | Adjusted net loss               |   | $                               | (2,430 | )                       |   | $      | (5,722 | )    |   | $      | (8,151 | ) |   | $       | (13,239 | )
|                                                        |                                 |   |                                 |        |                         |   |        |        |      |   |        |        |   |   |         |        
|Basic
and diluted earnings per share:
Reported net loss |                                 | $ | (0.06                           | )      |                         | $ | (0.21  | )      |      | $ | (0.28  | )      |   | $ | (0.56   | )      
|                                                        | Add back: Goodwill amortization |   |                                 |       |                         |   |        | 0.02   |      |   |        | 0.02   |   |   |         | 0.02    |  
|                                                        |                                 |   |                                 |        |                         |   |        |        |      |   |        |        |   |   |         |        
|                                                        | Adjusted net loss               |   | $                               | (0.06  | )                       |   | $      | (0.19  | )    |   | $      | (0.26  | ) |   | $       | (0.54   | )
|                                                        |                                 |   |                                 |        |                         |   |        |        |      |   |        |        |   |   |         |        



|6. |  | NOTE PAYABLE
|-- |  | ------------

In December 1998, RiboGene, Inc. (RiboGene), a company that Questcor
merged with in 1999, borrowed $5.0 million pursuant to a long-term note payable
to a bank. The note required monthly interest only payments at prime plus 1.0%.
In November 2000, the $5.0 million long-term note payable was converted into a
$5.0 million cash secured facility. The minimum $5.0 million compensatory
balance, which was invested in certificates of deposit, is included in cash and
cash equivalents at December 31, 2001. The note was paid in full on January 18,
2002.



|7. |  | LINE OF CREDIT
|-- |  | --------------

In January 2002, the Company entered into a revolving accounts receivable
line of credit with an asset based lending division of a bank. Under this line
of credit, the Company can borrow up to the lesser of 80% of the 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 this line of credit is one year. As of September 30, 2002, there
were no borrowings under this line of credit. The line of credit is secured by
a blanket lien on all assets including intellectual property.



|8. |  | CONVERTIBLE DEBENTURES
|-- |  | ----------------------

In March 2002, the Company issued $4.0 million of 8% convertible
debentures to an institutional investor, and Defiante Farmaceutica Unipessoal
L.D.A. (Defiante), a wholly-owned subsidiary of Sigma-Tau Finanzaria S.p.A
(Sigma-Tau). The Company will pay interest on the debentures at a rate of 8%
per annum on a quarterly basis. Included in Other Accrued Liabilities on the
Balance Sheet is $80,000 of accrued interest payable on these debentures. The
debentures are convertible into shares of the Companys common stock at a fixed
conversion price of $1.58 per share (subject to adjustment for stock splits and
reclassifications). The debentures mature on March 15, 2005.

The Company may redeem the debentures for cash prior to maturity after
March 15, 2003, provided the average of the closing sale price of the Companys
common stock for the twenty (20) consecutive trading days prior to the delivery
of the optional prepayment notice to the holders of the debentures is equal to
or greater than $3.16 per share, and the Company has satisfied certain equity
conditions. At the end of the term of the debentures, under certain
circumstances, the Company may redeem any outstanding debentures for stock. The
Company may redeem the institutional investors debentures for stock at
maturity, provided the total aggregate number of shares of the Companys common
stock issued to them (including shares issuable upon conversion of their
debenture and shares issuable upon exercise of their warrant) does not exceed
7,645,219 shares (representing 19.999% of the total number of issued and
outstanding shares of the Companys common stock as of March 15, 2002). The
Company may redeem Defiantes debenture for stock at maturity, provided the
market price of the Companys common stock at the time of redemption is greater
than $1.50 per share (representing the five day average closing sale price of
the Companys common stock immediately prior to March 15, 2002).

The Company issued warrants to the institutional investor, Defiante and
the placement agent to acquire an aggregate of 1,618,987 shares of common stock
at an exercise price of $1.70 per share. The warrants expire on March 15, 2006.
The warrants

8



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##### Table of Contents



issued to the institutional investor and Defiante were
assigned a value of $843,000. The warrants issued to the placement agent were assigned a
value of $82,000. The warrants were valued using the Black-Scholes method with
the following assumptions: a risk-free interest rate of 5%; an expiration date
of March 15, 2006; volatility of 0.72; and a dividend yield of 0%. In
connection with the issuance of the debentures and warrants, the Company
recorded $641,000 related to the beneficial conversion feature on the
convertible debentures. The total amount of the deemed discount on the
convertible debentures as a result of the warrant issuance and the beneficial conversion
feature amounts to $1,484,000. The beneficial conversion feature and warrant value will
be amortized over the term of the debentures.



|9. |  | NET LOSS PER SHARE
|-- |  | ------------------

Under SFAS No. 128, Earnings Per Share, basic and diluted loss per share
is based on net loss for the relevant period, divided by the weighted average
number of common shares outstanding during the period. Diluted earnings per
share gives effect to all potential dilutive common shares outstanding during
the period such as options, warrants, convertible preferred stock, and
contingently issuable shares. Diluted net loss per share 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 September 30, 2002, shares used in
calculating diluted earnings per share would have included the dilutive effect
of an additional 7,975,308 stock options, 2,155,715 convertible preferred
shares, 2,531,646 shares issuable upon conversion of debentures (if
dilutive), placement unit
options for 986,898 shares and 4,851,201 warrants.



|10. |  | STOCK OPTIONS AND WARRANTS
|--- |  | --------------------------

As permitted by Statement of Financial Accounting Standards No. 123,
Accounting for Stock-Based Compensation (SFAS 123), the Company has elected
to account for stock options and purchase rights granted to employees using the
intrinsic value method and, accordingly, does not recognize compensation
expense for options and purchase rights granted to employees with exercise
prices which are not less than the fair value of the underlying common stock.

For equity awards to non-employees, including lenders and lessors, the
Company applies the Black-Scholes method to determine the fair value of such
instruments. The options and warrants granted to non-employees are re-measured
as they vest and the resulting value is recognized as expense over the period
of services received or the term of the related financing.



|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 39% of
the Companys outstanding stock as of September 30, 2002. On June 27, 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. 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 September 30, 2002 was $183,000 and is included in Net Product Sales.
Included in Accounts Payable is $87,000 for amounts owed to VSL. An access fee
to VSL is calculated quarterly, which varies based upon sales and costs
incurred by the Company. The access fee for the quarter ended September 30,
2002 is estimated to be $27,000 and is included in Sales and Marketing expense.
Additionally, under these agreements, VSL has paid the Company $200,000 in
exchange for services provided by the Company to launch the VSL#3 product.
This $200,000 payment is being recognized over a one-year period (the deemed
benefit period related to the launch of the product) and is included in
Services revenue from a related party on the Statements of Operations. The
term of the agreement is three years, however, VSL is entitled to unilaterally
terminate the agreement by providing written notice to the Company after the
one-year anniversary of the effective date. The VSL#3 product was formally
launched on May 23, 2002.

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 has paid Glenridge $353,000 in
2002 related to royalties on Acthar® sales. The Company has accrued $90,000 for
royalties earned in the quarter ended September 30, 2002, which is included in
Other Accrued Liabilities on the Balance Sheet.

9



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|12. |  | COMPREHENSIVE LOSS
|--- |  | ------------------

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

|                                  |  |                                  |      |                                 |  |      |        |      |  |   |        |   |  |   |        |  
|--------------------------------- |  | -------------------------------- | ---- | ------------------------------- |  | ---- | ------ | ---- |  | - | ------ | - |  | - | ------ | -
|                                  |  | Three Months Ended September 30, |      | Nine Months Ended September 30,
|                                  |  |                                  |      |                                
|                                  |  | 2002                             |      | 2001                            |  | 2002 |        | 2001
|                                  |  |                                  |      |                                 |  |      |        |     
|Net loss                          |  | $                                | (995 | )                               |  | $    | (2,261 | )    |  | $ | (2,430 | ) |  | $ | (6,131 | )
|                                 
|                                 
|                                 
|                                 
|Other comprehensive income (loss) |  |                                  | 15   |                                 |  |      | (292   | )    |  |   | 115    |   |  |   | (418   | )
|                                  |  |                                  |      |                                 |  |      |        |      |  |   |        |   |  |   |        |  
|Comprehensive loss                |  | $                                | (980 | )                               |  | $    | (2,553 | )    |  | $ | (2,315 | ) |  | $ | (6,549 | )
|                                  |  |                                  |      |                                 |  |      |        |      |  |   |        |   |  |   |        |  

10



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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 September 30, 2002, and the related condensed
consolidated statements of operations for the three-month and
nine-month periods ended September 30, 2002 and 2001, and the
condensed consolidated statements of cash flows for the nine-month
periods ended September 30, 2002 and 2001. 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, 2001, 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 12, 2002, (except for Note 1,
paragraph 4, and Note 17, as to which the date is
March 15, 2002), 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, 2001, 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
October 25, 2002

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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, 2001, 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.

Overview

We are an integrated specialty pharmaceutical company focused on the
acquisition and marketing of acute care and critical care hospital/specialty
pharmaceutical and related healthcare products. We currently market five
products in the United States: HP Acthar® Gel (Acthar), an injectable drug
that is commonly used in treating patients with infantile spasm, or West
Syndrome; 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 the kidney function 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.

We have sustained an accumulated deficit of
$76.6 million from inception through September 30, 2002. Based on our internal
forecast and projections, we believe that our cash on hand and the cash to be
generated through the expected sale of our products will be sufficient to fund
operations for the next twelve months. Results of operations may vary
significantly from quarter to quarter depending on, among other factors, the
results of our sales efforts, the availability of raw materials and finished
goods from our sole-source manufacturers, the timing of certain expenses, the
establishment of strategic alliances and corporate partnering and the receipt
of milestone payments (See Liquidity and Capital Resources).

Results of Operations

Three months ended September 30, 2002 compared to the three months ended September 30, 2001:

For the quarter ended September 30, 2002, we incurred a net loss of
$995,000 or $0.03 per share, as compared to a net loss of $2,261,000, or $0.07
per share for the quarter ended September 30, 2001, an improvement of
$1,266,000 or 56%.

For the quarter ended September 30, 2002, net product sales increased
$2,514,000 or 200% to $3,772,000 from $1,258,000 for the quarter ended
September 30, 2001. The increase in product revenues was due primarily to sales
of Acthar®, which we introduced in the third quarter of 2001, and to increased
unit sales of Ethamolin®. Effective June 24, 2002, we increased our list price
for Ethamolin and Acthar. From the date of the notification of the price
increase through June 30, 2002, we received $3,231,000 of Acthar and Ethamolin
orders of which $777,000 had shipped prior to June 30, 2002. The remaining
$2,454,000 of Acthar and Ethamolin orders were fulfilled in July 2002. We
believe that a portion of the increase in net product sales for the quarter
ended September 30, 2002, as compared to the same quarter last year, is
attributable to purchases made as a result of the notification of the price
increase.

We review external data sources to estimate customer demand for our
products. In the event that demand for our products is less than our sales to
wholesalers, excess inventory may result at the wholesaler level, which may
impact future product sales. The historical usage data for Acthar is
unavailable at this time, and therefore its difficult to estimate the
amount
of inventory at the wholesaler level. If the supply of Acthar
currently available exceeds the future demand, our future revenues
from the sales of Acthar may be affected adversely. Based upon a review of the historical usage
data for Ethamolin and the higher than anticipated purchases of Ethamolin that
occurred as a result of the price increase, we believe the current supply of
Ethamolin in the wholesale channel exceeds normal inventory levels. It is difficult to accurately measure
the amount of inventory that exists at any point in time at the wholesaler
level. It is also difficult to accurately forecast our customers future
demand. We believe, however, as a result of Ethamolin supply in the
wholesale channel, our revenues from sales of Ethamolin may be
adversely impacted in the near term. Beginning in March of 2002, the remaining on hand inventory of
Inulin failed to meet certain specifications under Food and Drug
Administration (FDA) regulations and as such
we were unable to ship Inulin to our customers. Included in
Inventories at September 30, 2002, is Inulin active
pharmaceutical ingredient (API), which we are waiting for
FDA approval to use in the production of the final product. Unless we
are able to obtain approval on this API of Inulin in a timely fashion, it will be unlikely that we will be able
to sell Inulin in the future.

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Contract research and grant revenue decreased to $17,000 for the quarter
ended September 30, 2002 from $59,000 for the quarter ended September 30, 2001.
This decrease was partly a result of us receiving less reimbursement from the
Small Business Innovation Research (SBIR) grant due to a decrease in activity
with our GERI compound research projects in the quarter ended September 30,
2002. Additionally, for the quarter ended September 30, 2001, we recognized
contract research revenue under our June 2001 Letter of Understanding with
Fabre Kramer to jointly pursue the development and commercialization of
Hypnostat and Panistat. In June 2002, we signed a License Agreement with
Fabre-Kramer Pharmaceuticals under which Fabre-Kramer controls the development
of Hypnostat and Panistat.

Royalty revenue for the quarter ended September 30, 2002 was $9,000, as
compared to $4,000 for the quarter ended September 30, 2001. Royalty revenue
represents sales of Pramidin® in Italy, under our license agreement with
Sirton. This license agreement expired in accordance with its terms in June of
2002, and we are currently in discussions with other potential partners for
Pramidin. Royalty revenues for the quarter ended September 30, 2002 also
reflect royalties earned in connection with our license agreement with Ahn-Gook
Pharmaceutical Co., LTD, our Korean licensee for Pramidin, which is marketed as
Emitasol in Korea. Services revenue from a related party was $50,000 for the
quarter ended September 30, 2002, representing this quarters revenue resulting
from the $200,000 payment made by VSL Pharmaceuticals, Inc. (VSL) for certain
promotional activities we undertook to support the launch of VSL#3. We have a
remaining balance of $50,000 from such payment, which will be recognized as revenue ratably
through December 2002.

Total revenues for the quarter ended September 30, 2002 increased
$2,527,000 or 191% to $3,848,000 from total revenues of $1,321,000 for the
quarter ended September 30, 2001.

Cost of product sales increased to $645,000 or 75% for the quarter ended
September 30, 2002 from $369,000 for the quarter ended September 30, 2001. This
increase was a result of greater overall material costs due to the higher
product sales for the quarter. However, cost of product sales as a percentage
of net product sales decreased to 17% for the quarter ended September 30, 2002
from 29% for the quarter ended September 30, 2001, primarily due to a change in
product mix for the quarter ended September 30, 2002 as compared to the quarter
ended September 30, 2001.

Sales and marketing expenses for the quarter ended September 30, 2002 were
$1,713,000, which represents an increase of $975,000 or 132% as compared to
$738,000 for the quarter ended September 30, 2001. This increase is primarily
due to salary and other costs associated with the expansion of our sales and
marketing departments and increased marketing costs to support our newer
products, Acthar and VSL#3.

General and administrative expenses for the quarter ended September 30,
2002 were $1,206,000, which represents a decrease of $87,000 or 7%, compared to
$1,293,000 for the quarter ended September 30, 2001. The decrease is primarily
due to the legal fees incurred in the quarter ended September 20, 2001 related
to the Acthar product acquisition, which were not incurred in the current
quarter.

Research and development expenses for the quarter ended September 30, 2002
were $791,000, which represents an increase of $152,000 or 24%, as compared to
$639,000 for the quarter ended September 30, 2001. This increase is due to
costs and expenses related to the manufacturing site transfer of Acthar, offset
by decreased internal research and development activities. 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 September 30, 2002. It is anticipated that this
final lot, along with the inventory of Acthar on hand as of September 30, 2002,
will be sufficient to meet expected demand through early 2004. We have
identified a new contract manufacturer of Acthar finished product and have
begun to transfer the final fill and labeling process from Aventis to this new
manufacturer. As part of the original Asset Purchase Agreement with Aventis,
we will acquire a certain amount of the API for Acthar. This bulk product originally manufactured by Aventis will
be transferred to the new final fill manufacturer. It is anticipated that this
new contract manufacturer will complete the transfer and begin supplying
finished product using the API manufactured by Aventis to us no later than
mid-2003. We are also in the process of identifying potential new
manufacturers for the API. The manufacturing development costs incurred in the
quarter ended September 30, 2002 relate primarily to these site transfer and
validation costs. Once the site transfer to the new final fill manufacturer
and the new API manufacturer are complete and they begin to supply Acthar to
us, the cost of the product is expected to increase. On
November 4, 2002, we met with the FDA to discuss our
manufacturing transfer plan for Acthar. In connection with that meeting, the
FDA approved our Supplemental New Drug Application
filed on September 27, 2002, to extend the labeled shelf life of
Acthar from twelve months to eighteen months from the date of
manufacture.

Non-cash amortization of deemed discount on convertible debentures issued
March 15, 2002 for the quarter ended September 30, 2002 was $130,000, there was
no such expense in the prior year period.

Interest expense, net, decreased by $34,000 to $11,000 for the quarter
ended September 30, 2002 as compared to $45,000 for the quarter ended September
30, 2001.

Other expense, net, increased by $162,000 to $151,000 for the quarter
ended September 30, 2002 as compared to net other income of $11,000 for the
quarter ended September 30, 2001, primarily due to the other-than-temporary
loss taken on our

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investment in Rigel Pharmaceuticals, Inc. (Rigel), in the
current quarter. We recorded an other-than-temporary loss of $186,000 on our
Rigel equity securities investment for the quarter ended September 30, 2002.

Rental income, net, increased to $66,000 for the quarter ended September
30, 2002, from $38,000 for the quarter ended September 30, 2001, primarily due
to greater rental income in the current quarter.

Nine months ended September 30, 2002 compared to the nine months ended September 30, 2001:

During the nine months ended September 30, 2002, we incurred a net loss of
$2,430,000 or $0.06 per share, as compared to a net loss of $6,131,000 or $0.21
per share for the nine months ended September 30, 2001, an improvement of
$3,701,000 or 60%.

For the nine months ended September 30, 2002, net product sales increased
$7,955,000 or 272% to $10,885,000 from $2,930,000 for the nine months ended
September 30, 2001. The increase in product revenues was due primarily to
increased units sales of Ethamolin and Acthar, which was introduced in the
third quarter of 2001. The increase of unit sales over the prior period was
partially due to a shipment of a backorder in early 2002 and a price increase
in June 2002. During the nine months ended September 30, 2002 we shipped
backorders outstanding at December 31, 2001 amounting to $334,000 for Acthar
and $408,000 for Ethamolin. Without these backorders, product revenues would
have been $10,143,000, an increase of $7,213,000 or 246% over the nine months
ended September 30, 2001. Effective June 24, 2002, we increased our list price
for Ethamolin and Acthar. From the date of the notification of the price
increase through June 30, 2002, we received $3,231,000 of Acthar and Ethamolin
orders of which $777,000 had shipped prior to June 30, 2002. The remaining
orders of $2,454,000 were fulfilled in July 2002.

Contract research and grant revenue decreased $198,000 or 58% to $143,000
for the nine months ended September 30, 2002 from $341,000 for the nine months
ended September 30, 2001. This decrease was primarily the result of us
receiving less reimbursement under the SBIR grant due to a decrease in activity
with our GERI compound research project in the nine months ended September 30,
2002.

For the nine months ended September 30, 2002, we recognized $250,000 in
technology revenue related to the License Agreement with Fabre-Kramer. During
the nine months ended September 30, 2001, we recognized $90,000 in technology
revenue related to a payment under our license agreement with Tularik, Inc. for
the sale of our antifungal drug discovery program. Royalty revenue for the
nine months ended September 30, 2002 was $15,000, a slight increase as compared
to $9,000 for the nine months ended September 30, 2001. Royalty revenue
represents sales of Pramidin® in Italy, under our license agreement with
Sirton. This license agreement expired in accordance with its terms in June of
2002. Royalty revenues for the nine months ended September 30, 2002 also
reflect royalties earned in connection with our license agreement with
Ahn-Gook. Services revenue from a related party was $150,000 for the nine
months ended September 30, 2002. This amount represents the recognition of
year to date revenue resulting from the $200,000 payment made by VSL for
certain promotional activities we undertook to support the launch of VSL#3. We
have a remaining balance of $50,000 from such payment, which will be recognized as revenue ratably
through December 2002.

Total revenues for the nine months ended September 30, 2002 increased
$8,073,000 or 240% to $11,443,000 from total revenues of $3,370,000 for the
comparable period ended September 30, 2001.

Cost of product sales increased to $1,800,000 or 79% for the nine months
ended September 30, 2002 from $1,008,000 in the nine months ended September 30,
2001. This increase was a result of greater material costs due to higher
product sales for the current period. However, cost of product sales as a
percentage of net product sales decreased to 17% for the nine months ended
September 30, 2002 from 34% for the nine months ended September 30, 2001,
primarily due to a change in product mix.

Sales and marketing expenses for the nine months ended September 30, 2002
were $4,741,000, which represents an increase of $2,525,000 or 114% as compared
to $2,216,000 for the nine months ended September 30, 2001. However, as a
percentage of revenue, sales and marketing expenses decreased to 41% for the
nine months ended September 30, 2002 from 66% for the nine months ended
September 30, 2001. The increase in dollars is primarily due to salary and
other costs associated with the expansion of our sales and marketing
departments, and increased marketing costs to support our newer products,
Acthar and VSL#3. We had a headcount of 30 individuals to support the
commercial sales of our five products as of September 30, 2002, compared to a
headcount of 18 individuals to support three products as of September 30, 2001.

General and administrative expenses for the nine months ended September
30, 2002 were $3,953,000, which represents an increase of $893,000 or 29%,
compared to $3,060,000 in the nine months ended September 30, 2001. The
increase was primarily related to non-cash charges for stock-based compensation
of $243,000 for the nine months ended September 30, 2002 and increased
investment banking costs associated with potential product acquisitions,
financing opportunities and other general and administrative expenses.

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Research and development expenses for the nine months ended September 30,
2002 were $2,107, 000, which represents a decrease of $69,000 or 3%, as
compared to $2,176,000 for the nine months ended September 30, 2001. Since the
completion of our merger with RiboGene in 1999, we have reduced our focus on
research and development of non-marketed products and reduced our headcount
accordingly. The decrease was due to lower salary and related expenses related
to our research and development activities, offset by increased manufacturing
costs related to the Acthar site transfer. The manufacturing development
costs incurred for the nine months ended September 30, 2002, relate primarily
to site transfer and validation costs.

Non-cash amortization of deemed discount on convertible debentures for the
nine months ended September 30, 2002 was $305,000 pertaining to amortization of
the deemed discount related to the convertible debentures. There was no
similar expense in the nine months ended September 30, 2001.

Interest income (expense), net, decreased by $11,000 to $3,000 for the
nine months ended September 30, 2002 from $14,000 for the nine months ended
September 30, 2001, primarily due to a lower return on invested cash.

Other expense, net, increased by $265,000 to $261,000 for the nine months
ended September 30, 2002 from net other income of $4,000 for the nine months
ended September 30, 2001, due to the receipt of profits arising from short
swing stock trades executed by one of our 10% shareholders, offset by the
$367,000 other-than-temporary loss taken on our Rigel equity securities
investment.

Rental income, net, decreased to $212,000 for the nine months ended
September 30, 2002, from $600,000 in the comparable nine months ended September
30, 2001, due to the receipt of a sublease termination fee of $130,000 by the
former sublessor of our Carlsbad facility and a $250,000 payment receipt for
vacating our Hayward facility in May 2001.

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Liquidity and Capital Resources

We have principally funded our activities to date through various
issuances of equity securities, which, through September 30, 2002, have raised
total net proceeds of $46.2 million, and to a lesser extent through product
sales.

At September 30, 2002, we had cash, cash equivalents and short-term
investments of $9,336,000 compared to $10,571,000 at December 31, 2001
(including a compensating balance of $5,000,000). At September 30, 2002, our
working capital was $7,062,000 compared to $2,479,000 at December 31, 2001. The
increase in working capital was principally due to the issuance of $4,000,000
convertible debentures coupled with increased product sales for the period, and
the repayment of our note payable. Currently we use cash earnings/(burn) as a
measure of our performance. Cash earnings/(burn) is defined as net loss
excluding certain non-cash charges (depreciation and amortization, non-cash
amortization of deemed discount on convertible debentures, and non-cash stock
based compensation.). Our cash burn for the quarter ended September 30, 2002
was $603,000, an improvement of $1,102,000 as compared to our cash burn of
$1,705,000 for the quarter ended September 30, 2001. Our cash burn for the nine
months ended September 30, 2002 was $893,000, an improvement of $3,543,000, as
compared to our cash burn of $4,436,000 for the comparable period in 2001.

As a result of the merger with RiboGene, we assumed $5 million of
long-term debt financing with a bank. The note required us to make monthly
interest payments, at prime plus 1% (5.75% at December 31, 2001), with the
principal payment due at the end of the three-year term (December 2001). The
note had a 90-day extension period, and the notes term was extended to March
2002. We paid the note in full on January 18, 2002.

In January 2002, we entered into a revolving accounts receivable line of
credit. 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. As of September 30,
2002, we had no borrowings under this line of credit.

We lease four buildings with lease terms expiring between 2004 and 2012.
Annual rent payments for all of our facilities in 2002 are estimated to be
$1,449,000. We utilize the Union City facility as our headquarters and the
Carlsbad facility as our warehousing and distribution center. Annual rent
payments for 2002 for these facilities total $660,000. We have subleased
laboratory space and laboratory equipment in Hayward, California for a term of
six years and anticipate that we will receive $949,000 in 2002 as sublease
income to be used to pay the annual rental expense of $651,000 in 2002. The
Lees Summit facility was closed in May 2001 and this facility is currently
available for sublease. Lease payments under the facility in Lees Summit,
Missouri will total $138,000 for 2002.

We also hold 83,333 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. As of September 30, 2002, the shares had a market value of $1.60
per share, and are classified as a security available-for-sale.

On March 15, 2002, we issued $4.0 million of 8% convertible debentures to
an institutional investor and Defiante Farmaceutica Unipessoal L.D.A.
(Defiante), a wholly-owned subsidiary of Sigma-Tau Finanzaria S.p.A
(Sigma-Tau). We will pay interest on the debentures at a rate of 8% per annum
on a quarterly basis. The debentures are convertible into shares of our common
stock at a fixed conversion price of $1.58 per share (subject to adjustment for
stock splits and reclassifications). The debentures mature on March 15, 2005.

We may redeem the debentures for cash prior to maturity after March 15,
2003, provided the average of the closing sale price of our common stock for
the twenty (20) consecutive trading days prior to the delivery of the optional
prepayment notice to the holders of the debentures is equal to or greater than
$3.16 per share, and we have satisfied certain equity conditions. At the end of
the term of the debentures, under certain circumstances we may redeem any
outstanding debentures for stock. We may redeem the institutional investors
debenture for stock at maturity, provided the total aggregate number of shares
of our common stock issued to them (including shares issuable upon conversion
of their debenture and shares issuable upon exercise of their warrant) does not
exceed 7,645,219 shares (representing 19.999% of the total number of issued and
outstanding shares of our common stock as of March 15, 2002). We may redeem
Defiantes debenture for stock at maturity, provided the market price of our
common stock at the time of redemption is greater than $1.50 per share
(representing the five day average closing sale price of our common stock
immediately prior to March 15, 2002).

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We issued warrants to the institutional investor, Defiante and the
placement agent to acquire an aggregate of 1,618,987 shares of common stock at
an exercise price of $1.70 per share. The warrants expire on March 15, 2006.
The warrants issued to the institutional investor and Defiante were assigned a
value of $843,000. The warrants issued to the placement agent were assigned a
value of $82,000. The warrants were valued using the Black-Scholes method with
the following assumptions: a risk-free interest rate of 5%; an expiration date
of March 15, 2006; volatility of 0.72; and a dividend yield of 0%. In
connection with the issuance of the debentures and warrants, we recorded
$641,000 related to the beneficial conversion feature on the convertible
debentures. The total amount of the deemed discount on the convertible
debentures as a result of the warrant issuance and the beneficial conversion
feature amounts to $1,484,000. The beneficial conversion feature and warrant
value will be amortized over the term of the debentures.

Based on our internal forecast and projections, we believe that our cash
on hand and the cash to be generated through the expected sale of our products
will be sufficient to fund operations for at least the next twelve months. Our future
funding requirements will depend on many factors, including: the timing and
extent of product sales, our ability to receive product timely from our
contract manufacturers, any expansion or acceleration of our development
programs; the acquisition and licensing of products, technologies or compounds,
if any; the results of preclinical studies and clinical trials conducted by our
collaborative partners or licensees, if any; our ability to manage growth;
competing technological and market developments; costs 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; and
other factors.

We may seek additional funds through public or private equity financings
or from other sources. Should this occur, there can be no assurance that
additional funds can be obtained on desirable terms or at all. We may seek to
raise additional capital at any time, even if we do not have an immediate need
for additional cash at that time.

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ITEM 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our exposure to market risk at September 30, 2002 has not changed
materially from December 31, 2001, and reference is made to the more detailed
disclosures of market risk included in our Annual Report on Form 10-K for the
year ending December 31, 2001, as filed with the Securities and Exchange
Commission on March 19, 2002.




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
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.

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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

In
October 2002, we amended and restated our bylaws, adding what are
commonly referred to as advance notice provisions. These advance notice
provisions require that in order for a shareholder properly to
present at an annual meeting of shareholders (a) prospective
nominees for election to our Board of Directors or b) other
proposals or resolutions to us, the shareholder must submit a notice to our
Secretary concerning the proposed nomination or proposal at least sixty (60)
days and no more than ninety (90) days prior to the anniversary date of the
date on which we first mailed our proxy materials for our immediately preceding
annual meeting of shareholders. The notices for annual meetings and
special meetings  must set forth certain specified
information as to each person the shareholder proposes to nominate for election
or re-election as a director and each other proposal to be submitted to a vote
of the shareholders.

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ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K



| | (a) |  | Exhibits
| | --- |  | --------

|     |  |                                                 
|---- |  | ------------------------------------------------
|3.1  |  | Amended and
Restated By-laws of the Registrant  
|    
|15.1 |  | Letter regarding Unaudited Financial Information



| | (b) |  | Reports on Form 8-K
| | --- |  | -------------------

None

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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.

|                        |  |                                |  |                                                                                                                                    
|----------------------- |  | ------------------------------ |  | -----------------------------------------------------------------------------------------------------------------------------------
|                        |  | QUESTCOR PHARMACEUTICALS, INC.
|                       
|                       
|                       
|                       
|                        |  |                                |  |                                                                                                                                    
|                       
|                       
|                       
|                       
|Date: November 12, 2002 |  | By:                            |  | /s/   CHARLES J. CASAMENTO                                                                                                         
|                        |  |                                |  |                                                                                                                                    
|                        |  |                                |  | Charles J. Casamento
Chairman, President & CEO                                                                                     
|                       
|                       
|                       
|                       
|                        |  |                                |  |                                                                                                                                    
|                       
|                       
|                       
|                       
|Date: November 12, 2002 |  | By:                            |  | /s/   TIMOTHY E. MORRIS                                                                                                            
|                        |  |                                |  |                                                                                                                                    
|                        |  |                                |  | Timothy E. Morris
Vice President, Finance & Administration
And Chief Financial Officer (Principal
Financial and Accounting Officer)

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
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

21



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##### Table of Contents





| | 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: November 12, 2002 |  | Name:   Charles J. Casamento
Title:     Chairman, President and
              Chief Executive Officer

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: November 12, 2002 |  | /s/ Timothy E. Morris                                 
|                        |  |                                                       
|                        |  | Name: Timothy E. Morris
Title: Chief Financial Officer

22



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Exhibit Index

|     |  |                                                 
|---- |  | ------------------------------------------------
|3.1  |  | Amended and
Restated By-laws of the Registrant  
|    
|15.1 |  | Letter regarding Unaudited Financial Information

23