##### 









UNITED STATES SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549








Form 10-K/A





|   |  |                                                                                             
|-- |  | --------------------------------------------------------------------------------------------
|þ  |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934    
|   |  | For the Fiscal Year ended December 31, 2004                                                 
|or
|o  |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934

Commission file number 001-14758


Questcor Pharmaceuticals, Inc.


(Exact name of registrant as specified in its charter)


|                                                                                     |  |                                         
|------------------------------------------------------------------------------------ |  | ----------------------------------------
|California                                                                           |  | 33-0476164                              
|(State or other jurisdiction
    of incorporation or organization)                   |  | (I.R.S. Employer
    Identification No.)
|                                                                                    
|3260 Whipple Road
    Union City, California(Address of principal executive offices) |  | 94587(Zip Code)                         

Registrants telephone number, including area code:


(510) 400-0700


Securities registered pursuant to Section 12(b) of the
Act:


None


Securities registered pursuant to Section 12(g) of the
Act:


Common Stock, no par value


(Title of class)


þ o


o þ






o


DOCUMENTS INCORPORATED BY REFERENCE












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ANNUAL REPORT ON FORM 10-K


FOR THE FISCAL YEAR ENDED DECEMBER 31, 2004


TABLE OF CONTENTS





|           |  |                                                                                                                     |    |      |    | 
|---------- |  | ------------------------------------------------------------------------------------------------------------------- | -- | ---- | -- | 
|           |  |                                                                                                                     |    | Page |   
|           |  |                                                                                                                     |    |      |   
|PART I     |  |                                                                                                                     |    |     
|Item 1.    |  | Business                                                                                                            |    |      | 2  | 
|Item 2.    |  | Properties                                                                                                          |    |      | 24 | 
|Item 3.    |  | Legal Proceedings                                                                                                   |    |      | 25 | 
|Item 4.    |  | Submission of Matters to a Vote of Security Holders                                                                 |    |      | 25 | 
|          
|PART II    |  |                                                                                                                     |    |     
|Item 5.    |  | Market for Registrants Common Equity and Related
    Shareholder Matters and Issuer Purchases of Equity Securities |    |      | 25 | 
|Item 6.    |  | Selected Consolidated Financial Data                                                                                |    |      | 26 | 
|Item 7.    |  | Managements Discussion and Analysis of Financial Condition
    and Results of Operations                           |    |      | 27 | 
|Item 7(A)  |  | Quantitative and Qualitative Disclosures about Market Risk                                                          |    |      | 50 | 
|Item 8.    |  | Financial Statements and Supplementary Data                                                                         |    |      | 51 | 
|Item 9.    |  | Changes in and Disagreements with Accountants on Accounting and
    Financial Disclosure                            |    |      | 52 | 
|Item 9(A)  |  | Controls and Procedures                                                                                             |    |      | 52 | 
|Item 9(B)  |  | Other Information                                                                                                   |    |      | 52 | 
|          
|PART III   |  |                                                                                                                     |    |     
|Item 10.   |  | Directors and Executive Officers of the Registrant                                                                  |    |      | 52 | 
|Item 11.   |  | Executive Compensation                                                                                              |    |      | 52 | 
|Item 12.   |  | Security Ownership of Certain Beneficial Owners and Management
    and Related Shareholder Matters                  |    |      | 52 | 
|Item 13.   |  | Certain Relationships and Related Transactions                                                                      |    |      | 52 | 
|Item 14.   |  | Principal Accountant Fees and Services                                                                              |    |      | 53 | 
|          
|PART IV    |  |                                                                                                                     |    |     
|Item 15.   |  | Exhibits, Financial Statement Schedules and Reports on Form 8-K                                                     |    |      | 53 | 
|Signatures |  |                                                                                                                     | 56 |     




1



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PART I







|        |         
|------- | --------
|Item 1. | Business



Overview
















tm tm


2



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tm tm tm tm




Strategy








| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Increase sales of products through targeted promotion. We seek
    to increase sales by promoting certain of our products to
    high-prescribing specialty physicians through our nationwide
    sales and marketing force. Our current target audience for
    Nascobal is gastroenterologists, bariatric surgeons and
    neurologists, and neurologists for Acthar. Product usage and
    recommendations by these specialists generally influence usage
    by primary care physicians.                                                                                                                                                                                                                                                                                                                                                                 
|
| |  | Identify and license or acquire prescription products. We seek
    to acquire the rights to pharmaceutical products that we believe
    will (i) benefit from increased marketing efforts directed
    at high-prescribing specialty physicians, (ii) leverage our
    existing sales infrastructure, and (iii) complement our
    existing products. Since our inception, we have acquired or
    licensed seven products. Products to be considered for
    acquisition would have to be complementary to our existing
    products, synergistic with promotional efforts currently being
    undertaken by our sales force, and contribute to our gross
    margin. We intend to purchase products with cash generated from
    operations, if any, from debt financings, or from capital raised
    through the sale of equity on terms acceptable to us.
|
| |  | Develop and market new or improved formulations of prescription
    products that complement our target therapeutic areas and sales
    strategy. We intend to fund development with cash generated from
    operations, if any, and corporate collaborations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

Marketed Pharmaceutical and Related Healthcare Products


®


Acthar.


3



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Nascobal.






4



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5



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Ethamolin.






tm


Glofil-125.


6



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VSL#3.




Inulin.


Drug Development






| |                 
| | ----------------
| | Intranasal Drugs



| |         
| | --------
| | Emitasol



7



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| |                       
| | ----------------------
| | Hypnostat and Panistat







| |                                               
| | ----------------------------------------------
| | Glial Excitotoxin Release Inhibitors (GERIs)



Other Strategic Alliances and Collaborations




| |                        
| | -----------------------
| | The Dainippon Agreement



8



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| |                                    
| | -----------------------------------
| | The Rigel Pharmaceuticals Agreement



Licenses and Distribution Agreements


CSC Pharmaceuticals Handels GmbH (CSC).


Laboratorios Silesia SA.


Ahn-Gook Pharmaceutical Co., Ltd. (Ahn-Gook).


9



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Manufacturing


















10



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Sales and Marketing




International Distribution Agreements




| |                             
| | ----------------------------
| | Beacon Pharmaceuticals, Ltd.





| |             
| | ------------
| | IDIS Limited



Competition




11



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Government Regulation




| |                                 
| | --------------------------------
| | Marketed Pharmaceutical Products









| |                     
| | --------------------
| | Drugs in Development



Patents and Proprietary Rights




12



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Employees






Website Address




RISK FACTORS




| |                                                                                                              
| | -------------------------------------------------------------------------------------------------------------
| | We have a history of operating losses and may never
    generate sufficient revenue to achieve profitability.



13



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| |   |                                                                                                                        
| | - | -----------------------------------------------------------------------------------------------------------------------
| |  | develop, finance and implement an effective promotional strategy
    for current products,                             
|
| |  | finance and acquire additional marketed products,                                                                      
|
| |  | finance operations with external capital until consistent
    positive cash flows are achieved,                        
|
| |  | obtain FDA approval for the Acthar API manufacturing site
    transfer and the transfer of the Acthar bioassays,       
|
| |  | continue to receive products from our sole-source contract
    manufacturers on a timely basis and at acceptable costs,
|
| |  | continue to control our operating expenses, and                                                                        
|
| |  | ensure customers compliance with our sales and exchange
    policies.                                                 





| |                                                                                                                                
| | -------------------------------------------------------------------------------------------------------------------------------
| | If our revenues from product sales decline or fail to
    grow, we may not have sufficient revenues to fund our
    operations.







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



14



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| |                                                                                                                                                                                                                                                
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If our customers do not comply with our product exchange
    policy or demand that we implement a credit memoranda return
    policy for product lots covered by our product exchange policy,
    our revenues would be significantly impacted.



15



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| |                                                                                                                                                               
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If our customers do not comply with the terms on which we
    extend them credit, our cash flows and ability to fund
    operations may be adversely impacted.





16



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| |                                                                                                                                              
| | ---------------------------------------------------------------------------------------------------------------------------------------------
| | We have little or no control over our wholesalers
    buying patterns, which may impact future revenues, exchanges and
    excess inventory.











| |                                                                                        
| | ---------------------------------------------------------------------------------------
| | Our inability to secure additional funding could lead to a
    loss of your investment.



17



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##### 









| |   |                                                                                                                                          
| | - | -----------------------------------------------------------------------------------------------------------------------------------------
| |  | existing product sales performance,                                                                                                      
|
| |  | the cost and timing of the Acthar site transfer,                                                                                         
|
| |  | achieving better operating efficiencies,                                                                                                 
|
| |  | maintaining customer compliance with our policies,                                                                                       
|
| |  | obtaining product from our sole-source contract manufacturers
    and completing the site transfer to new contract
    manufacturers, and
|
| |  | acquiring or developing additional products.                                                                                             





| |                                                                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If we are unable to contract with third party contract
    manufacturers, we may be unable to meet the demand for our
    products and lose potential revenues.











| |                                                                                                                                                                                               
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If our third party distributors are unable to distribute
    our products or the costs to distribute our products increase
    substantially, we will lose potential revenues and
    profits.



18



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| |                                                                                                                   
| | ------------------------------------------------------------------------------------------------------------------
| | The Company has experienced changes in key personnel which
    will have an uncertain impact on future operations.







| |                                                                                                                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our commercial products and our products in the
    development stage may not be accepted by the market, which may
    result in lower future revenues as well as a decline in our
    competitive positioning.







| |   |                                                                                                       
| | - | ------------------------------------------------------------------------------------------------------
| |  | The establishment and demonstration of the clinical efficacy and
    safety of the product candidates,
|
| |  | Their potential advantage over alternative treatment methods and
    competing products,              
|
| |  | Reimbursement policies of government and third party
    payers, and                                  
|
| |  | Our ability to market and promote the products effectively.                                           



19



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| |                                                                                                                                                                                                                                                                                                               
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | A large percentage of our voting stock is beneficially
    owned by a small number of stockholders, who in the future could
    attempt to take control of our management and operations or
    exercise voting power to advance their own best interests and
    not necessarily those of other stockholders.





| |                                                                                                                                                
| | -----------------------------------------------------------------------------------------------------------------------------------------------
| | If competitors develop and market products that are more
    effective than ours, our commercial opportunity will be reduced
    or eliminated.











| |   |                                                                                
| | - | -------------------------------------------------------------------------------
| |  | product efficacy and safety,                                                   
|
| |  | the timing and scope of regulatory approvals,                                  
|
| |  | availability of resources,                                                     
|
| |  | price, and                                                                     
|
| |  | patent position, including potentially dominant patent positions
    of others.



20



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| |                                                                                                                                                                                                              
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If we fail to maintain or enter into new contracts related
    to collaborations and in-licensed or acquired technology and
    products, our product development and commercialization could be
    delayed.









| |                                                                                                                  
| | -----------------------------------------------------------------------------------------------------------------
| | If we are unable to protect our proprietary rights, we may
    lose our competitive position and future revenues.





| |   |                                                                          
| | - | -------------------------------------------------------------------------
| |  | obtain patents for our products and technologies,                        
|
| |  | protect trade secrets,                                                   
|
| |  | operate without infringing upon the proprietary rights of
    others, and
|
| |  | prevent others from infringing on our proprietary rights.                



21



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| |                                                                                                                                                                                                                     
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Since we must obtain regulatory approval to market our
    products in the United States and in foreign jurisdictions, we
    cannot predict whether or when we will be permitted to
    commercialize our products.





| |   |                                                                                                             
| | - | ------------------------------------------------------------------------------------------------------------
| |  | stall the marketing, selling and distribution of any products
    that our corporate partners or we develop,
|
| |  | impose significant additional costs on our corporate partners
    and us,                                   
|
| |  | diminish any competitive advantages that we or our corporate
    partners may attain, and                   
|
| |  | decrease our ability to receive royalties and generate revenues
    and profits.                            



22



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| |                                                                                                                                                                                                                                                                             
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our ability to generate revenues is affected by the
    availability of reimbursement on our products, and our ability
    to generate revenues will be diminished if we fail to obtain an
    adequate level of reimbursement for our products from third
    party payors.









| |                                                                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our business is subject to changing regulation of
    corporate governance and public disclosure that has increased
    both our costs and the risk of noncompliance.



23



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| |                                                                                                        
| | -------------------------------------------------------------------------------------------------------
| | Our stock price has a history of volatility, and an
    investment in our stock could decline in value.





| |                                                                                                                                                                                                                                                
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If product liability lawsuits are successfully brought
    against us or we become subject to other forms of litigation, we
    may incur substantial liabilities and costs and may be required
    to limit commercialization of our products.








|        |           
|------- | ----------
|Item 2. | Properties



24



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|        |                  
|------- | -----------------
|Item 3. | Legal Proceedings








|        |                                                    
|------- | ---------------------------------------------------
|Item 4. | Submission of Matters to a Vote of Security Holders






PART II







|        |                                                                                                                        
|------- | -----------------------------------------------------------------------------------------------------------------------
|Item 5. | Market for Registrants Common Equity and Related
    Shareholder Matters and Issuer Purchases of Equity
    Securities





|                   |  |               |      |  |     |   |      | 
|------------------ |  | ------------- | ---- |  | --- | - | ---- | 
|                   |  | Common Stock  |     
|                   |  | Closing Price |     
|                   |  |               |     
|Quarter Ended      |  | High          |      |  | Low |  
|                   |  |               |      |  |     |  
|December 31, 2004  |  | $             | 0.57 |  |     | $ | 0.40 | 
|September 30, 2004 |  |               | 0.84 |  |     |   | 0.38 | 
|June 30, 2004      |  |               | 0.95 |  |     |   | 0.77 | 
|March 31, 2004     |  |               | 1.09 |  |     |   | 0.70 | 
|December 31, 2003  |  |               | 0.92 |  |     |   | 0.60 | 
|September 30, 2003 |  |               | 1.00 |  |     |   | 0.75 | 
|June 30, 2003      |  |               | 1.20 |  |     |   | 0.75 | 
|March 31, 2003     |  |               | 1.34 |  |     |   | 0.78 | 





25



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|        |                                     
|------- | ------------------------------------
|Item 6. | Selected Consolidated Financial Data



|                                           |                                                                                                              |                                       |   |        |      |  |   |         |   |  |      |        |   |      |   |        |   |  |   |         |  
|------------------------------------------ | ------------------------------------------------------------------------------------------------------------ | ------------------------------------- | - | ------ | ---- |  | - | ------- | - |  | ---- | ------ | - | ---- | - | ------ | - |  | - | ------- | -
|                                           |                                                                                                              | Years Ended December 31,              |  
|                                           |                                                                                                              |                                       |  
|                                           |                                                                                                              | 2004                                  |   |        | 2003 |  |   | 2002(1) |   |  | 2001 |        |   | 2000 |  
|                                           |                                                                                                              |                                       |   |        |      |  |   |         |   |  |      |        |   |      |  
|                                           |                                                                                                              | (In thousands, except per share data) |  
|Consolidated Statement of Operations Data: |                                                                                                              |                                       |   |        |      |  |   |         |   |  |      |        |   |      |   |        |   |  |   |        
|                                           | Net product sales                                                                                            |                                       | $ | 18,404 |      |  | $ | 13,655  |   |  | $    | 13,819 |   |      | $ | 5,196  |   |  | $ | 2,134   |  
|                                           | Total revenues                                                                                               |                                       |   | 18,404 |      |  |   | 14,063  |   |  |      | 14,677 |   |      |   | 5,667  |   |  |   | 3,594   |  
|                                           | Total operating costs and expenses                                                                           |                                       |   | 18,670 |      |  |   | 17,397  |   |  |      | 17,080 |   |      |   | 15,050 |   |  |   | 17,752  |  
|                                           | Loss from operations                                                                                         |                                       |   | (266   | )    |  |   | (3,334  | ) |  |      | (2,403 | ) |      |   | (9,383 | ) |  |   | (14,158 | )
|                                           | Net loss                                                                                                     |                                       |   | (832   | )    |  |   | (3,791  | ) |  |      | (2,785 | ) |      |   | (8,697 | ) |  |   | (13,762 | )
|                                           | Net loss applicable to common shareholders                                                                   |                                       |   | (1,508 | )    |  |   | (5,947  | ) |  |      | (2,785 | ) |      |   | (8,697 | ) |  |   | (13,762 | )
|                                           | Net loss per common share applicable to common
    shareholders  basic and diluted                          |                                       |   | (0.03  | )    |  |   | (0.14   | ) |  |      | (0.07  | ) |      |   | (0.28  | ) |  |   | (0.56   | )
|                                           | Shares used in computing net loss per common share applicable to
    common shareholders  basic and diluted |                                       |   | 50,844 |      |  |   | 41,884  |   |  |      | 38,407 |   |      |   | 31,425 |   |  |   | 24,722  |  

|                                 |                                                                                                                                    |                |   |         |      |  |   |         |   |  |      |         |   |      |   |         |   |  |   |         |  
|-------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------- | -------------- | - | ------- | ---- |  | - | ------- | - |  | ---- | ------- | - | ---- | - | ------- | - |  | - | ------- | -
|                                 |                                                                                                                                    | December 31,   |  
|                                 |                                                                                                                                    |                |  
|                                 |                                                                                                                                    | 2004           |   |         | 2003 |  |   | 2002    |   |  | 2001 |         |   | 2000 |  
|                                 |                                                                                                                                    |                |   |         |      |  |   |         |   |  |      |         |   |      |  
|                                 |                                                                                                                                    | (In thousands) |  
|Consolidated Balance Sheet Data: |                                                                                                                                    |                |   |         |      |  |   |         |   |  |      |         |   |      |   |         |   |  |   |        
|                                 | Cash, cash equivalents and short-term investments (includes
    $5 million compensating balance at December 31, 2001
    and 2000) |                | $ | 8,729   |      |  | $ | 3,220   |   |  | $    | 7,506   |   |      | $ | 10,571  |   |  | $ | 8,151   |  
|                                 | Working capital                                                                                                                    |                |   | 5,082   |      |  |   | 4,352   |   |  |      | 7,018   |   |      |   | 2,659   |   |  |   | 1,261   |  
|                                 | Total assets                                                                                                                       |                |   | 28,173  |      |  |   | 22,929  |   |  |      | 12,766  |   |      |   | 14,946  |   |  |   | 14,848  |  
|                                 | Long-term obligations                                                                                                              |                |   | 2,021   |      |  |   | 3,402   |   |  |      | 2,908   |   |      |   | 122     |   |  |   | 548     |  
|                                 | Preferred stock, Series A                                                                                                          |                |   | 5,081   |      |  |   | 5,081   |   |  |      | 5,081   |   |      |   | 5,081   |   |  |   | 5,081   |  
|                                 | Preferred stock, Series B                                                                                                          |                |   | 7,578   |      |  |   | 8,278   |   |  |      |        |   |      |   |        |   |  |   |        |  
|                                 | Common stock                                                                                                                       |                |   | 88,436  |      |  |   | 85,232  |   |  |      | 77,528  |   |      |   | 74,018  |   |  |   | 66,152  |  
|                                 | Accumulated deficit                                                                                                                |                |   | (84,423 | )    |  |   | (82,915 | ) |  |      | (76,968 | ) |      |   | (74,183 | ) |  |   | (65,486 | )
|                                 | Total shareholders equity (deficit)                                                                                               |                |   | 11,581  |      |  |   | 10,578  |   |  |      | 496     |   |      |   | (300    | ) |  |   | 927     |  






|    |                                                                                                                                                                                                                                                           
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Effective January 1, 2002, we adopted Statement of
    Financial Accounting Standards, or SFAS, No. 141
    Business Combinations and SFAS No. 142,
    Goodwill and Other Intangible Assets. See
    Note 1 to the Consolidated Financial Statements.

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QUARTERLY FINANCIAL INFORMATION (UNAUDITED)


|                                                                            |  |                                       |       |  |          |   |        |          |  |   |          |   |  |   |       | 
|--------------------------------------------------------------------------- |  | ------------------------------------- | ----- |  | -------- | - | ------ | -------- |  | - | -------- | - |  | - | ----- | 
|                                                                            |  | Quarter Ended                         |      
|                                                                            |  |                                       |      
|                                                                            |  | 12/31/04                              |       |  | 09/30/04 |   |        | 06/30/04 |  |   | 03/31/04 |  
|                                                                            |  |                                       |       |  |          |   |        |          |  |   |          |  
|                                                                            |  | (In thousands, except per share data) |      
|Net product sales                                                           |  | $                                     | 5,297 |  |          | $ | 3,869  |          |  | $ | 4,090    |   |  | $ | 5,148 | 
|Total revenues                                                              |  |                                       | 5,297 |  |          |   | 3,869  |          |  |   | 4,090    |   |  |   | 5,148 | 
|Cost of product sales                                                       |  |                                       | 1,070 |  |          |   | 843    |          |  |   | 961      |   |  |   | 856   | 
|Net income (loss)                                                           |  |                                       | 511   |  |          |   | (1,366 | )        |  |   | (247     | ) |  |   | 270   | 
|Net income (loss) applicable to common shareholders                         |  |                                       | 343   |  |          |   | (1,534 | )        |  |   | (415     | ) |  |   | 98    | 
|Net income (loss) per share applicable to common
    shareholders  basic   |  |                                       | 0.01  |  |          |   | (0.03  | )        |  |   | (0.01    | ) |  |   | 0.00  | 
|Net income (loss) per share applicable to common
    shareholders  diluted |  |                                       | 0.01  |  |          |   | (0.03  | )        |  |   | (0.01    | ) |  |   | 0.00  | 

|                                                                                      |  |                                       |       |  |          |   |       |          |  |   |          |   |  |   |        |  
|------------------------------------------------------------------------------------- |  | ------------------------------------- | ----- |  | -------- | - | ----- | -------- |  | - | -------- | - |  | - | ------ | -
|                                                                                      |  | Quarter Ended                         |      
|                                                                                      |  |                                       |      
|                                                                                      |  | 12/31/03                              |       |  | 09/30/03 |   |       | 06/30/03 |  |   | 03/31/03 |  
|                                                                                      |  |                                       |       |  |          |   |       |          |  |   |          |  
|                                                                                      |  | (In thousands, except per share data) |      
|Net product sales                                                                     |  | $                                     | 4,470 |  |          | $ | 3,943 |          |  | $ | 2,880    |   |  | $ | 2,362  |  
|Total revenues                                                                        |  |                                       | 4,570 |  |          |   | 3,967 |          |  |   | 2,905    |   |  |   | 2,621  |  
|Cost of product sales                                                                 |  |                                       | 953   |  |          |   | 796   |          |  |   | 1,149    |   |  |   | 675    |  
|Net income (loss)                                                                     |  |                                       | 324   |  |          |   | (576  | )        |  |   | (1,769   | ) |  |   | (1,770 | )
|Net income (loss) applicable to common shareholders                                   |  |                                       | 129   |  |          |   | (776  | )        |  |   | (2,062   | ) |  |   | (3,238 | )
|Net income (loss) per share applicable to common
    shareholders  basic and diluted |  |                                       | 0.00  |  |          |   | (0.02 | )        |  |   | (0.05    | ) |  |   | (0.08  | )






|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|Item 7. | Managements Discussion and Analysis of Financial
    Condition and Results of Operations







| |   |                                                                                                                                                                                                                                                                                                              
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | H.P. Acthar® Gel (Acthar), an injectable drug
    that is approved for the treatment of certain CNS disorders with
    an inflammatory component, including the treatment of flares
    associated with multiple sclerosis (MS), and is also
    commonly used in treating patients with infantile spasm;
|
| |  | Nascobal®, the only prescription nasal gel used for the
    treatment of various Vitamin B-12 deficiencies, including
    Vitamin B-12 deficiencies associated with Crohns disease,
    gastric bypass surgery and MS;                                                                                      

27



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| |   |                                                                                                                                                                              
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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; and
|
| |  | Glofil®-125, an injectable agent that assesses how well the
    kidney is working by measuring glomerular filtration rate, or
    kidney function.                           









Critical Accounting Policies








| |                                             
| | --------------------------------------------
| | Sales Reserves, Product Returns, and Rebates



28



---



##### 































29



---



##### 
















|                           |                                                                   |                          |       |       |      |   |     |      |   |   |     |      |  
|-------------------------- | ----------------------------------------------------------------- | ------------------------ | ----- | ----- | ---- | - | --- | ---- | - | - | --- | ---- | -
|                           |                                                                   | Years Ended December 31, |      
|                           |                                                                   |                          |      
|                           |                                                                   | 2004                     |       |       | 2003 |   |     | 2002 |  
|                           |                                                                   |                          |       |       |      |   |     |      |  
|                           |                                                                   | (In $000s)              |      
|Balance, beginning of year |                                                                   | $                        | 158   |       |      | $ | 150 |      |   | $ | 169 |     
|                           | Actual returns in current year related to sales from prior years  |                          |       | (62   | )    |   |     | (162 | ) |   |     | (482 | )
|                           | Actual returns in current year related to sales from current year |                          |       |      |      |   |     | (18  | ) |   |     |     |  
|                           | Current provision related to sales made in prior years            |                          |       | 30    |      |   |     | 32   |   |   |     | 107  |  
|                           | Current provision related to sales made in current year           |                          |       | 1,141 |      |   |     | 156  |   |   |     | 356  |  
|                           |                                                                   |                          |       |       |      |   |     |      |  
|Balance, end of year       |                                                                   | $                        | 1,267 |       |      | $ | 158 |      |   | $ | 150 |     
|                           |                                                                   |                          |       |       |      |   |     |      |  
















30



---



##### 














| |            
| | -----------
| | Inventories










| |                  
| | -----------------
| | Intangible Assets





31



---



##### 





Results of Operations




| |                                                                              
| | -----------------------------------------------------------------------------
| | Year Ended December 31, 2004 Compared to the Year
    Ended December 31, 2003



| |               
| | --------------
| | Total Revenues

|                                             |  |              |        |             |           |   |        |            |  |   |       |   |  |  |      |   
|-------------------------------------------- |  | ------------ | ------ | ----------- | --------- | - | ------ | ---------- |  | - | ----- | - |  |  | ---- | --
|                                             |  | Years Ended  |        |             |           |   |       
|                                             |  | December 31, |        |             |           |   |       
|                                             |  |              |        |             | Increase/ |   |        |           
|                                             |  | 2004         |        |             | 2003      |   |        | (Decrease) |  |   | %     |  
|                                             |  |              |        |             |           |   |        |            |  |   |       |  
|                                             |  |              |        | (In $000s) |           |   |       
|Net product sales                            |  | $            | 18,404 |             |           | $ | 13,655 |            |  | $ | 4,749 |   |  |  | 35   | % 
|Contract research, grant and royalty revenue |  |              |       |             |           |   | 58     |            |  |   | (58   | ) |  |  | (100 | )%
|Technology revenue                           |  |              |       |             |           |   | 350    |            |  |   | (350  | ) |  |  | (100 | )%
|                                             |  |              |        |             |           |   |        |            |  |   |       |  
|Total revenues                               |  | $            | 18,404 |             |           | $ | 14,063 |            |  | $ | 4,341 |   |  |  | 31   | % 
|                                             |  |              |        |             |           |   |        |            |  |   |       |  






Net product sales by therapeutic area:








|                        |  |              |        |  |           |   |        |            |  |   |       |   |  |  |     |   
|----------------------- |  | ------------ | ------ |  | --------- | - | ------ | ---------- |  | - | ----- | - |  |  | --- | --
|                        |  | Years Ended  |        |  |           |   |       
|                        |  | December 31, |        |  |           |   |       
|                        |  |              |        |  | Increase/ |   |        |           
|                        |  | 2004         |        |  | 2003      |   |        | (Decrease) |  |   | %     |  
|                        |  |              |        |  |           |   |        |            |  |   |       |  
|                        |  | (In $000s)  |       
|Neurology               |  | $            | 8,168  |  |           | $ | 7,973  |            |  | $ | 195   |   |  |  | 2   | % 
|Gastroenterology        |  |              | 9,399  |  |           |   | 4,721  |            |  |   | 4,678 |   |  |  | 99  | % 
|Nephrology              |  |              | 837    |  |           |   | 961    |            |  |   | (124  | ) |  |  | (13 | )%
|                        |  |              |        |  |           |   |        |            |  |   |       |  
|Total net product sales |  | $            | 18,404 |  |           | $ | 13,655 |            |  | $ | 4,749 |   |  |  | 35  | % 
|                        |  |              |        |  |           |   |        |            |  |   |       |  

















| |                            
| | ---------------------------
| | Neurology Net Product Sales












32



---



##### 










































| |                                   
| | ----------------------------------
| | Gastroenterology Net Product Sales




























33



---



##### 








































| |                             
| | ----------------------------
| | Nephrology Net Product Sales












Contract Research, Grant and Royalty Revenue










Technology Revenue




Cost of Product Sales




34



---



##### 
























Selling, General and Administrative





|                                            |  |              |        |   |      |   |        |          |  |   |       |  |  |  |    |  
|------------------------------------------- |  | ------------ | ------ | - | ---- | - | ------ | -------- |  | - | ----- |  |  |  | -- | -
|                                            |  | Years Ended  |        |   |      |   |       
|                                            |  | December 31, |        |   |      |   |       
|                                            |  |              |        |   |      |   |       
|                                            |  | 2004         |        |   | 2003 |   |        | Increase |  |   | %     | 
|                                            |  |              |        |   |      |   |        |          |  |   |       | 
|                                            |  | (In $000s)  |       
|Selling, general and administrative expense |  | $            | 11,551 |   |      | $ | 10,400 |          |  | $ | 1,151 |  |  |  | 11 | %
|                                            |  |              |        |   |      |   |        |          |  |   |       | 
|Percentage of total revenue                 |  |              | 63     | % |      |   | 74     | %        |  |   |       |  |  |  |    |  



Research and Development






35



---



##### 







Depreciation and Amortization










Other Income and Expense Items


|                                                                       |  |              |      |   |           |   |      |            |  |   |      |   |  |  |      |   
|---------------------------------------------------------------------- |  | ------------ | ---- | - | --------- | - | ---- | ---------- |  | - | ---- | - |  |  | ---- | --
|                                                                       |  | Years Ended  |      |   |           |   |     
|                                                                       |  | December 31, |      |   |           |   |     
|                                                                       |  |              |      |   | Increase/ |   |      |           
|                                                                       |  | 2004         |      |   | 2003      |   |      | (Decrease) |  |   | %    |  
|                                                                       |  |              |      |   |           |   |      |            |  |   |      |  
|                                                                       |  | (In $000s)  |     
|Non-cash amortization of deemed discount on convertible
    debentures |  | $            | (522 | ) |           | $ | (522 | )          |  | $ |     |   |  |  |     |   
|Interest income                                                        |  |              | 78   |   |           |   | 229  |            |  |   | (151 | ) |  |  | (66  | )%
|Interest expense                                                       |  |              | (420 | ) |           |   | (333 | )          |  |   | 87   |   |  |  | 26   | % 
|Other income                                                           |  |              | 21   |   |           |   | 1    |            |  |   | 20   |   |  |  | 2000 | % 
|Other expense                                                          |  |              |     |   |           |   | (92  | )          |  |   | (92  | ) |  |  | (100 | )%
|Rental income, net                                                     |  |              | 277  |   |           |   | 260  |            |  |   | 17   |   |  |  | 7    | % 





36



---



##### 









Net Loss




Series B Preferred Stock Dividends






Net Loss Applicable to Common Shareholders




37



---



##### 





| |                                                                              
| | -----------------------------------------------------------------------------
| | Year Ended December 31, 2003 Compared to the Year
    Ended December 31, 2002



| |               
| | --------------
| | Total Revenues

|                                             |  |              |        |  |           |   |        |            |  |   |      |   |  |  |     |   
|-------------------------------------------- |  | ------------ | ------ |  | --------- | - | ------ | ---------- |  | - | ---- | - |  |  | --- | --
|                                             |  | Years Ended  |        |  |           |   |       
|                                             |  | December 31, |        |  |           |   |       
|                                             |  |              |        |  | Increase/ |   |        |           
|                                             |  | 2003         |        |  | 2002      |   |        | (Decrease) |  |   | %    |  
|                                             |  |              |        |  |           |   |        |            |  |   |      |  
|                                             |  | (In $000s)  |        |  |          
|Net product sales                            |  | $            | 13,655 |  |           | $ | 13,819 |            |  | $ | (164 | ) |  |  | (1  | )%
|Contract research, grant and royalty revenue |  |              | 58     |  |           |   | 208    |            |  |   | (150 | ) |  |  | (72 | )%
|Technology revenue                           |  |              | 350    |  |           |   | 450    |            |  |   | (100 | ) |  |  | (22 | )%
|Service revenue from a related party         |  |              |       |  |           |   | 200    |            |  |   | (200 | ) |  |  |    |   
|                                             |  |              |        |  |           |   |        |            |  |   |      |  
|Total revenues                               |  | $            | 14,063 |  |           | $ | 14,677 |            |  | $ | (614 | ) |  |  | (4  | )%
|                                             |  |              |        |  |           |   |        |            |  |   |      |  








| |                                       
| | --------------------------------------
| | Net product sales by therapeutic area:







|                        |  |              |        |  |           |   |        |            |  |   |        |   |  |  |     |   
|----------------------- |  | ------------ | ------ |  | --------- | - | ------ | ---------- |  | - | ------ | - |  |  | --- | --
|                        |  | Years Ended  |        |  |           |   |       
|                        |  | December 31, |        |  |           |   |       
|                        |  |              |        |  | Increase/ |   |        |           
|                        |  | 2003         |        |  | 2002      |   |        | (Decrease) |  |   | %      |  
|                        |  |              |        |  |           |   |        |            |  |   |        |  
|                        |  | (In $000s)  |        |  |          
|Neurology               |  | $            | 7,973  |  |           | $ | 9,009  |            |  | $ | (1,036 | ) |  |  | (11 | )%
|Gastroenterology        |  |              | 4,721  |  |           |   | 4,050  |            |  |   | 671    |   |  |  | 17  | % 
|Nephrology              |  |              | 961    |  |           |   | 760    |            |  |   | 201    |   |  |  | 26  | % 
|                        |  |              |        |  |           |   |        |            |  |   |        |  
|Total net product sales |  | $            | 13,655 |  |           | $ | 13,819 |            |  | $ | (164   | ) |  |  | (1  | )%
|                        |  |              |        |  |           |   |        |            |  |   |        |  

























| |                            
| | ---------------------------
| | Neurology Net Product Sales












38



---



##### 












| |                                   
| | ----------------------------------
| | Gastroenterology Net Product Sales

































| |                             
| | ----------------------------
| | Nephrology Net Product Sales




















Contract Research, Grant and Royalty Revenue




39



---



##### 





Technology Revenue and Services Revenue from a Related
Party




Cost of Product Sales










Selling, General and Administrative


|                                            |  |              |        |   |      |   |        |          |  |   |      |   |  |  |    |   
|------------------------------------------- |  | ------------ | ------ | - | ---- | - | ------ | -------- |  | - | ---- | - |  |  | -- | --
|                                            |  | Years Ended  |        |   |      |   |       
|                                            |  | December 31, |        |   |      |   |       
|                                            |  |              |        |   |      |   |       
|                                            |  | 2003         |        |   | 2002 |   |        | Decrease |  |   | %    |  
|                                            |  |              |        |   |      |   |        |          |  |   |      |  
|                                            |  | (In $000s)  |       
|Selling, general and administrative expense |  | $            | 10,400 |   |      | $ | 10,825 |          |  | $ | (425 | ) |  |  | (4 | )%
|                                            |  |              |        |   |      |   |        |          |  |   |      |  
|Percentage of total revenue                 |  |              | 74     | % |      |   | 74     | %        |  |   |      |   |  |  |    |   



Research and Development








40



---



##### 



Depreciation and Amortization




Other Income and Expense Items


|                                                                       |  |              |      |   |           |   |      |            |  |   |      |   |  |  |     |   
|---------------------------------------------------------------------- |  | ------------ | ---- | - | --------- | - | ---- | ---------- |  | - | ---- | - |  |  | --- | --
|                                                                       |  | Years Ended  |      |   |           |   |     
|                                                                       |  | December 31, |      |   |           |   |     
|                                                                       |  |              |      |   | Increase/ |   |      |           
|                                                                       |  | 2003         |      |   | 2002      |   |      | (Decrease) |  |   | %    |  
|                                                                       |  |              |      |   |           |   |      |            |  |   |      |  
|                                                                       |  | (In $000s)  |     
|Non-cash amortization of deemed discount on convertible
    debentures |  | $            | (522 | ) |           | $ | (415 | )          |  | $ | 107  |   |  |  | 26% |   
|Interest income                                                        |  |              | 229  |   |           |   | 307  |            |  |   | (78  | ) |  |  | (25 | )%
|Interest expense                                                       |  |              | (333 | ) |           |   | (315 | )          |  |   | 18   |   |  |  | 6%  |   
|Other income                                                           |  |              | 1    |   |           |   | 120  |            |  |   | (119 | ) |  |  | (99 | )%
|Other expense                                                          |  |              | (92  | ) |           |   | (361 | )          |  |   | (269 | ) |  |  | (75 | )%
|Rental income, net                                                     |  |              | 260  |   |           |   | 282  |            |  |   | (22  | ) |  |  | (8  | )%









Net Loss




41



---



##### 



Series B Preferred Stock Dividends






Net Loss Applicable to Common Stockholders




Liquidity and Capital Resources




|                                                  |                      |                    |       |       |      |   |       |         |   |   |       |        |  
|------------------------------------------------- | -------------------- | ------------------ | ----- | ----- | ---- | - | ----- | ------- | - | - | ----- | ------ | -
|                                                  |                      | As of December 31, |      
|                                                  |                      |                    |      
|Liquidity and Capital Resources                   |                      | 2004               |       |       | 2003 |   |       | 2002    |  
|                                                  |                      |                    |       |       |      |   |       |         |  
|                                                  |                      | (In $000s)        |      
|Cash, cash equivalents and short-term investments |                      | $                  | 8,729 |       |      | $ | 3,220 |         |   | $ | 7,506 |       
|Working capital                                   |                      | $                  | 5,082 |       |      | $ | 4,352 |         |   | $ | 7,018 |       
|Cash provided by/(used in):                       |                      |                    |       |       |      |   |       |         |   |   |       |       
|                                                  | Operating activities |                    | $     | 1,758 |      |   | $     | (3,346  | ) |   | $     | (1,836 | )
|                                                  | Investing activities |                    | $     | (233  | )    |   | $     | (13,273 | ) |   | $     | (1,423 | )
|                                                  | Financing activities |                    | $     | 3,984 |      |   | $     | 13,683  |   |   | $     | (768   | )





Net Cash Used In Operating Activities




42



---



##### 









Net Cash Used in Investing Activities








Net Cash Provided from Financing Activities










43



---



##### 



Cash and cash equivalents at December 31, 2004




Contractual Obligations


|                                                                        |  |                        |        |        |         |   |              |              |  |        |       |  |       |       |       |  |  |   |       | 
|----------------------------------------------------------------------- |  | ---------------------- | ------ | ------ | ------- | - | ------------ | ------------ |  | ------ | ----- |  | ----- | ----- | ----- |  |  | - | ----- | 
|                                                                        |  | Payments Due by Period |       
|                                                                        |  |                        |       
|                                                                        |  |                        |        | 1 Year |         |   | Greater Than |              |  | 4 to 5 |       |  | After |      
|                                                                        |  | Total                  |        |        | or Less |   |              | 1 to 3 Years |  |        | Years |  |       | Years |      
|                                                                        |  |                        |        |        |         |   |              |              |  |        |       |  |       |       |      
|                                                                        |  | (In thousands)         |       
|Short-term debt(1)                                                      |  | $                      | 128    |        |         | $ | 128          |              |  | $      |      |  |       | $     |      |  |  | $ |      | 
|Convertible debentures, including interest(2)                           |  |                        | 4,067  |        |         |   | 4,067        |              |  |        |      |  |       |       |      |  |  |   |      | 
|Secured promissory note, including interest(3)                          |  |                        | 2,675  |        |         |   | 426          |              |  |        | 1,687 |  |       |       | 562   |  |  |   |      | 
|Operating leases(4)                                                     |  |                        | 10,623 |        |         |   | 1,654        |              |  |        | 2,767 |  |       |       | 2,810 |  |  |   | 3,392 | 
|Contingent milestone payments for Nascobal spray(5)                     |  |                        | 4,000  |        |         |   | 2,000        |              |  |        | 2,000 |  |       |       |      |  |  |   |      | 
|Minimum payments remaining under supply agreement with
    BioVectra(6) |  |                        | 1,137  |        |         |   | 569          |              |  |        | 568   |  |       |       |      |  |  |   |      | 
|Capital leases(7)                                                       |  |                        | 56     |        |         |   | 12           |              |  |        | 24    |  |       |       | 20    |  |  |   |      | 
|Purchase orders(8)                                                      |  |                        | 42     |        |         |   | 42           |              |  |        |      |  |       |       |      |  |  |   |      | 
|                                                                        |  |                        |        |        |         |   |              |              |  |        |       |  |       |       |      
|Total contractual cash obligations                                      |  | $                      | 22,728 |        |         | $ | 8,898        |              |  | $      | 7,046 |  |       | $     | 3,392 |  |  | $ | 3,392 | 
|                                                                        |  |                        |        |        |         |   |              |              |  |        |       |  |       |       |      






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Short-term debt is principally notes payable related to our
    product liability and property and liability insurance policies
    which require monthly payments and will be paid in full during
    2005.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   
|(2) | In March 2002, we issued $4.0 million of
    8% convertible debentures to an institutional investor and
    Defiante, a wholly-owned subsidiary of Sigma-Tau. We 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). In March 2005, we entered into amendments to
    the debentures whereby the maturity date of the debentures was
    extended from March 15, 2005 to April 15, 2005. As a
    result of this extension we expect to pay an additional $27,000
    in interest which is not reflected in the table above.



| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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
    debentures for stock at maturity, provided the total aggregate
    number of shares of our common stock issued to them (including
    shares issuable upon conversion of the 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).



|    |                                                                                                                                                                                                                                                                                                                                 
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(3) | In July 2004, we issued a $2,200,000 secured promissory note to
    Defiante. The interest rate on the note is 9.83% per annum.
    Repayment of the note consists of interest only for the first
    twelve months, with monthly principal and interest payments
    thereafter through August 2008. The note is secured by the

44



---



##### 



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    | Nascobal intellectual property including the NDA for the spray
    formulation, which was approved in February 2005.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   
|(4) | We lease three buildings with lease terms expiring in 2006 to
    2012. Annual rent expense for all of our facilities, equipment
    and automobile leases in fiscal year 2004 was approximately
    $1,543,000. We lease our headquarters in Union City, California,
    with 23,000 square feet of office space under a lease
    agreement that expires in 2011. Our headquarters is currently
    occupied by our Executive, Finance and Administration, Sales and
    Marketing, Medical and Regulatory Affairs, Contract
    Manufacturing, and Quality Control and Quality Assurance
    departments. Annual rent payments for fiscal year 2005 for this
    facility are $506,000.



| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | We lease a facility of 8,203 square feet in Carlsbad,
    California under a lease that expires in January 2006. During
    fiscal year 2003, the Carlsbad facility was vacated and our
    warehousing and distribution for all products, except VSL#3,
    were outsourced to third party contractors. VSL#3 was
    distributed from our Union City facility through January 2005,
    when the VSL#3 promotion agreement expired. During 2003, we
    subleased 100% of the space under two separate subleases
    expiring in January 2006 and January 2005. The sublease expiring
    in January 2005 includes a renewal option to extend the term for
    three month periods. To date, one option period has been
    exercised and will expire April 30, 2005. We anticipate
    that we will receive $173,000 in fiscal year 2005 as sublease
    income to be used to pay the annual rent of $238,000.
|
| |  | We have subleased laboratory space in Hayward, California for a
    term of six years and anticipate that we will receive $1,095,000
    in fiscal year 2005 as sublease income to be used to pay the
    annual rental expense of $724,000. This sublease expires in July
    2006. Our facility in Lees Summit, Missouri was closed in
    May 2001 and this facility was subleased through
    December 31, 2004 when both the lease period and the
    sublease expired. Lease payments for the facility in Lees
    Summit, Missouri were $189,000 for fiscal year 2004 and we
    received $57,000 as sublease income to be used to pay the annual
    rental expense. We have also entered into various office
    equipment leases and automobile leases for our sales
    representatives, the terms of which are typically three years.                                                              



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(5) | In connection with our acquisition of Nascobal, we acquired
    rights to Nascobal nasal spray, an improved dosage form, for
    which an NDA was filed by Nastech with the FDA in December 2003.
    Upon approval of the NDA for the new Nascobal nasal spray dosage
    form by the FDA in February 2005, we made a $2.0 million
    payment for the transfer of the NDA from Nastech to us. Further,
    upon issuance of a U.S. patent for the new Nascobal nasal
    spray dosage form, which is anticipated to occur in the first
    fiscal quarter of 2006, we will be required to make a second
    $2.0 million payment. A provisional patent application for
    Nascobal nasal spray has been filed.
|   
|(6) | We have signed an agreement with BioVectra to produce the API
    used in Acthar. The agreement requires minimum production
    totaling $1.7 million during the term. During fiscal years
    2004 and 2003, we paid $468,000 and $115,000, respectively,
    under this agreement. The agreement terminates in December 2007
    and includes two one-year extension options.                                                                                                                                                                                                                                                                                                                                  
|   
|(7) | In August 2004, we entered into a capital lease for certain
    office equipment with a lease term expiring in August 2009.
    Annual lease payments under this lease are $12,000.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   
|(8) | As of December 31, 2004, we issued purchase orders totaling
    $42,000 for which the goods have not yet been received or the
    services have not yet been rendered.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           



45



---



##### 







Equity Transactions




| |                                                        
| | -------------------------------------------------------
| | Equity Transactions in Year Ended December 31,
    2002





| |                                                        
| | -------------------------------------------------------
| | Equity Transactions in Year Ended December 31,
    2003



46



---



##### 









47



---



##### 







| |                                                            
| | -----------------------------------------------------------
| | Equity Transactions in the Year Ended December 31,
    2004





| |                                                        
| | -------------------------------------------------------
| | Equity Transactions Subsequent to December 31,
    2004



American Stock Exchange Listing Standards




Cash Requirements






48



---



##### 







Income Taxes




Recently Issued Accounting Standard




49



---



##### 








|         |                                                               
|-------- | --------------------------------------------------------------
|Item 7A. | Quantitative and Qualitative Disclosures about Market
    Risk

Market Rate Risk




|                           |  |                       |       |            |          |   |       | 
|-------------------------- |  | --------------------- | ----- | ---------- | -------- | - | ----- | 
|                           |  |                       |       | Fair Value |         
|                           |  | 2004                  |       |            | 12/31/04 |  
|                           |  |                       |       |            |          |  
|                           |  | (In thousands, except |      
|                           |  | interest rates)       |      
|ASSETS                    
|Cash and cash equivalents  |  | $                     | 8,729 |            |          | $ | 8,729 | 
|Average interest rate      |  |                       | 1.09  | %          |          |   |      | 
|                          
|LIABILITIES               
|Notes payable  short-term |  | $                     | 128   |            |          | $ | 128   | 
|Average interest rate      |  |                       | 6.18  | %          |          |   |      | 
|Convertible debentures     |  | $                     | 4,000 |            |          | $ | 4,000 | 
|Average interest rate      |  |                       | 8.00  | %          |          |   |      | 
|Secured promissory note    |  | $                     | 2,200 |            |          | $ | 2,200 | 
|Average interest rate      |  |                       | 9.83  | %          |          |   |      | 
|Capital lease              |  | $                     | 42    |            |          | $ | 42    | 
|Average interest rate      |  |                       | 12.47 | %          |          |   |      | 

|                           |  |                       |       |            |          |   |       | 
|-------------------------- |  | --------------------- | ----- | ---------- | -------- | - | ----- | 
|                           |  |                       |       | Fair Value |         
|                           |  | 2003                  |       |            | 12/31/03 |  
|                           |  |                       |       |            |          |  
|                           |  | (In thousands, except |      
|                           |  | interest rates)       |      
|ASSETS                    
|Cash and cash equivalents  |  | $                     | 3,220 |            |          | $ | 3,220 | 
|Average interest rate      |  |                       | 1.13  | %          |          |   |      | 
|                          
|LIABILITIES               
|Notes payable  short-term |  | $                     | 140   |            |          | $ | 140   | 
|Average interest rate      |  |                       | 7.64  | %          |          |   |      | 
|Convertible debentures     |  | $                     | 4,000 |            |          | $ | 4,000 | 
|Average interest rate      |  |                       | 8.00  | %          |          |   |      | 

50



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##### 








|        |                                            
|------- | -------------------------------------------
|Item 8. | Financial Statements and Supplementary Data

QUESTCOR PHARMACEUTICALS, INC.


CONTENTS





|                                                        |                                                                        |      |    |    | 
|------------------------------------------------------- | ---------------------------------------------------------------------- | ---- | -- | -- | 
|                                                        |                                                                        | Page |   
|                                                        |                                                                        |      |   
|Report of Independent Registered Public Accounting Firm |                                                                        |      | 57 |   
|Audited Financial Statements                            |                                                                        |      |    |   
|                                                        | Consolidated Balance Sheets                                            |      |    | 58 | 
|                                                        | Consolidated Statements of Operations                                  |      |    | 59 | 
|                                                        | Consolidated Statement of Preferred Stock and Shareholders
    Equity |      |    | 60 | 
|                                                        | Consolidated Statements of Cash Flows                                  |      |    | 61 | 
|Notes to Consolidated Financial Statements              |                                                                        |      | 62 |   
|Financial Statement Schedules                           |                                                                        |      | 87 |   




51



---



##### 








|        |                                                                                         
|------- | ----------------------------------------------------------------------------------------
|Item 9. | Changes In and Disagreements with Accountants on
    Accounting and Financial Disclosure








|         |                        
|-------- | -----------------------
|Item 9A. | Controls and Procedures












|         |                  
|-------- | -----------------
|Item 9B. | Other Information






PART III







|         |                                                   
|-------- | --------------------------------------------------
|Item 10. | Directors and Executive Officers of the Registrant








|         |                       
|-------- | ----------------------
|Item 11. | Executive Compensation








|         |                                                                                                   
|-------- | --------------------------------------------------------------------------------------------------
|Item 12. | Security Ownership of Certain Beneficial Owners and
    Management and Related Shareholder Matters








|         |                                               
|-------- | ----------------------------------------------
|Item 13. | Certain Relationships and Related Transactions



52



---



##### 








|         |                                       
|-------- | --------------------------------------
|Item 14. | Principal Accountant Fees and Services






PART IV







|         |                                                                    
|-------- | -------------------------------------------------------------------
|Item 15. | Exhibits, Financial Statement Schedules and Reports on
    Form 8-K



Financial Statements.


|                                                                       |  |      |    | 
|---------------------------------------------------------------------- |  | ---- | -- | 
|                                                                       |  | Page |   
|                                                                       |  |      |   
|Report of Independent Registered Public Accounting Firm                |  |      | 56 | 
|Consolidated Balance Sheets                                            |  |      | 57 | 
|Consolidated Statements of Operations                                  |  |      | 58 | 
|Consolidated Statement of Preferred Stock and Shareholders
    Equity |  |      | 59 | 
|Consolidated Statements of Cash Flows                                  |  |      | 60 | 
|Notes to Financial Statements                                          |  |      | 61 | 

Financial Statement Schedules.










|         |  |                                                                                                                                                                                                                                                                                               
|-------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit  |  |                                                                                                                                                                                                                                                                                               
|Number   |  | Description                                                                                                                                                                                                                                                                                   
|         |  |                                                                                                                                                                                                                                                                                               
|2.1(1)   |  | Merger agreement entered into August 4, 1999, by and among
    Cyprus Pharmaceutical Corporation, a California corporation
    (Parent), Cyprus Acquisition Corporation, a Delaware
    corporation and a wholly owned subsidiary of Parent, and
    RiboGene, Inc., a Delaware corporation.
|        
|3.1(2)   |  | Amended and Restated Articles of Incorporation of the Company.                                                                                                                                                                                                                                
|        
|3.2(3)   |  | Certificate of Determination of Series B Convertible
    Preferred Stock of the Company.                                                                                                                                                                                                      
|        
|3.3(4)   |  | Certificate of Determination of Series C Junior
    Participating Preferred Stock of the Company.                                                                                                                                                                                             
|        
|3.4(5)   |  | Bylaws of the Company.                                                                                                                                                                                                                                                                        
|        
|4.1(6)   |  | Convertible Debenture between the Company and SF Capital
    Partners Ltd. dated March 15, 2002.                                                                                                                                                                                              
|        
|4.2(6)   |  | Convertible Debenture between the Company and Defiante
    Farmaceutica Unipessoal Lda dated March 15, 2002.                                                                                                                                                                                  
|        
|10.1(7)  |  | Forms of Incentive Stock Option and Non-statutory Stock Option.                                                                                                                                                                                                                               
|        
|10.2(8)  |  | 1992 Employee Stock Option Plan, as amended.                                                                                                                                                                                                                                                  
|        
|10.3(9)  |  | 1993 Non-employee Directors Equity Incentive Plan, as
    amended and related form of Nonstatutory Stock Option.                                                                                                                                                                             
|        
|10.5(10) |  | 2000 Employee Stock Purchase Plan.                                                                                                                                                                                                                                                            
|        
|10.6(11) |  | Asset Purchase Agreement dated July 27, 2001 between the
    Company and Aventis Pharmaceuticals Products, Inc.                                                                                                                                                                              

53



---



##### 



|          |  |                                                                                                                                                                                                             
|--------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit   |  |                                                                                                                                                                                                             
|Number    |  | Description                                                                                                                                                                                                 
|          |  |                                                                                                                                                                                                             
|         
|10.7(11)  |  | First Amendment to Asset Purchase Agreement dated
    January 29, 2002, between the Company and Aventis
    Pharmaceuticals Products, Inc.                                                                 
|         
|10.10(12) |  | Stock Purchase Agreement dated July 31, 2001 between
    Registrant and Sigma-Tau Finance Holding S.A.                                                                                                      
|         
|10.11(13) |  | Warrant dated December 1, 2001 between the Company and
    Paolo Cavazza.                                                                                                                                   
|         
|10.12(13) |  | Warrant dated December 1, 2001 between the Company and
    Claudio Cavazza.                                                                                                                                 
|         
|10.13(6)  |  | Securities Purchase Agreement between the Company and SF Capital
    Partners Ltd. dated March 15, 2002.                                                                                                    
|         
|10.14(6)  |  | Registration Rights Agreement between the Company and SF Capital
    Partners Ltd. dated March 15, 2002.                                                                                                    
|         
|10.15(6)  |  | Warrant between the Company and SF Capital Partners Ltd. dated
    March 15, 2002.                                                                                                                          
|         
|10.16(6)  |  | Securities Purchase Agreement between the Company and Defiante
    Farmaceutica Unipessoal Lda dated March 15, 2002.                                                                                        
|         
|10.17(6)  |  | Registration Rights Agreement between the Company and Defiante
    Farmaceutica Unipessoal Lda dated March 15, 2002.                                                                                        
|         
|10.18(6)  |  | Warrant between the Company and Defiante Farmaceutica Unipessoal
    Lda dated March 15, 2002.                                                                                                              
|         
|10.19(3)  |  | Form of Common Stock Purchase Warrant dated January 15,
    2003 issued by the Company to purchasers of Series B
    Convertible Preferred Stock.                                                           
|         
|10.21(4)  |  | Rights Agreement, dated as of February 11, 2003, between
    the Company and Computershare Trust Company, Inc.                                                                                              
|         
|10.22(3)  |  | Form of Subscription Agreement dated as of December 29,
    2002 by and between the Company and purchasers of Series B
    Convertible Preferred Stock and Common Stock Purchase Warrants.                  
|         
|10.28(14) |  | Letter Agreement dated September 2, 2003 between the
    Company and R. Jerald Beers.                                                                                                                       
|         
|10.29(14) |  | Amendment to Letter Agreement dated November 6, 2003
    between the Company and R. Jerald Beers.                                                                                                           
|         
|10.30(14) |  | Supply Agreement dated April 1, 2003 between the Company
    and BioVectra, dcl.                                                                                                                            
|         
|10.33(15) |  | Separation Agreement dated August 5, 2004 between the
    Company and Charles J. Casamento.                                                                                                                 
|         
|10.34(16) |  | Secured Promissory Note and Security Agreement dated
    July 31, 2004 between the Company and Defiante Farmaceutica
    Lda.                                                                               
|         
|10.35(17) |  | Letter Agreement between the Company and James L. Fares dated
    February 17, 2005.                                                                                                                        
|         
|10.36(18) |  | Amendment dated March 8, 2005 to the 8% Convertible
    Debenture dated March 15, 2002 issued by Questcor
    Pharmaceuticals, Inc. in favor of Defiante Farmaceutica Lda.                                  
|         
|10.37(18) |  | Amendment dated March 10, 2005 to the 8% Convertible
    Debenture dated March 15, 2002 issued by Questcor
    Pharmaceuticals, Inc. in favor of SF Capital Partners Ltd.                                   
|         
|10.38(19) |  | 2004 Non-Employee Directors Equity Incentive Plan.                                                                                                                                                         
|         
|10.39*    |  | Letter Agreement between the Company and Reinhard Koenig dated
    September 30, 2004.                                                                                                                      
|         
|10.40*    |  | Letter Agreement between the Company and James L. Fares dated
    February 18, 2005.                                                                                                                        
|         
|10.41*    |  | Letter Agreement between the Company and Steve Cartt dated
    March 7, 2005.                                                                                                                               
|         
|10.42*    |  | Letter Agreement between the Company and Steve Cartt dated
    March 8, 2005.                                                                                                                               
|         
|10.43*    |  | Letter Agreement between the Company and Reinhard Koenig dated
    February 3, 2004.                                                                                                                        
|         
|10.44*    |  | Letter Agreement between the Company and Barbara J. McKee dated
    February 9, 2005.                                                                                                                       
|         
|10.45*    |  | Separation Agreement and Release dated March 3, 2005
    between the Company and R. Jerald Beers.                                                                                                           
|         
|10.46*    |  | Series B Preferred Shareholder Agreement and Waiver dated
    March 29, 2005 by and between the Company and all of the
    holders of the outstanding shares of Series B Preferred
    Stock of the Company.

54



---



##### 



|        |  |                                                                                                            
|------- |  | -----------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                            
|Number  |  | Description                                                                                                
|        |  |                                                                                                            
|       
|23.1*   |  | Consent of Independent Registered Public Accounting Firm.                                                  
|       
|31*     |  | Certification pursuant to Section 302 of the Sarbanes-Oxley
    Act of 2002.                               
|       
|32*     |  | Certification pursuant to Section 906 of the Public Company
    Accounting Reform and Investor Act of 2002.






| |   |                
| | - | ---------------
| | * | Filed herewith.



|    |                                                                                                                                                                                             
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Filed as an exhibit to the Companys Annual Report on
    Form 10-K for the fiscal year ended December 31, 1999,
    and incorporated herein by reference.                                  
|   
|(2) | Filed as an exhibit to the Companys Registration Statement
    on Form S-8, Registration Statement No. 333-30558,
    filed on February 16, 2000, and incorporated herein by
    reference.
|   
|(3) | Filed as an exhibit to the Companys Current Report on
    Form 8-K filed on January 16, 2003, and incorporated
    herein by reference.                                                    
|   
|(4) | Filed as an exhibit to the Companys Current Report on
    Form 8-K filed on February 14, 2003, and incorporated
    herein by reference.                                                   
|   
|(5) | Filed as an exhibit to the Companys Quarterly Report on
    Form 10-Q for the quarter ended September 30, 2002,
    and incorporated herein by reference.                                  
|   
|(6) | Filed as an exhibit to the Companys Registration Statement
    on Form S-3, Registration No. 333-85160, filed on
    March 28, 2002, and incorporated herein by reference.                 
|   
|(7) | Filed as an exhibit to the Companys Registration Statement
    on Form S-1, Registration No. 33-51682, and
    incorporated herein by reference.                                           
|   
|(8) | Filed as an exhibit to the Companys Proxy Statement for
    the 2002 Annual Meeting of Shareholders, filed on March 28,
    2002, and incorporated herein by reference.                    
|   
|(9) | Filed as an exhibit to the Companys Registration Statement
    Form S-4, Registration Statement No. 333-87611, filed
    on September 23, 1999, and incorporated herein by reference.      



|     |                                                                                                                                                                                              
|---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(10) | Filed as an exhibit to the Companys Registration Statement
    on Form S-8, Registration Statement No. 333-46990,
    filed on September 29, 2000, and incorporated herein by
    reference.
|    
|(11) | Filed as an exhibit to the Companys Quarterly Report on
    Form 10-Q for the quarter ended June 30, 2002, and
    incorporated herein by reference.                                        
|    
|(12) | Filed as an exhibit to the Companys Quarterly Report on
    Form 10-Q for the quarter ended June 30, 2001, and
    incorporated herein by reference.                                        
|    
|(13) | Filed as an exhibit to the Companys Annual Report on
    Form 10-K for the fiscal year ended December 31, 2001,
    and incorporated herein by reference.                                   
|    
|(14) | Filed as an exhibit to the Companys Annual Report on
    Form 10-K for the fiscal year ended December 31, 2003,
    and incorporated herein by reference.                                   
|    
|(15) | Filed as an exhibit to the Companys Quarterly Report on
    Form 10-Q for the quarter ended June 30, 2004, and
    incorporated herein by reference.                                        
|    
|(16) | Filed as an exhibit to the Companys Quarterly Report on
    Form 10-Q for the quarter ended September 30, 2004,
    and incorporated herein by reference.                                   
|    
|(17) | Filed as an exhibit to the Companys Current Report on
    Form 8-K filed on February 23, 2005, and incorporated
    herein by reference.                                                    
|    
|(18) | Filed as an exhibit to the Companys Current Report on
    Form 8-K filed on March 14, 2005, and incorporated
    herein by reference.                                                       
|    
|(19) | Filed as an exhibit to the Companys Proxy Statement for
    the 2004 Annual Meeting of Stockholders, filed on March 29,
    2004, and incorporated herein by reference.                     



| |   |                                                                                               
| | - | ----------------------------------------------------------------------------------------------
| |  | The Company has requested confidential treatment with respect to
    portions of this exhibit.

55



---



##### 






SIGNATURES






| |                                      
| | -------------------------------------
| | QUESTCOR PHARMACEUTICALS, INC.       
|
| | By /s/ JAMES L. FARES                
| |                                      
| | James L. Fares                       
| | President and Chief Executive Officer




















|                                        |  |                                                                                      |  |                 |  | 
|--------------------------------------- |  | ------------------------------------------------------------------------------------ |  | --------------- |  | 
|Signature                               |  | Title                                                                                |  | Date           
|                                        |  |                                                                                      |  |                
|                                       
|/s/ JAMES L. FARESJames
    L. Fares    |  | President and Chief Executive Officer and Director
    (Principal Executive Officer) |  | August 18, 2005
|                                       
|/s/ JAMES L. FARESJames
    L. Fares    |  | Acting Chief Financial Officer
    (Principal Accounting Officer)                    |  | August 18, 2005
|                                       
|*Albert
    Hansen                      |  | Chairman                                                                             |  | August 18, 2005
|                                       
|*Neal
    C. Bradsher                   |  | Director                                                                             |  | August 18, 2005
|                                       
|*Howard
    D. Palefsky                 |  | Director                                                                             |  | August 18, 2005
|                                       
|*Jon
    S. Saxe                        |  | Director                                                                             |  | August 18, 2005
|                                       
|*Virgil
    D. Thompson                 |  | Director                                                                             |  | August 18, 2005
|                                       
|* By /s/ JAMES L. FARESAttorney-in-Fact |  |                                                                                      |  |                




56



---



##### 






REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM














| |                      
| | ---------------------
| | /s/ Ernst & Young LLP









57



---



##### 



QUESTCOR PHARMACEUTICALS, INC.





CONSOLIDATED BALANCE SHEETS


|                                                                                                                                                                                                                                                                             |                                                                                                                            |                                            |         |       |        |  |         |       |        | 
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ------- | ----- | ------ |  | ------- | ----- | ------ | 
|                                                                                                                                                                                                                                                                             |                                                                                                                            | December 31,                               |        
|                                                                                                                                                                                                                                                                             |                                                                                                                            |                                            |        
|                                                                                                                                                                                                                                                                             |                                                                                                                            | 2004                                       |         |       | 2003   | 
|                                                                                                                                                                                                                                                                             |                                                                                                                            |                                            |         |       |        | 
|                                                                                                                                                                                                                                                                             |                                                                                                                            | (In thousands, except                      |        
|                                                                                                                                                                                                                                                                             |                                                                                                                            | share amounts)                             |        
|ASSETS                                                                                                                                                                                                                                                                      
|Current assets:                                                                                                                                                                                                                                                              |                                                                                                                            |                                            |         |       |        |  |         |      
|                                                                                                                                                                                                                                                                             | Cash and cash equivalents                                                                                                  |                                            | $       | 8,729 |        |  | $       | 3,220 |       
|                                                                                                                                                                                                                                                                             | Accounts receivable, net of allowance for doubtful accounts of
    $40 and $60 at December 31, 2004 and 2003, respectively |                                            |         | 2,349 |        |  |         | 2,161 |       
|                                                                                                                                                                                                                                                                             | Inventories                                                                                                                |                                            |         | 1,769 |        |  |         | 1,050 |       
|                                                                                                                                                                                                                                                                             | Prepaid expenses and other current assets                                                                                  |                                            |         | 839   |        |  |         | 873   |       
|                                                                                                                                                                                                                                                                             |                                                                                                                            |                                            |         |       |        | 
|                                                                                                                                                                                                                                                                             |                                                                                                                            | Total current assets                       |         |       | 13,686 |  |         |       | 7,304  | 
|Property and equipment, net                                                                                                                                                                                                                                                  |                                                                                                                            |                                            | 614     |       |        |  | 609     |      
|Purchased technology, net                                                                                                                                                                                                                                                    |                                                                                                                            |                                            | 12,758  |       |        |  | 13,709  |      
|Goodwill and other indefinite-lived intangible assets                                                                                                                                                                                                                        |                                                                                                                            |                                            | 299     |       |        |  | 479     |      
|Deposits and other assets                                                                                                                                                                                                                                                    |                                                                                                                            |                                            | 816     |       |        |  | 828     |      
|                                                                                                                                                                                                                                                                             |                                                                                                                            |                                            |         |       |        | 
|                                                                                                                                                                                                                                                                             |                                                                                                                            | Total assets                               |         | $     | 28,173 |  |         | $     | 22,929 | 
|                                                                                                                                                                                                                                                                             |                                                                                                                            |                                            |         |       |        | 
|                                                                                                                                                                                                                                                                            
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                                                                                                                                                                                        
|Current liabilities:                                                                                                                                                                                                                                                         |                                                                                                                            |                                            |         |       |        |  |         |      
|                                                                                                                                                                                                                                                                             | Accounts payable                                                                                                           |                                            | $       | 1,103 |        |  | $       | 1,402 |       
|                                                                                                                                                                                                                                                                             | Accrued compensation                                                                                                       |                                            |         | 974   |        |  |         | 358   |       
|                                                                                                                                                                                                                                                                             | Sales-related reserves                                                                                                     |                                            |         | 1,683 |        |  |         | 582   |       
|                                                                                                                                                                                                                                                                             | Other accrued liabilities                                                                                                  |                                            |         | 598   |        |  |         | 470   |       
|                                                                                                                                                                                                                                                                             | Short-term debt and current portion of long-term debt and
    capital lease obligation                                     |                                            |         | 349   |        |  |         | 140   |       
|                                                                                                                                                                                                                                                                             | Convertible debentures (face amount of $4,000), net of deemed
    discount of $103                                         |                                            |         | 3,897 |        |  |         |      |       
|                                                                                                                                                                                                                                                                             |                                                                                                                            |                                            |         |       |        | 
|                                                                                                                                                                                                                                                                             |                                                                                                                            | Total current liabilities                  |         |       | 8,604  |  |         |       | 2,952  | 
|Long-term debt and long-term portion of capital lease obligation                                                                                                                                                                                                             |                                                                                                                            |                                            | 2,021   |       |        |  |        |      
|Convertible debentures, (face amount of $4,000), net of deemed
    discount of $598                                                                                                                                                                                          |                                                                                                                            |                                            |        |       |        |  | 3,402   |      
|Other non-current liabilities                                                                                                                                                                                                                                                |                                                                                                                            |                                            | 886     |       |        |  | 916     |      
|Commitments and contingencies:                                                                                                                                                                                                                                               |                                                                                                                            |                                            |         |       |        |  |         |      
|Preferred stock, no par value, 7,500,000 shares authorized;
    2,155,715 Series A shares issued and outstanding at
    December 31, 2004 and 2003 (aggregate liquidation
    preference of $10,000 at December 31, 2004 and 2003)                                           |                                                                                                                            |                                            | 5,081   |       |        |  | 5,081   |      
|Shareholders equity:                                                                                                                                                                                                                                                        |                                                                                                                            |                                            |         |       |        |  |         |      
|Preferred stock, no par value, 8,400 and 9,100 Series B
    shares issued and outstanding at December 31, 2004 and
    2003, respectively, net of issuance costs (aggregate liquidation
    preference of $8,400 and $9,100 at December 31, 2004 and
    2003, respectively) |                                                                                                                            |                                            | 7,578   |       |        |  | 8,278   |      
|Common stock, no par value, 105,000,000 shares authorized;
    51,216,488 and 45,387,802 shares issued and outstanding at
    December 31, 2004 and 2003, respectively                                                                                                       |                                                                                                                            |                                            | 88,436  |       |        |  | 85,232  |      
|Deferred compensation                                                                                                                                                                                                                                                        |                                                                                                                            |                                            | (10     | )     |        |  | (17     | )    
|Accumulated deficit                                                                                                                                                                                                                                                          |                                                                                                                            |                                            | (84,423 | )     |        |  | (82,915 | )    
|                                                                                                                                                                                                                                                                             |                                                                                                                            |                                            |         |       |        | 
|                                                                                                                                                                                                                                                                             |                                                                                                                            | Total shareholders equity                 |         |       | 11,581 |  |         |       | 10,578 | 
|                                                                                                                                                                                                                                                                             |                                                                                                                            |                                            |         |       |        | 
|                                                                                                                                                                                                                                                                             |                                                                                                                            | Total liabilities and shareholders equity |         | $     | 28,173 |  |         | $     | 22,929 | 
|                                                                                                                                                                                                                                                                             |                                                                                                                            |                                            |         |       |        | 



58



---



##### 



QUESTCOR PHARMACEUTICALS, INC.





CONSOLIDATED STATEMENTS OF OPERATIONS





|                                                                                                    |                                                                               |                                    |        |        |        |   |        |        |        |   |        |        |        | 
|--------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------- | ---------------------------------- | ------ | ------ | ------ | - | ------ | ------ | ------ | - | ------ | ------ | ------ | 
|                                                                                                    |                                                                               | Years Ended December 31,           |       
|                                                                                                    |                                                                               |                                    |       
|                                                                                                    |                                                                               | 2004                               |        |        | 2003   |   |        | 2002   |       
|                                                                                                    |                                                                               |                                    |        |        |        |   |        |        |       
|                                                                                                    |                                                                               | (In thousands, except              |       
|                                                                                                    |                                                                               | per share amounts)                 |       
|Revenues:                                                                                           |                                                                               |                                    |        |        |        |   |        |        |        |   |        |       
|                                                                                                    | Net product sales                                                             |                                    | $      | 18,404 |        |   | $      | 13,655 |        |   | $      | 13,819 |       
|                                                                                                    | Contract research, grant and royalty revenue                                  |                                    |        |       |        |   |        | 58     |        |   |        | 208    |       
|                                                                                                    | Technology revenue                                                            |                                    |        |       |        |   |        | 350    |        |   |        | 450    |       
|                                                                                                    | Services revenue from a related party                                         |                                    |        |       |        |   |        |       |        |   |        | 200    |       
|                                                                                                    |                                                                               |                                    |        |        |        |   |        |        |       
|                                                                                                    |                                                                               | Total revenues                     |        |        | 18,404 |   |        |        | 14,063 |   |        |        | 14,677 | 
|Operating costs and expenses:                                                                       |                                                                               |                                    |        |        |        |   |        |        |        |   |        |       
|                                                                                                    | Cost of product sales (exclusive of amortization of purchased
    technology) |                                    |        | 3,730  |        |   |        | 3,573  |        |   |        | 2,822  |       
|                                                                                                    | Selling, general and administrative                                           |                                    |        | 11,551 |        |   |        | 10,400 |        |   |        | 10,825 |       
|                                                                                                    | Research and development                                                      |                                    |        | 2,181  |        |   |        | 2,267  |        |   |        | 2,295  |       
|                                                                                                    | Depreciation and amortization                                                 |                                    |        | 1,208  |        |   |        | 1,157  |        |   |        | 1,138  |       
|                                                                                                    |                                                                               |                                    |        |        |        |   |        |        |       
|                                                                                                    |                                                                               | Total operating costs and expenses |        |        | 18,670 |   |        |        | 17,397 |   |        |        | 17,080 | 
|                                                                                                    |                                                                               |                                    |        |        |        |   |        |        |       
|Loss from operations                                                                                |                                                                               |                                    | (266   | )      |        |   | (3,334 | )      |        |   | (2,403 | )     
|Non-cash amortization of deemed discount on convertible
    debentures                              |                                                                               |                                    | (522   | )      |        |   | (522   | )      |        |   | (415   | )     
|Interest income                                                                                     |                                                                               |                                    | 78     |        |        |   | 229    |        |        |   | 307    |       
|Interest expense                                                                                    |                                                                               |                                    | (420   | )      |        |   | (333   | )      |        |   | (315   | )     
|Other income (expense), net                                                                         |                                                                               |                                    | 21     |        |        |   | (91    | )      |        |   | (241   | )     
|Rental income, net                                                                                  |                                                                               |                                    | 277    |        |        |   | 260    |        |        |   | 282    |       
|                                                                                                    |                                                                               |                                    |        |        |        |   |        |        |       
|Net loss                                                                                            |                                                                               |                                    | (832   | )      |        |   | (3,791 | )      |        |   | (2,785 | )     
|Non-cash deemed dividend related to beneficial conversion
    feature of Series B Preferred Stock   |                                                                               |                                    |       |        |        |   | 1,394  |        |        |   |       |       
|Dividends on Series B Preferred Stock                                                               |                                                                               |                                    | 676    |        |        |   | 762    |        |        |   |       |       
|                                                                                                    |                                                                               |                                    |        |        |        |   |        |        |       
|Net loss applicable to common shareholders                                                          |                                                                               | $                                  | (1,508 | )      |        | $ | (5,947 | )      |        | $ | (2,785 | )     
|                                                                                                    |                                                                               |                                    |        |        |        |   |        |        |       
|Basic and diluted net loss per share applicable to common
    shareholders                          |                                                                               | $                                  | (0.03  | )      |        | $ | (0.14  | )      |        | $ | (0.07  | )     
|                                                                                                    |                                                                               |                                    |        |        |        |   |        |        |       
|Shares used in computing basic and diluted net loss per share
    applicable to common shareholders |                                                                               |                                    | 50,844 |        |        |   | 41,884 |        |        |   | 38,407 |       
|                                                                                                    |                                                                               |                                    |        |        |        |   |        |        |       






59



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##### 



QUESTCOR PHARMACEUTICALS, INC.





CONSOLIDATED STATEMENTS OF PREFERRED STOCK


AND SHAREHOLDERS EQUITY


|                                                                                               |                                                                               |                               |           |          |   |              |       |          |   |             |        |               |   |               |        |         |   |             |            |         |   |   |        |     |   |   |     |   |   |   |         |        |   |   |      |      |   |   |        |        |        |  
|---------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------- | ----------------------------- | --------- | -------- | - | ------------ | ----- | -------- | - | ----------- | ------ | ------------- | - | ------------- | ------ | ------- | - | ----------- | ---------- | ------- | - | - | ------ | --- | - | - | --- | - | - | - | ------- | ------ | - | - | ---- | ---- | - | - | ------ | ------ | ------ | -
|                                                                                               |                                                                               | Preferred Stock               |           |          |   |              |       |          |   |             |        |               |   |              
|                                                                                               |                                                                               |                               |           |          |   |              |       |          |   |             |        |               |   |              
|                                                                                               |                                                                               |                               |           |          |   |              |       |          |   |             |        | Accumulated   |   |              
|                                                                                               |                                                                               | Series A                      |           | Series B |   | Common Stock |       |          |   |             |        | Other         |   | Total        
|                                                                                               |                                                                               |                               |           |          |   |              |       | Deferred |   | Accumulated |        | Comprehensive |   | Shareholders
|                                                                                               |                                                                               | Shares                        |           | Amount   |   | Shares       |       | Amount   |   | Shares      |        | Amount        |   | Compensation  |        | Deficit |   | Gain/(Loss) |            | Equity 
|                                                                                               |                                                                               |                               |           |          |   |              |       |          |   |             |        |               |   |               |        |         |   |             |            |        
|                                                                                               |                                                                               | (In thousands, except shares)
|Balances at December 31, 2001                                                                  |                                                                               |                               | 2,155,715 |          |   | $            | 5,081 |          |   |             |       |               |   |               |       |         |   |             | 37,389,603 |         |   | $ | 74,018 |     |   | $ | (20 | ) |   | $ | (74,183 | )      |   | $ | (115 | )    |   | $ | (300   | )     
|Deemed discount on convertible debentures                                                      |                                                                               |                               |          |          |   |              |      |          |   |             |       |               |   |               |       |         |   |             |           |         |   |   | 1,484  |     |   |   |    |   |   |   |        |        |   |   |     |      |   |   | 1,484  |       
|Stock compensation for options and warrants granted to
    consultants                         |                                                                               |                               |          |          |   |              |      |          |   |             |       |               |   |               |       |         |   |             |           |         |   |   | 405    |     |   |   |    |   |   |   |        |        |   |   |     |      |   |   | 405    |       
|Deferred compensation                                                                          |                                                                               |                               |          |          |   |              |      |          |   |             |       |               |   |               |       |         |   |             |           |         |   |   | 19     |     |   |   | (19 | ) |   |   |        |        |   |   |     |      |   |   |       |       
|Amortization of deferred compensation                                                          |                                                                               |                               |          |          |   |              |      |          |   |             |       |               |   |               |       |         |   |             |           |         |   |   |       |     |   |   | 17  |   |   |   |        |        |   |   |     |      |   |   | 17     |       
|Issuance of shares pursuant to employee stock purchase plan                                    |                                                                               |                               |          |          |   |              |      |          |   |             |       |               |   |               |       |         |   |             | 313,114    |         |   |   | 146    |     |   |   |    |   |   |   |        |        |   |   |     |      |   |   | 146    |       
|Issuance of common stock to investors                                                          |                                                                               |                               |          |          |   |              |      |          |   |             |       |               |   |               |       |         |   |             | 640,000    |         |   |   | 960    |     |   |   |    |   |   |   |        |        |   |   |     |      |   |   | 960    |       
|Issuance of common stock upon exercise of stock options                                        |                                                                               |                               |          |          |   |              |      |          |   |             |       |               |   |               |       |         |   |             | 355,432    |         |   |   | 414    |     |   |   |    |   |   |   |        |        |   |   |     |      |   |   | 414    |       
|Cancellation of shares                                                                         |                                                                               |                               |           |          |   |              |       |          |   |             |       |               |   |               |       |         |   |             | (21,557    | )       |   |   |       |     |   |   |    |   |   |   |        |        |   |   |      |      |   |   |        |       
|Warrant issuances associated with convertible debentures                                       |                                                                               |                               |          |          |   |              |      |          |   |             |       |               |   |               |       |         |   |             |           |         |   |   | 82     |     |   |   |    |   |   |   |        |        |   |   |     |      |   |   | 82     |       
|Comprehensive income (loss):                                                                   |                                                                               |                               |           |          |   |              |       |          |   |             |        |               |   |               |        |         |   |             |            |         |   |   |        |     |   |   |     |   |   |   |         |        |   |   |      |      |   |   |        |       
|                                                                                               | Other-than-temporary loss on investments                                      |                               |           |         |   |              |       |         |   |             |        |              |   |               |        |        |   |             |            |        |   |   |        |    |   |   |     |  |   |   |         |       |   |   |      | 367  |   |   |        | 367    |       
|                                                                                               | Net unrealized loss on investments                                            |                               |           |         |   |              |       |         |   |             |        |              |   |               |        |        |   |             |            |        |   |   |        |    |   |   |     |  |   |   |         |       |   |   |      | (294 | ) |   |        | (294   | )     
|                                                                                               | Net loss                                                                      |                               |           |         |   |              |       |         |   |             |        |              |   |               |        |        |   |             |            |        |   |   |        |    |   |   |     |  |   |   |         | (2,785 | ) |   |      |     |   |   |        | (2,785 | )     
|                                                                                               |                                                                               |                               |           |          |   |              |       |          |   |             |        |               |   |               |        |         |   |             |            |         |   |   |        |     |   |   |     |   |   |   |         |        |   |   |      |      |   |   |        |       
|                                                                                               |                                                                               | Total comprehensive loss      |           |          |  |              |       |          |  |             |        |               |  |               |        |         |  |             |            |         |  |   |        |     |  |   |     |   |  |   |         |        |  |   |      |      |  |   |        |        | (2,712 | )
|                                                                                               |                                                                               |                               |           |          |   |              |       |          |   |             |        |               |   |               |        |         |   |             |            |         |   |   |        |     |   |   |     |   |   |   |         |        |   |   |      |      |   |   |        |       
|Balances at December 31, 2002                                                                  |                                                                               |                               | 2,155,715 |          |   |              | 5,081 |          |   |             |       |               |   |               |       |         |   |             | 38,676,592 |         |   |   | 77,528 |     |   |   | (22 | ) |   |   | (76,968 | )      |   |   | (42  | )    |   |   | 496    |       
|Stock compensation for options and warrants granted to
    consultants and employees           |                                                                               |                               |          |          |   |              |      |          |   |             |       |               |   |               |       |         |   |             |           |         |   |   | 50     |     |   |   |    |   |   |   |        |        |   |   |     |      |   |   | 50     |       
|Deferred compensation                                                                          |                                                                               |                               |          |          |   |              |      |          |   |             |       |               |   |               |       |         |   |             |           |         |   |   | 15     |     |   |   | (15 | ) |   |   |        |        |   |   |     |      |   |   |       |       
|Amortization of deferred compensation                                                          |                                                                               |                               |          |          |   |              |      |          |   |             |       |               |   |               |       |         |   |             |           |         |   |   |       |     |   |   | 20  |   |   |   |        |        |   |   |     |      |   |   | 20     |       
|Issuance of shares pursuant to employee stock purchase plan                                    |                                                                               |                               |          |          |   |              |      |          |   |             |       |               |   |               |       |         |   |             | 93,123     |         |   |   | 68     |     |   |   |    |   |   |   |        |        |   |   |     |      |   |   | 68     |       
|Issuance of common stock to investors                                                          |                                                                               |                               |          |          |   |              |      |          |   |             |       |               |   |               |       |         |   |             | 4,979,360  |         |   |   | 4,826  |     |   |   |    |   |   |   |        |        |   |   |     |      |   |   | 4,826  |       
|Issuance of common stock upon cashless exercise of warrant                                     |                                                                               |                               |          |          |   |              |      |          |   |             |       |               |   |               |       |         |   |             | 387,995    |         |   |   |       |     |   |   |    |   |   |   |        |        |   |   |     |      |   |   |       |       
|Issuance of common stock upon exercise of stock options                                        |                                                                               |                               |          |          |   |              |      |          |   |             |       |               |   |               |       |         |   |             | 273,962    |         |   |   | 212    |     |   |   |    |   |   |   |        |        |   |   |     |      |   |   | 212    |       
|Issuance of Series B preferred stock, net of issuance costs                                    |                                                                               |                               |          |          |   |              |      |          |   |             | 10,000 |               |   |               | 9,404  |         |   |             |           |         |   |   |       |     |   |   |    |   |   |   |        |        |   |   |     |      |   |   | 9,404  |       
|Warrants issued on Series B preferred stock                                                    |                                                                               |                               |          |          |   |              |      |          |   |             |       |               |   |               | (1,620 | )       |   |             |           |         |   |   | 1,620  |     |   |   |    |   |   |   |        |        |   |   |     |      |   |   |       |       
|Issuance of common stock upon conversion of                                                    |                                                                               |                               |           |          |   |              |       |          |   |             |        |               |   |               |        |         |   |             |            |         |   |   |        |     |   |   |     |   |   |   |         |        |   |   |      |      |   |   |        |       
|                                                                                               | Series B preferred stock                                                      |                               |           |         |   |              |       |         |   |             |        | (900          | ) |               |        | (900    | ) |             |            | 956,225 |   |   |        | 900 |   |   |     |  |   |   |         |       |   |   |      |     |   |   |        |       |       
|Issuance of common stock upon conversion of accrued dividends
    for Series B preferred stock |                                                                               |                               |          |          |   |              |      |          |   |             |       |               |   |               |       |         |   |             | 20,545     |         |   |   | 13     |     |   |   |    |   |   |   |        |        |   |   |     |      |   |   | 13     |       
|Deemed dividends on Series B preferred stock                                                   |                                                                               |                               |          |          |   |              |      |          |   |             |       |               |   |               | 1,394  |         |   |             |           |         |   |   |       |     |   |   |    |   |   |   | (1,394  | )      |   |   |     |      |   |   |       |       
|Dividends recorded                                                                             |                                                                               |                               |          |          |   |              |      |          |   |             |       |               |   |               |       |         |   |             |           |         |   |   |       |     |   |   |    |   |   |   | (762    | )      |   |   |     |      |   |   | (762   | )     
|Comprehensive income (loss):                                                                   |                                                                               |                               |           |          |   |              |       |          |   |             |        |               |   |               |        |         |   |             |            |         |   |   |        |     |   |   |     |   |   |   |         |        |   |   |      |      |   |   |        |       
|                                                                                               | Other-than-temporary loss on investments                                      |                               |           |         |   |              |       |         |   |             |        |              |   |               |        |        |   |             |            |        |   |   |        |    |   |   |     |  |   |   |         |       |   |   |      | 51   |   |   |        | 51     |       
|                                                                                               | Reclassification of net unrealized loss on investments into
    realized loss |                               |           |         |   |              |       |         |   |             |        |              |   |               |        |        |   |             |            |        |   |   |        |    |   |   |     |  |   |   |         |       |   |   |      | (9   | ) |   |        | (9     | )     
|                                                                                               | Net loss                                                                      |                               |           |         |   |              |       |         |   |             |        |              |   |               |        |        |   |             |            |        |   |   |        |    |   |   |     |  |   |   |         | (3,791 | ) |   |      |     |   |   |        | (3,791 | )     
|                                                                                               |                                                                               |                               |           |          |   |              |       |          |   |             |        |               |   |               |        |         |   |             |            |         |   |   |        |     |   |   |     |   |   |   |         |        |   |   |      |      |   |   |        |       
|                                                                                               |                                                                               | Total comprehensive loss      |           |          |  |              |       |          |  |             |        |               |  |               |        |         |  |             |            |         |  |   |        |     |  |   |     |   |  |   |         |        |   |   |      |      |   |   |        |        | (3,749 | )
|                                                                                               |                                                                               |                               |           |          |   |              |       |          |   |             |        |               |   |               |        |         |   |             |            |         |   |   |        |     |   |   |     |   |   |   |         |        |   |   |      |      |   |   |        |       
|Balances at December 31, 2003                                                                  |                                                                               |                               | 2,155,715 |          |   |              | 5,081 |          |   |             | 9,100  |               |   |               | 8,278  |         |   |             | 45,387,802 |         |   |   | 85,232 |     |   |   | (17 | ) |   |   | (82,915 | )      |   |   |     |      |   |   | 10,578 |       
|Stock compensation for options and warrants granted to
    consultants                         |                                                                               |                               |          |          |   |              |      |          |   |             |       |               |   |               |       |         |   |             |           |         |   |   | 21     |     |   |   |    |   |   |   |        |        |   |   |     |      |   |   | 21     |       
|Stock compensation from modification of employee stock options                                 |                                                                               |                               |          |          |   |              |      |          |   |             |       |               |   |               |       |         |   |             |           |         |   |   | 9      |     |   |   |    |   |   |   |        |        |   |   |     |      |   |   | 9      |       
|Amortization of deferred compensation                                                          |                                                                               |                               |          |          |   |              |      |          |   |             |       |               |   |               |       |         |   |             |           |         |   |   |       |     |   |   | 7   |   |   |   |        |        |   |   |     |      |   |   | 7      |       
|Issuance of shares pursuant to employee stock purchase plan                                    |                                                                               |                               |          |          |   |              |      |          |   |             |       |               |   |               |       |         |   |             | 182,267    |         |   |   | 90     |     |   |   |    |   |   |   |        |        |   |   |     |      |   |   | 90     |       
|Issuance of common stock to investors, net of issuance costs                                   |                                                                               |                               |          |          |   |              |      |          |   |             |       |               |   |               |       |         |   |             | 1,000,000  |         |   |   | 610    |     |   |   |    |   |   |   |        |        |   |   |     |      |   |   | 610    |       
|Issuance of common stock upon surrender of warrants                                            |                                                                               |                               |          |          |   |              |      |          |   |             |       |               |   |               |       |         |   |             | 3,878,201  |         |   |   | 1,755  |     |   |   |    |   |   |   |        |        |   |   |     |      |   |   | 1,755  |       
|Issuance of common stock upon exercise of stock options                                        |                                                                               |                               |          |          |   |              |      |          |   |             |       |               |   |               |       |         |   |             | 20,076     |         |   |   | 15     |     |   |   |    |   |   |   |        |        |   |   |     |      |   |   | 15     |       
|Issuance of common stock upon conversion of Series B
    preferred stock                       |                                                                               |                               |          |          |   |              |      |          |   |             | (700   | )             |   |               | (700   | )       |   |             | 743,732    |         |   |   | 700    |     |   |   |    |   |   |   |        |        |   |   |     |      |   |   |       |       
|Issuance of common stock upon conversion of accrued dividends
    for Series B preferred stock |                                                                               |                               |          |          |   |              |      |          |   |             |       |               |   |               |       |         |   |             | 4,410      |         |   |   | 4      |     |   |   |    |   |   |   |        |        |   |   |     |      |   |   | 4      |       
|Dividends payable                                                                              |                                                                               |                               |          |          |   |              |      |          |   |             |       |               |   |               |       |         |   |             |           |         |   |   |       |     |   |   |    |   |   |   | (676    | )      |   |   |     |      |   |   | (676   | )     
|Net loss and comprehensive loss                                                                |                                                                               |                               |          |          |   |              |      |          |   |             |       |               |   |               |       |         |   |             |           |         |   |   |       |     |   |   |    |   |   |   | (832    | )      |   |   |     |      |   |   | (832   | )     
|                                                                                               |                                                                               |                               |           |          |   |              |       |          |   |             |        |               |   |               |        |         |   |             |            |         |   |   |        |     |   |   |     |   |   |   |         |        |   |   |      |      |   |   |        |       
|Balances at December 31, 2004                                                                  |                                                                               |                               | 2,155,715 |          |   | $            | 5,081 |          |   |             | 8,400  |               |   | $             | 7,578  |         |   |             | 51,216,488 |         |   | $ | 88,436 |     |   | $ | (10 | ) |   | $ | (84,423 | )      |   | $ |     |      |   | $ | 11,581 |       
|                                                                                               |                                                                               |                               |           |          |   |              |       |          |   |             |        |               |   |               |        |         |   |             |            |         |   |   |        |     |   |   |     |   |   |   |         |        |   |   |      |      |   |   |        |       



60



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QUESTCOR PHARMACEUTICALS, INC.





CONSOLIDATED STATEMENTS OF CASH FLOWS


|                                                                                                                       |                                                           |                          |        |       |      |   |         |       |   |   |        |       |  
|---------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------- | ------------------------ | ------ | ----- | ---- | - | ------- | ----- | - | - | ------ | ----- | -
|                                                                                                                       |                                                           | Years Ended December 31, |       
|                                                                                                                       |                                                           |                          |       
|                                                                                                                       |                                                           | 2004                     |        |       | 2003 |   |         | 2002  |  
|                                                                                                                       |                                                           |                          |        |       |      |   |         |       |  
|                                                                                                                       |                                                           | (In thousands)           |       
|Cash Flows Provided by (Used in) Operating Activities                                                                  |                                                           |                          |        |       |      |   |         |       |   |   |        |      
|Net loss                                                                                                               |                                                           | $                        | (832   | )     |      | $ | (3,791  | )     |   | $ | (2,785 | )    
|Adjustments to reconcile net loss to net cash used in operating
    activities:                                        |                                                           |                          |        |       |      |   |         |       |   |   |        |      
|                                                                                                                       | Stock-based compensation expense                          |                          |        | 30    |      |   |         | 75    |   |   |        | 381   |  
|                                                                                                                       | Amortization of deemed discount on convertible debentures |                          |        | 522   |      |   |         | 522   |   |   |        | 415   |  
|                                                                                                                       | Amortization of deferred compensation                     |                          |        | 7     |      |   |         | 20    |   |   |        | 17    |  
|                                                                                                                       | Depreciation and amortization                             |                          |        | 1,208 |      |   |         | 1,157 |   |   |        | 1,138 |  
|                                                                                                                       | Other-than-temporary loss on investment                   |                          |        |      |      |   |         | 51    |   |   |        | 367   |  
|                                                                                                                       | Loss (gain) on the sale/disposal of equipment             |                          |        |      |      |   |         | 26    |   |   |        | (37   | )
|                                                                                                                       | Loss on the sale of investment                            |                          |        |      |      |   |         | 14    |   |   |        |      |  
|                                                                                                                       | Write-off of intangible assets                            |                          |        | 180   |      |   |         |      |   |   |        |      |  
|Changes in operating assets and liabilities:                                                                           |                                                           |                          |        |       |      |   |         |       |   |   |        |      
|                                                                                                                       | Accounts receivable                                       |                          |        | (188  | )    |   |         | (571  | ) |   |        | (932  | )
|                                                                                                                       | Inventories                                               |                          |        | (719  | )    |   |         | (596  | ) |   |        | (295  | )
|                                                                                                                       | Prepaid expenses and other current assets                 |                          |        | 34    |      |   |         | 81    |   |   |        | (509  | )
|                                                                                                                       | Accounts payable                                          |                          |        | (299  | )    |   |         | 172   |   |   |        | 135   |  
|                                                                                                                       | Accrued compensation                                      |                          |        | 616   |      |   |         | (436  | ) |   |        | 219   |  
|                                                                                                                       | Sales-related reserves                                    |                          |        | 1,101 |      |   |         | 164   |   |   |        | 207   |  
|                                                                                                                       | Other accrued liabilities                                 |                          |        | 128   |      |   |         | (317  | ) |   |        | (58   | )
|                                                                                                                       | Other non-current liabilities                             |                          |        | (30   | )    |   |         | 83    |   |   |        | (99   | )
|                                                                                                                       |                                                           |                          |        |       |      |   |         |       |  
|Net cash provided by (used in) operating activities                                                                    |                                                           |                          | 1,758  |       |      |   | (3,346  | )     |   |   | (1,836 | )    
|Cash Flows Used in Investing Activities                                                                                |                                                           |                          |        |       |      |   |         |       |   |   |        |      
|Acquisition of purchased technology                                                                                    |                                                           |                          |       |       |      |   | (14,289 | )     |   |   |       |      
|Purchase of short-term investments                                                                                     |                                                           |                          | (1,000 | )     |      |   | (3,009  | )     |   |   | (1,261 | )    
|Proceeds from the sale and maturities of short-term investments                                                        |                                                           |                          | 1,000  |       |      |   | 4,337   |       |   |   |       |      
|Purchase of property, equipment and leasehold improvements                                                             |                                                           |                          | (220   | )     |      |   | (334    | )     |   |   | (355   | )    
|Proceeds from the sale of equipment                                                                                    |                                                           |                          | 2      |       |      |   | 24      |       |   |   | 51     |      
|Increase (decrease) in deposits and other assets                                                                       |                                                           |                          | (15    | )     |      |   | (2      | )     |   |   | 142    |      
|                                                                                                                       |                                                           |                          |        |       |      |   |         |       |  
|Net cash used in investing activities                                                                                  |                                                           |                          | (233   | )     |      |   | (13,273 | )     |   |   | (1,423 | )    
|Cash Flows Provided by (Used in) Financing Activities                                                                  |                                                           |                          |        |       |      |   |         |       |   |   |        |      
|Issuance of common stock and warrants, net                                                                             |                                                           |                          | 2,470  |       |      |   | 5,106   |       |   |   | 560    |      
|Issuance of preferred stock, net                                                                                       |                                                           |                          |       |       |      |   | 9,404   |       |   |   |       |      
|Payment of preferred stock dividends                                                                                   |                                                           |                          | (672   | )     |      |   | (749    | )     |   |   |       |      
|Issuance of convertible debentures                                                                                     |                                                           |                          |       |       |      |   |        |       |   |   | 4,000  |      
|Short-term borrowings                                                                                                  |                                                           |                          | 516    |       |      |   | 587     |       |   |   | 1,251  |      
|Proceeds from Sigma-Tau note                                                                                           |                                                           |                          | 2,200  |       |      |   |        |       |   |   |       |      
|Repayment of note payable to bank                                                                                      |                                                           |                          |       |       |      |   |        |       |   |   | (5,000 | )    
|Repayment of short-term and long-term debt and capital lease
    obligations                                           |                                                           |                          | (530   | )     |      |   | (665    | )     |   |   | (1,579 | )    
|                                                                                                                       |                                                           |                          |        |       |      |   |         |       |  
|Net cash provided by (used in) financing activities                                                                    |                                                           |                          | 3,984  |       |      |   | 13,683  |       |   |   | (768   | )    
|                                                                                                                       |                                                           |                          |        |       |      |   |         |       |  
|Increase (decrease) in cash and cash equivalents                                                                       |                                                           |                          | 5,509  |       |      |   | (2,936  | )     |   |   | (4,027 | )    
|Cash and cash equivalents at beginning of period                                                                       |                                                           |                          | 3,220  |       |      |   | 6,156   |       |   |   | 10,183 |      
|                                                                                                                       |                                                           |                          |        |       |      |   |         |       |  
|Cash and cash equivalents at end of period                                                                             |                                                           | $                        | 8,729  |       |      | $ | 3,220   |       |   | $ | 6,156  |      
|                                                                                                                       |                                                           |                          |        |       |      |   |         |       |  
|Supplemental Disclosures of Cash Flow Information:                                                                     |                                                           |                          |        |       |      |   |         |       |   |   |        |      
|Cash paid for interest                                                                                                 |                                                           | $                        | 420    |       |      | $ | 413     |       |   | $ | 238    |      
|                                                                                                                       |                                                           |                          |        |       |      |   |         |       |  
|Non-Cash Investing and Financing Activities:                                                                           |                                                           |                          |        |       |      |   |         |       |   |   |        |      
|Warrant issued in connection with convertible debentures                                                               |                                                           | $                        |       |       |      | $ |        |       |   | $ | 82     |      
|                                                                                                                       |                                                           |                          |        |       |      |   |         |       |  
|Common stock issued upon conversion of Series B preferred
    stock and accrued dividends for Series B preferred stock |                                                           | $                        | 704    |       |      | $ | 13      |       |   | $ |       |      
|                                                                                                                       |                                                           |                          |        |       |      |   |         |       |  
|Equipment acquired under capital lease                                                                                 |                                                           | $                        | 44     |       |      | $ |        |       |   | $ |       |      
|                                                                                                                       |                                                           |                          |        |       |      |   |         |       |  



61



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##### 



QUESTCOR PHARMACEUTICALS, INC.





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS




|   |                                                                
|-- | ---------------------------------------------------------------
|1. | Organization and Summary of Significant Accounting
    Policies



| |                                   
| | ----------------------------------
| | Organization and Business Activity









| |                                 
| | --------------------------------
| | Need to Raise Additional Capital





| |                 
| | ----------------
| | Use of Estimates





| |                                            
| | -------------------------------------------
| | Cash Equivalents and Short-Term Investments



62



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##### 



QUESTCOR PHARMACEUTICALS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






| |                      
| | ---------------------
| | Concentration of Risk



|                         |  |              |     |   |      |  |     |  
|------------------------ |  | ------------ | --- | - | ---- |  | --- | -
|                         |  | December 31, |    
|                         |  |              |    
|% of Accounts Receivable |  | 2004         |     |   | 2003 | 
|                         |  |              |     |   |      | 
|Wholesaler A             |  |              | 31  | % |      |  | 35  | %
|Wholesaler B             |  |              | 32  | % |      |  | 39  | %
|Wholesaler C             |  |              | 25  | % |      |  | 14  | %
|Other customers          |  |              | 12  | % |      |  | 12  | %
|                         |  |              |     |   |      | 
|                         |  |              | 100 | % |      |  | 100 | %
|                         |  |              |     |   |      | 

|                         |  |              |     |   |      |  |     |      |  |  |     |  
|------------------------ |  | ------------ | --- | - | ---- |  | --- | ---- |  |  | --- | -
|                         |  | Years Ended  |    
|                         |  | December 31, |    
|                         |  |              |    
|% of Gross Product Sales |  | 2004         |     |   | 2003 |  |     | 2002 | 
|                         |  |              |     |   |      |  |     |      | 
|Wholesaler A             |  |              | 29  | % |      |  | 35  | %    |  |  | 30  | %
|Wholesaler B             |  |              | 28  | % |      |  | 25  | %    |  |  | 34  | %
|Wholesaler C             |  |              | 24  | % |      |  | 18  | %    |  |  | 20  | %
|Other customers          |  |              | 19  | % |      |  | 22  | %    |  |  | 16  | %
|                         |  |              |     |   |      |  |     |      | 
|                         |  |              | 100 | % |      |  | 100 | %    |  |  | 100 | %
|                         |  |              |     |   |      |  |     |      | 





| |            
| | -----------
| | Inventories





| |                       
| | ----------------------
| | Property and Equipment



63



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##### 



QUESTCOR PHARMACEUTICALS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |                                       
| | --------------------------------------
| | Intangible and Other Long-Lived Assets









| |                                
| | -------------------------------
| | Impairment of Long-Lived Assets





| |                    
| | -------------------
| | Revenue Recognition

















64



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##### 



QUESTCOR PHARMACEUTICALS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






















| |                            
| | ---------------------------
| | Shipping and Handling Costs





| |                         
| | ------------------------
| | Research and Development





| |                                                         
| | --------------------------------------------------------
| | Net Loss Per Share Applicable to Common
    Shareholders



65



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##### 



QUESTCOR PHARMACEUTICALS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






| |                         
| | ------------------------
| | Stock-Based Compensation







|                                                                            |                                                                                                                                                |                          |        |       |      |   |        |        |   |   |        |        |  
|--------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------ | ------ | ----- | ---- | - | ------ | ------ | - | - | ------ | ------ | -
|                                                                            |                                                                                                                                                | Years Ended December 31, |       
|                                                                            |                                                                                                                                                |                          |       
|                                                                            |                                                                                                                                                | 2004                     |        |       | 2003 |   |        | 2002   |  
|                                                                            |                                                                                                                                                |                          |        |       |      |   |        |        |  
|Net loss applicable to common shareholders, as reported                     |                                                                                                                                                | $                        | (1,508 | )     |      | $ | (5,947 | )      |   | $ | (2,785 | )     
|                                                                            | Add: Stock-based employee compensation expense included in
    reported net loss                                                               |                          |        | 7     |      |   |        | 58     |   |   |        | 17     |  
|                                                                            | Add: Adjustment to stock-based employee compensation due to
    forfeitures of unvested options, primarily related to officer
    resignations |                          |        | 488   |      |   |        |       |   |   |        |       |  
|                                                                            | Deduct: Total stock-based employee compensation expense
    determined under fair value method for all awards                                  |                          |        | (720  | )    |   |        | (1,439 | ) |   |        | (1,508 | )
|                                                                            |                                                                                                                                                |                          |        |       |      |   |        |        |  
|Net loss applicable to common shareholders, pro forma                       |                                                                                                                                                | $                        | (1,733 | )     |      | $ | (7,328 | )      |   | $ | (4,276 | )     
|                                                                            |                                                                                                                                                |                          |        |       |      |   |        |        |  
|Basic and diluted net loss per share applicable to common
    shareholders: |                                                                                                                                                |                          |        |       |      |   |        |        |   |   |        |       
|                                                                            | As reported                                                                                                                                    |                          | $      | (0.03 | )    |   | $      | (0.14  | ) |   | $      | (0.07  | )
|                                                                            |                                                                                                                                                |                          |        |       |      |   |        |        |  
|                                                                            | Pro forma                                                                                                                                      |                          | $      | (0.03 | )    |   | $      | (0.17  | ) |   | $      | (0.11  | )
|                                                                            |                                                                                                                                                |                          |        |       |      |   |        |        |  

66



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##### 



QUESTCOR PHARMACEUTICALS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |                     
| | --------------------
| | Comprehensive Income





| |                    
| | -------------------
| | Segment Information














|                 |  |                          |        |  |      |   |        |      |  |   |        | 
|---------------- |  | ------------------------ | ------ |  | ---- | - | ------ | ---- |  | - | ------ | 
|                 |  | Years Ended December 31, |       
|                 |  |                          |       
|                 |  | 2004                     |        |  | 2003 |   |        | 2002 | 
|                 |  |                          |        |  |      |   |        |      | 
|                 |  | (In $000s)              |       
|Neurology        |  | $                        | 8,168  |  |      | $ | 7,973  |      |  | $ | 9,009  | 
|Gastroenterology |  |                          | 9,399  |  |      |   | 4,721  |      |  |   | 4,050  | 
|Nephrology       |  |                          | 837    |  |      |   | 961    |      |  |   | 760    | 
|                 |  |                          |        |  |      |   |        |      | 
|                 |  | $                        | 18,404 |  |      | $ | 13,655 |      |  | $ | 13,819 | 
|                 |  |                          |        |  |      |   |        |      | 






| |                                    
| | -----------------------------------
| | Recently Issued Accounting Standard



67



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##### 



QUESTCOR PHARMACEUTICALS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|   |                                         
|-- | ----------------------------------------
|2. | Development and Collaboration Agreements

tm tm tm tm








68



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##### 



QUESTCOR PHARMACEUTICALS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|   |                    
|-- | -------------------
|3. | Product Acquisition





69



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##### 



QUESTCOR PHARMACEUTICALS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|   |            
|-- | -----------
|4. | Investments



|                  |                    |                |       |       |            |   |            |   |  |   |       |       | 
|----------------- | ------------------ | -------------- | ----- | ----- | ---------- | - | ---------- | - |  | - | ----- | ----- | 
|                  |                    |                |       | Gross |            |  
|                  |                    | Gross          |       |       | Unrealized |   | Estimated  |  
|December 31, 2004 |                    | Amortized Cost |       |       | Loss       |   | Fair Value |  
|                  |                    |                |       |       |            |   |            |  
|Cash equivalents: |                    |                |       |       |            |   |            |   |  |   |       |      
|                  | Money market funds |                | $     | 5,693 |            |   | $          |  |  |   | $     | 5,693 | 
|                  | Commercial paper   |                |       | 2,245 |            |   |            |  |  |   |       | 2,245 | 
|                  |                    |                |       |       |            |   |            |   | 
|                  |                    | $              | 7,938 |       |            | $ |           |   |  | $ | 7,938 |      
|                  |                    |                |       |       |            |   |            |   | 

|                  |                    |                |   |       |            |  |            |   |  |  |   |       | 
|----------------- | ------------------ | -------------- | - | ----- | ---------- |  | ---------- | - |  |  | - | ----- | 
|                  |                    |                |   | Gross |            | 
|                  |                    | Gross          |   |       | Unrealized |  | Estimated  |  
|December 31, 2003 |                    | Amortized Cost |   |       | Loss       |  | Fair Value |  
|                  |                    |                |   |       |            |  |            |  
|Cash equivalents: |                    |                |   |       |            |  |            |   |  |  |   |      
|                  | Money market funds |                | $ | 2,301 |            |  | $          |  |  |  | $ | 2,301 | 
|                  |                    |                |   |       |            |  |            |   | 







|   |            
|-- | -----------
|5. | Inventories



|                                                   |  |              |       |   |      |   |       |  
|-------------------------------------------------- |  | ------------ | ----- | - | ---- | - | ----- | -
|                                                   |  | December 31, |      
|                                                   |  |              |      
|                                                   |  | 2004         |       |   | 2003 |  
|                                                   |  |              |       |   |      |  
|Raw materials                                      |  | $            | 1,239 |   |      | $ | 534   |  
|Work in Process                                    |  |              | 228   |   |      |   | 197   |  
|Finished goods                                     |  |              | 409   |   |      |   | 660   |  
|Less allowance for excess and obsolete inventories |  |              | (107  | ) |      |   | (341  | )
|                                                   |  |              |       |   |      |  
|                                                   |  | $            | 1,769 |   |      | $ | 1,050 |  
|                                                   |  |              |       |   |      |  



|   |                       
|-- | ----------------------
|6. | Property and Equipment



|                                               |  |              |        |   |      |   |       |  
|---------------------------------------------- |  | ------------ | ------ | - | ---- | - | ----- | -
|                                               |  | December 31, |       
|                                               |  |              |       
|                                               |  | 2004         |        |   | 2003 |  
|                                               |  |              |        |   |      |  
|Laboratory equipment                           |  | $            | 9      |   |      | $ | 9     |  
|Manufacturing equipment                        |  |              | 446    |   |      |   | 272   |  
|Office equipment, furniture and fixtures       |  |              | 886    |   |      |   | 799   |  
|Leasehold improvements                         |  |              | 329    |   |      |   | 329   |  
|                                               |  |              |        |   |      |  
|                                               |  |              | 1,670  |   |      |   | 1,409 |  
|Less accumulated depreciation and amortization |  |              | (1,056 | ) |      |   | (800  | )
|                                               |  |              |        |   |      |  
|                                               |  | $            | 614    |   |      | $ | 609   |  
|                                               |  |              |        |   |      |  

70



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##### 



QUESTCOR PHARMACEUTICALS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|   |                                                 
|-- | ------------------------------------------------
|7. | Purchased Technology and Other Intangible Assets



|                              |  |              |        |   |      |   |        |  
|----------------------------- |  | ------------ | ------ | - | ---- | - | ------ | -
|                              |  | December 31, |       
|                              |  |              |       
|                              |  | 2004         |        |   | 2003 |  
|                              |  |              |        |   |      |  
|Goodwill                      |  | $            | 1,023  |   |      | $ | 1,023  |  
|Purchased technology          |  |              | 14,223 |   |      |   | 14,223 |  
|Assembled workforce           |  |              |       |   |      |   | 616    |  
|                              |  |              |        |   |      |  
|                              |  |              | 15,246 |   |      |   | 15,862 |  
|Less accumulated amortization |  |              | (2,189 | ) |      |   | (1,674 | )
|                              |  |              |        |   |      |  
|                              |  | $            | 13,057 |   |      | $ | 14,188 |  
|                              |  |              |        |   |      |  







|   |                       
|-- | ----------------------
|8. | Convertible Debentures





71



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##### 



QUESTCOR PHARMACEUTICALS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)










|   |               
|-- | --------------
|9. | Long-Term Debt



|                                                                                                                                             |       |              |        |       |              |   |       |       | 
|-------------------------------------------------------------------------------------------------------------------------------------------- | ----- | ------------ | ------ | ----- | ------------ | - | ----- | ----- | 
|                                                                                                                                             |       | December 31, |        |       | December 31, |  
|                                                                                                                                             |       | 2004         |        |       | 2003         |  
|                                                                                                                                             |       |              |        |       |              |  
|Convertible debentures (net of deemed discount of $103 and $598
    at December 31, 2004 and 2003, respectively), bearing
    interest of 8% |       | $            | 3,897  |       |              | $ | 3,402 |      
|Secured promissory note, bearing interest of 9.83%                                                                                           |       |              | 2,200  |       |              |   |      |      
|Notes payable for product liability insurance, bearing interest
    of 5.5%                                                                  |       |              | 81     |       |              |   | 82    |      
|Notes payable for property and liability insurance, bearing
    interest of 5.5%                                                             |       |              | 47     |       |              |   | 58    |      
|                                                                                                                                             |       |              |        |       |              |  
|                                                                                                                                             |       |              | 6,225  |       |              |   | 3,542 |      
|Less current portion                                                                                                                         |       |              | (4,239 | )     |              |   | (140  | )    
|                                                                                                                                             |       |              |        |       |              |  
|                                                                                                                                             | Total |              | $      | 1,986 |              |   | $     | 3,402 | 
|                                                                                                                                             |       |              |        |       |              |  





72



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##### 



QUESTCOR PHARMACEUTICALS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|    |                                                
|--- | -----------------------------------------------
|10. | Indemnifications, Commitments and Contingencies



| |                 
| | ----------------
| | Indemnifications





| |       
| | ------
| | Leases



|                                             |  |           |        |  |          |            |            |           |  |   |                  |  |  |                |       |  |  |   |     |  
|-------------------------------------------- |  | --------- | ------ |  | -------- | ---------- | ---------- | --------- |  | - | ---------------- |  |  | -------------- | ----- |  |  | - | --- | -
|                                             |  |           |        |  |          | Automobile |            |           |  |   |                 
|                                             |  | Facility  |        |  |          |            | and Office |           |  |   |                  | 
|                                             |  | Operating |        |  | Sublease |            |            | Equipment |  |   | Operating Leases |  |  | Capital Leases |      
|Year Ending December 31,                     |  | Leases    |        |  | Income   |            |            | Leases    |  |   | Total            |  |  | Total          |      
|                                             |  |           |        |  |          |            |            |           |  |   |                  |  |  |                |      
|2005                                         |  | $         | 1,468  |  |          | $          | (1,268     | )         |  | $ | 186              |  |  | $              | 386   |  |  | $ | 12  |  
|2006                                         |  |           | 1,296  |  |          |            | (664       | )         |  |   | 106              |  |  |                | 738   |  |  |   | 12  |  
|2007                                         |  |           | 1,324  |  |          |            |           |           |  |   | 41               |  |  |                | 1,365 |  |  |   | 12  |  
|2008                                         |  |           | 1,375  |  |          |            |           |           |  |   | 6                |  |  |                | 1,381 |  |  |   | 12  |  
|2009                                         |  |           | 1,429  |  |          |            |           |           |  |   |                 |  |  |                | 1,429 |  |  |   | 8   |  
|Thereafter                                   |  |           | 3,392  |  |          |            |           |           |  |   |                 |  |  |                | 3,392 |  |  |   |    |  
|                                             |  |           |        |  |          |            |            |           |  |   |                  |  |  |                |      
|                                             |  | $         | 10,284 |  |          | $          | (1,932     | )         |  | $ | 339              |  |  | $              | 8,691 |  |  | $ | 56  |  
|                                             |  |           |        |  |          |            |            |           |  |   |                  |  |  |                |      
|Less: amounts representing interest          |  |           |        |  |          |            |            |           |  |   |                  |  |  |                |       |  |  | $ | (14 | )
|                                             |  |           |        |  |          |            |            |           |  |   |                  |  |  |                |      
|Present value of minimum lease payments      |  |           |        |  |          |            |            |           |  |   |                  |  |  |                |       |  |  |   | 42  |  
|Current portion of capital lease obligations |  |           |        |  |          |            |            |           |  |   |                  |  |  |                |       |  |  |   | 7   |  
|                                             |  |           |        |  |          |            |            |           |  |   |                  |  |  |                |      
|Long-term capital lease obligations          |  |           |        |  |          |            |            |           |  |   |                  |  |  |                |       |  |  | $ | 35  |  
|                                             |  |           |        |  |          |            |            |           |  |   |                  |  |  |                |      





73



---



##### 



QUESTCOR PHARMACEUTICALS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)














| |              
| | -------------
| | Contingencies





| |            
| | -----------
| | Commitments





|    |                                         
|--- | ----------------------------------------
|11. | Preferred Stock and Shareholders Equity



| |                
| | ---------------
| | Preferred Stock



74



---



##### 



QUESTCOR PHARMACEUTICALS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)












| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | If the Company consolidates or merges with or into another
    entity where the shareholders of the Company do not own at least
    51% of the surviving entity and such consolidation or merger is
    approved by the Companys Board of Directors;                                                                                                                                                                                                    
|
| |  | If the Company adopts any amendment to its Amended and Restated
    Articles of Incorporation which materially and adversely affects
    the rights of the holders of Series B Preferred Stock in
    respect of their interests in shares of Common Stock that can be
    acquired upon conversion of shares of Series B Preferred
    Stock in a manner different and more adverse than it affects the
    rights of holders of Common Stock generally;
|
| |  | If the Company fails to declare or pay dividends in full on the
    applicable dividend date, other than in circumstances where such
    declaration or payment would not be permitted by
    Section 500 or 501 of the California Corporations Code, or
    fails to pay certain redemption prices on any share of
    Series B Preferred Stock when due;                                                                                               

75



---



##### 



QUESTCOR PHARMACEUTICALS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |   |                                                                                                                                                                                                                                                     
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | If the Company fails to issue shares of Common Stock to any
    Series B holder upon conversion or upon exercise of
    warrants when due;                                                                                                          
|
| |  | If the Company commits certain breaches under, or otherwise
    violates certain terms of, the transaction documents entered
    into in connection with the issuance of the Series B
    Preferred Stock;                                          
|
| |  | If the Companys representations and warranties made in the
    transaction documents entered into in connection with the
    issuance of the Series B Preferred Stock are false or
    misleading in any material way when made or deemed made; and
|
| |  | If the Company institutes a voluntary bankruptcy or similar
    proceeding.                                                                                                                                                                         









76



---



##### 



QUESTCOR PHARMACEUTICALS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)








| |             
| | ------------
| | Common Stock







77



---



##### 



QUESTCOR PHARMACEUTICALS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)












| |                             
| | ----------------------------
| | Placement Agent Unit Options



78



---



##### 



QUESTCOR PHARMACEUTICALS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |         
| | --------
| | Warrants



|               |  |             |           |  |             |  |            |      |  |  |           | 
|-------------- |  | ----------- | --------- |  | ----------- |  | ---------- | ---- |  |  | --------- | 
|               |  | Number      |           |  |             |  | Expiration |     
|Exercise Price |  | Outstanding |           |  | Date Issued |  |            | Date | 
|               |  |             |           |  |             |  |            |      | 
|$ 0.64         |  |             | 176,050   |  |             |  | 4/30/2001  |      |  |  | 4/30/2006 | 
|$ 0.94         |  |             | 3,025,921 |  |             |  | 1/15/2003  |      |  |  | 1/15/2007 | 
|$ 1.26         |  |             | 475,248   |  |             |  | 6/11/2003  |      |  |  | 6/11/2008 | 
|$ 1.70         |  |             | 859,494   |  |             |  | 3/15/2002  |      |  |  | 3/15/2006 | 
|$31.51         |  |             | 2,694     |  |             |  | 3/12/1997  |      |  |  | 3/12/2007 | 
|               |  |             |           |  |             |  |            |      | 
|               |  |             | 4,539,407 |  |             |  |            |      |  |  |           | 
|               |  |             |           |  |             |  |            |      | 









| |                   
| | ------------------
| | Stock Option Plans





79



---



##### 



QUESTCOR PHARMACEUTICALS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                |  |              |     |   |      |  |     |      |  |  |     |  
|------------------------------- |  | ------------ | --- | - | ---- |  | --- | ---- |  |  | --- | -
|                                |  | Years Ended  |    
|                                |  | December 31, |    
|                                |  |              |    
|                                |  | 2004         |     |   | 2003 |  |     | 2002 | 
|                                |  |              |     |   |      |  |     |      | 
|Expected stock price volatility |  |              | 52  | % |      |  | 67  | %    |  |  | 82  | %
|Risk-free interest rate         |  |              | 3   | % |      |  | 3   | %    |  |  | 5   | %
|Expected life (in years)        |  |              | 3.8 |   |      |  | 3.9 |      |  |  | 4.0 |  
|Expected dividend yield         |  |              |    |   |      |  |    |      |  |  |    |  











80



---



##### 



QUESTCOR PHARMACEUTICALS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)












81



---



##### 



QUESTCOR PHARMACEUTICALS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                             |           |             |           |            |                  |   |      |      | 
|---------------------------- | --------- | ----------- | --------- | ---------- | ---------------- | - | ---- | ---- | 
|                             |           | Options     |           |            | Weighted Average |  
|                             |           | Outstanding |           |            | Exercise Price   |  
|                             |           |             |           |            |                  |  
|Balance at December 31, 2002 |           |             | 8,942,262 |            |                  | $ | 1.41 |     
|                             | Granted   |             |           | 2,170,555  |                  |   | $    | 0.83 | 
|                             | Exercised |             |           | (273,962   | )                |   | $    | 0.77 | 
|                             | Canceled  |             |           | (1,081,353 | )                |   | $    | 1.67 | 
|                             |           |             |           |            |                  |  
|Balance at December 31, 2003 |           |             | 9,757,502 |            |                  | $ | 1.27 |     
|                             | Granted   |             |           | 1,388,240  |                  |   | $    | 0.66 | 
|                             | Exercised |             |           | (20,076    | )                |   | $    | 0.82 | 
|                             | Canceled  |             |           | (5,440,207 | )                |   | $    | 1.36 | 
|                             |           |             |           |            |                  |  
|Balance at December 31, 2004 |           |             | 5,685,459 |            |                  | $ | 1.03 |     
|                             |           |             |           |            |                  |  







|                        |  |                     |           |                  |                     |  |      |                  |  |   |             |  |  |                  |           |  |  |   |      | 
|----------------------- |  | ------------------- | --------- | ---------------- | ------------------- |  | ---- | ---------------- |  | - | ----------- |  |  | ---------------- | --------- |  |  | - | ---- | 
|                        |  | Options Outstanding |           |                  | Options Exercisable | 
|                        |  |                     |           |                  |                     | 
|                        |  |                     |           | Weighted Average |                     |  |      |                  | 
|                        |  | Number              |           |                  | Remaining           |  |      | Weighted Average |  |   | Number      |  |  | Weighted Average |          
|Range of Exercise Price |  | Outstanding         |           |                  | Contractual Life    |  |      | Exercise Price   |  |   | Exercisable |  |  | Exercise Price   |          
|                        |  |                     |           |                  |                     |  |      |                  |  |   |             |  |  |                  |          
|$0.41 - $0.56           |  |                     | 646,000   |                  |                     |  | 8.70 |                  |  | $ | 0.47        |  |  |                  | 157,080   |  |  | $ | 0.54 | 
|$0.60 - $0.64           |  |                     | 569,591   |                  |                     |  | 8.79 |                  |  | $ | 0.60        |  |  |                  | 165,742   |  |  | $ | 0.60 | 
|$0.67 - $0.77           |  |                     | 721,833   |                  |                     |  | 7.64 |                  |  | $ | 0.74        |  |  |                  | 466,102   |  |  | $ | 0.73 | 
|$0.78 - $0.85           |  |                     | 632,291   |                  |                     |  | 8.43 |                  |  | $ | 0.83        |  |  |                  | 294,784   |  |  | $ | 0.82 | 
|$0.88 - $0.99           |  |                     | 715,488   |                  |                     |  | 8.22 |                  |  | $ | 0.95        |  |  |                  | 435,211   |  |  | $ | 0.95 | 
|$1.00 - $1.03           |  |                     | 586,875   |                  |                     |  | 7.37 |                  |  | $ | 1.01        |  |  |                  | 461,875   |  |  | $ | 1.01 | 
|$1.06 - $1.25           |  |                     | 762,433   |                  |                     |  | 5.62 |                  |  | $ | 1.18        |  |  |                  | 749,515   |  |  | $ | 1.18 | 
|$1.27 - $1.65           |  |                     | 604,194   |                  |                     |  | 5.98 |                  |  | $ | 1.49        |  |  |                  | 526,930   |  |  | $ | 1.48 | 
|$1.69 - $3.73           |  |                     | 441,754   |                  |                     |  | 4.08 |                  |  | $ | 2.45        |  |  |                  | 422,063   |  |  | $ | 2.48 | 
|$4.94 - $4.94           |  |                     | 5,000     |                  |                     |  | 2.10 |                  |  | $ | 4.94        |  |  |                  | 5,000     |  |  | $ | 4.94 | 
|                        |  |                     |           |                  |                     |  |      |                  |  |   |             |  |  |                  |          
|                        |  |                     | 5,685,459 |                  |                     |  | 7.28 |                  |  | $ | 1.03        |  |  |                  | 3,684,302 |  |  | $ | 1.19 | 
|                        |  |                     |           |                  |                     |  |      |                  |  |   |             |  |  |                  |          

82



---



##### 



QUESTCOR PHARMACEUTICALS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


Reserved Shares




|                                                                            |  |              |            | 
|--------------------------------------------------------------------------- |  | ------------ | ---------- | 
|                                                                            |  | December 31, |           
|                                                                            |  | 2004         |           
|                                                                            |  |              |           
|Outstanding options                                                         |  |              | 5,685,459  | 
|Convertible preferred stock issued and outstanding                          |  |              | 11,080,492 | 
|Convertible debentures                                                      |  |              | 2,531,644  | 
|Placement agent unit options                                                |  |              | 127,679    | 
|Common stock warrants                                                       |  |              | 4,539,407  | 
|Reserved for future grant or sale under option and stock
    purchase plans |  |              | 8,956,888  | 
|                                                                            |  |              |           
|                                                                            |  |              | 32,921,569 | 
|                                                                            |  |              |           



|    |             
|--- | ------------
|12. | Income Taxes







|                          |                                               |              |         |        |              |   |         |        | 
|------------------------- | --------------------------------------------- | ------------ | ------- | ------ | ------------ | - | ------- | ------ | 
|                          |                                               | December 31, |         |        | December 31, |  
|                          |                                               | 2004         |         |        | 2003         |  
|                          |                                               |              |         |        |              |  
|Deferred tax liabilities: |                                               |              |         |        |              |   |         |       
|                          | Goodwill and purchased intangibles            |              | $       | 100    |              |   | $       | 200    | 
|                          |                                               |              |         |        |              |  
|Deferred tax assets:      |                                               |              |         |        |              |   |         |       
|                          | Net operating loss carryforwards              |              | $       | 35,300 |              |   | $       | 35,000 | 
|                          | Research and development credits              |              |         | 1,400  |              |   |         | 1,400  | 
|                          | Capitalized research and development expenses |              |         | 300    |              |   |         | 700    | 
|                          | Acquired research and development             |              |         | 1,200  |              |   |         | 1,800  | 
|                          | Other, net                                    |              |         | 1,500  |              |   |         | 1,000  | 
|                          |                                               |              |         |        |              |  
|Total deferred tax assets |                                               |              | 39,700  |        |              |   | 39,900  |       
|Valuation allowance       |                                               |              | (39,600 | )      |              |   | (39,700 | )     
|                          |                                               |              |         |        |              |  
|Net deferred taxes        |                                               | $            |        |        |              | $ |        |       
|                          |                                               |              |         |        |              |  



83



---



##### 



QUESTCOR PHARMACEUTICALS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|    |                                 
|--- | --------------------------------
|13. | Other Related Party Transactions









84



---



##### 



QUESTCOR PHARMACEUTICALS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|    |                          
|--- | -------------------------
|14. | Defined Contribution Plan





|    |                   
|--- | ------------------
|15. | Comprehensive Loss



|                                                                        |  |                          |      |   |      |   |        |      |  |   |        |  
|----------------------------------------------------------------------- |  | ------------------------ | ---- | - | ---- | - | ------ | ---- |  | - | ------ | -
|                                                                        |  | Years Ended December 31, |     
|                                                                        |  |                          |     
|                                                                        |  | 2004                     |      |   | 2003 |   |        | 2002 | 
|                                                                        |  |                          |      |   |      |   |        |      | 
|Net loss                                                                |  | $                        | (832 | ) |      | $ | (3,791 | )    |  | $ | (2,785 | )
|Change in unrealized gains(losses) on available-for-sale
    securities |  |                          |     |   |      |   | 42     |      |  |   | 73     |  
|                                                                        |  |                          |      |   |      |   |        |      | 
|Comprehensive loss                                                      |  | $                        | (832 | ) |      | $ | (3,749 | )    |  | $ | (2,712 | )
|                                                                        |  |                          |      |   |      |   |        |      | 



|    |                         
|--- | ------------------------
|16. | Shareholders Rights Plan





85



---



##### 



QUESTCOR PHARMACEUTICALS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|    |                  
|--- | -----------------
|17. | Subsequent Events







86



---



##### 



QUESTCOR PHARMACEUTICALS, INC.


FINANCIAL STATEMENT SCHEDULES (ITEM 15(a)(2))


SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS


Years Ended December 31, 2004, 2003 and 2002


|                                                 |                   |                |   |            |              |  |   |            |   |  |            |       |  |  |   |       | 
|------------------------------------------------ | ----------------- | -------------- | - | ---------- | ------------ |  | - | ---------- | - |  | ---------- | ----- |  |  | - | ----- | 
|                                                 |                   |                |   | Additions/ |              |  |   |            |  
|                                                 |                   | Balance at     |   |            | (Deductions) |  |   | Deductions |   |  | Balance at |      
|                                                 |                   | Beginning      |   |            | Charged to   |  |   | and        |   |  | End of     |      
|                                                 |                   | Period         |   |            | Income       |  |   | Write-Offs |   |  | Period     |      
|                                                 |                   |                |   |            |              |  |   |            |   |  |            |      
|                                                 |                   | (In thousands) |  
|Reserves for uncollectible accounts              |                   |                |   |            |              |  |   |            |   |  |            |       |  |  |   |      
|                                                 | December 31, 2004 |                | $ | 60         |              |  | $ | (16        | ) |  | $          | 4     |  |  | $ | 40    | 
|                                                 | December 31, 2003 |                | $ | 20         |              |  | $ | 43         |   |  | $          | 3     |  |  | $ | 60    | 
|                                                 | December 31, 2002 |                | $ | 78         |              |  | $ | (40        | ) |  | $          | 18    |  |  | $ | 20    | 
|Reserves for cash discounts                      |                   |                |   |            |              |  |   |            |   |  |            |       |  |  |   |      
|                                                 | December 31, 2004 |                | $ | 33         |              |  | $ | 371        |   |  | $          | 362   |  |  | $ | 42    | 
|                                                 | December 31, 2003 |                | $ | 29         |              |  | $ | 255        |   |  | $          | 251   |  |  | $ | 33    | 
|                                                 | December 31, 2002 |                | $ | 9          |              |  | $ | 268        |   |  | $          | 248   |  |  | $ | 29    | 
|Reserves for obsolete and excess inventories     |                   |                |   |            |              |  |   |            |   |  |            |       |  |  |   |      
|                                                 | December 31, 2004 |                | $ | 341        |              |  | $ | (61        | ) |  | $          | 173   |  |  | $ | 107   | 
|                                                 | December 31, 2003 |                | $ | 76         |              |  | $ | 406        |   |  | $          | 141   |  |  | $ | 341   | 
|                                                 | December 31, 2002 |                | $ | 56         |              |  | $ | 72         |   |  | $          | 52    |  |  | $ | 76    | 
|Reserves for sales and product return allowances |                   |                |   |            |              |  |   |            |   |  |            |       |  |  |   |      
|                                                 | December 31, 2004 |                | $ | 582        |              |  | $ | 2,278      |   |  | $          | 1,177 |  |  | $ | 1,683 | 
|                                                 | December 31, 2003 |                | $ | 418        |              |  | $ | 1,217      |   |  | $          | 1,053 |  |  | $ | 582   | 
|                                                 | December 31, 2002 |                | $ | 212        |              |  | $ | 875        |   |  | $          | 669   |  |  | $ | 418   | 



87



---



##### 






EXHIBIT INDEX


|          |  |                                                                                                                                                                                                                                                                                               
|--------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit   |  |                                                                                                                                                                                                                                                                                               
|Number    |  | Description                                                                                                                                                                                                                                                                                   
|          |  |                                                                                                                                                                                                                                                                                               
|2.1(1)    |  | Merger agreement entered into August 4, 1999, by and among
    Cypros Pharmaceutical Corporation, a California corporation
    (Parent), Cypros Acquisition Corporation, a Delaware
    corporation and a wholly owned subsidiary of Parent, and
    RiboGene, Inc., a Delaware corporation.
|         
|3.1(2)    |  | Amended and Restated Articles of Incorporation of the Company.                                                                                                                                                                                                                                
|         
|3.2(3)    |  | Certificate of Determination of Series B Convertible
    Preferred Stock of the Company.                                                                                                                                                                                                      
|         
|3.3(4)    |  | Certificate of Determination of Series C Junior
    Participating Preferred Stock of the Company.                                                                                                                                                                                             
|         
|3.4(5)    |  | Bylaws of the Company.                                                                                                                                                                                                                                                                        
|         
|4.1(6)    |  | Convertible Debenture between the Company and SF Capital
    Partners Ltd. dated March 15, 2002.                                                                                                                                                                                              
|         
|4.2(6)    |  | Convertible Debenture between the Company and Defiante
    Farmaceutica Unipessoal LDA dated March 15, 2002.                                                                                                                                                                                  
|         
|10.1(7)   |  | Forms of Incentive Stock Option and Non-statutory Stock Option.                                                                                                                                                                                                                               
|         
|10.2(8)   |  | 1992 Employee Stock Option Plan, as amended.                                                                                                                                                                                                                                                  
|         
|10.3(9)   |  | 1993 Non-employee Directors Equity Incentive Plan, as
    amended and related form of Nonstatutory Stock Option.                                                                                                                                                                             
|         
|10.5(10)  |  | 2000 Employee Stock Purchase Plan.                                                                                                                                                                                                                                                            
|         
|10.6(11)  |  | Asset Purchase Agreement dated July 27, 2001 between the
    Company and Aventis Pharmaceuticals Products, Inc.                                                                                                                                                                              
|         
|10.7(11)  |  | First Amendment to Asset Purchase Agreement dated
    January 29, 2002, between the Company and Aventis
    Pharmaceuticals Products, Inc.                                                                                                                                                   
|         
|10.10(12) |  | Stock Purchase Agreement dated July 31, 2001 between
    Registrant and Sigma-Tau Finance Holding S.A.                                                                                                                                                                                        
|         
|10.11(13) |  | Warrant dated December 1, 2001 between the Company and
    Paolo Cavazza.                                                                                                                                                                                                                     
|         
|10.12(13) |  | Warrant dated December 1, 2001 between the Company and
    Claudio Cavazza.                                                                                                                                                                                                                   
|         
|10.13(6)  |  | Securities Purchase Agreement between the Company and SF Capital
    Partners Ltd. dated March 15, 2002.                                                                                                                                                                                      
|         
|10.14(6)  |  | Registration Rights Agreement between the Company and SF Capital
    Partners Ltd. dated March 15, 2002.                                                                                                                                                                                      
|         
|10.15(6)  |  | Warrant between the Company and SF Capital Partners Ltd. dated
    March 15, 2002.                                                                                                                                                                                                            
|         
|10.16(6)  |  | Securities Purchase Agreement between the Company and Defiante
    Farmaceutica Unipessoal Lda dated March 15, 2002.                                                                                                                                                                          
|         
|10.17(6)  |  | Registration Rights Agreement between the Company and Defiante
    Farmaceutica Unipessoal Lda dated March 15, 2002.                                                                                                                                                                          
|         
|10.18(6)  |  | Warrant between the Company and Defiante Farmaceutica Unipessoal
    Lda dated March 15, 2002.                                                                                                                                                                                                
|         
|10.19(3)  |  | Form of Common Stock Purchase Warrant dated January 15, 2003
    issued by the Company to purchasers of Series B Convertible
    Preferred Stock.                                                                                                                                             
|         
|10.21(4)  |  | Rights Agreement, dated as of February 11, 2003, between
    the Company and Computershare Trust Company, Inc.                                                                                                                                                                                
|         
|10.22(3)  |  | Form of Subscription Agreement dated as of December 29,
    2002 by and between the Company and purchasers of Series B
    Convertible Preferred Stock and Common Stock Purchase Warrants.                                                                                                    
|         
|10.28(14) |  | Letter Agreement dated September 2, 2003 between the
    Company and R. Jerald Beers.                                                                                                                                                                                                         
|         
|10.29(14) |  | Amendment to Letter Agreement dated November 6, 2003
    between the Company and R. Jerald Beers.                                                                                                                                                                                             
|         
|10.30(14) |  | Supply Agreement dated April 1, 2003 between the Company
    and BioVectra, dcl.                                                                                                                                                                                                              
|         
|10.33(15) |  | Separation Agreement dated August 5, 2004 between the
    Company and Charles J. Casamento.                                                                                                                                                                                                   
|         
|10.34(16) |  | Secured Promissory Note and Security Agreement dated
    July 31, 2004 between the Company and Defiante Farmaceutica
    Lda.                                                                                                                                                                 
|         
|10.35(17) |  | Letter Agreement between the Company and James L. Fares
    dated February 17, 2005.                                                                                                                                                                                                          



---



##### 



|          |  |                                                                                                                                                                                                             
|--------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit   |  |                                                                                                                                                                                                             
|Number    |  | Description                                                                                                                                                                                                 
|          |  |                                                                                                                                                                                                             
|         
|10.36(18) |  | Amendment dated March 8, 2005 to the 8% Convertible
    Debenture dated March 15, 2002 issued by Questcor
    Pharmaceuticals, Inc. in favor of Defiante Farmaceutica Lda.                                  
|         
|10.37(18) |  | Amendment dated March 10, 2005 to the 8% Convertible
    Debenture dated March 15, 2002 issued by Questcor
    Pharmaceuticals, Inc. in favor of SF Capital Partners Ltd.                                   
|         
|10.38(19) |  | 2004 Non-Employee Directors Equity Incentive Plan.                                                                                                                                                         
|         
|10.39*    |  | Letter Agreement between the Company and Reinhard Koenig dated
    September 30, 2004.                                                                                                                      
|         
|10.40*    |  | Letter Agreement between the Company and James L. Fares dated
    February 18, 2005.                                                                                                                        
|         
|10.41*    |  | Letter Agreement between the Company and Steve Cartt dated
    March 7, 2005.                                                                                                                               
|         
|10.42*    |  | Letter Agreement between the Company and Steve Cartt dated
    March 8, 2005.                                                                                                                               
|         
|10.43*    |  | Letter Agreement between the Company and Reinhard Koenig dated
    February 3, 2004.                                                                                                                        
|         
|10.44*    |  | Letter Agreement between the Company and Barbara J. McKee
    dated February 9, 2005.                                                                                                                       
|         
|10.45*    |  | Separation Agreement and Release dated March 3, 2005
    between the Company and R. Jerald Beers.                                                                                                           
|         
|10.46*    |  | Series B Preferred Shareholder Agreement and Waiver dated
    March 29, 2005 by and between the Company and all of the
    holders of the outstanding shares of Series B Preferred
    Stock of the Company.
|         
|23.1*     |  | Consent of Independent Registered Public Accounting Firm.                                                                                                                                                   
|         
|31*       |  | Certification pursuant to Section 302 of the Sarbanes-Oxley
    Act of 2002.                                                                                                                                
|         
|32*       |  | Certification pursuant to Section 906 of the Public Company
    Accounting Reform and Investor Act of 2002.                                                                                                 






| |   |                
| | - | ---------------
| | * | Filed herewith.



| |     |                                                                                                                                                                                             
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) | Filed as an exhibit to the Companys Annual Report on
    Form 10-K for the fiscal year ended December 31, 1999,
    and incorporated herein by reference.                                  
|
| | (2) | Filed as an exhibit to the Companys Registration Statement
    on Form S-8, Registration Statement No. 333-30558,
    filed on February 16, 2000, and incorporated herein by
    reference.
|
| | (3) | Filed as an exhibit to the Companys Current Report on
    Form 8-K filed on January 16, 2003, and incorporated
    herein by reference.                                                    
|
| | (4) | Filed as an exhibit to the Companys Current Report on
    Form 8-K filed on February 14, 2003, and incorporated
    herein by reference.                                                   
|
| | (5) | Filed as an exhibit to the Companys Quarterly Report on
    Form 10-Q for the quarter ended September 30, 2002,
    and incorporated herein by reference.                                  
|
| | (6) | Filed as an exhibit to the Companys Registration Statement
    on Form S-3, Registration No. 333-85160, filed on
    March 28, 2002, and incorporated herein by reference.                 
|
| | (7) | Filed as an exhibit to the Companys Registration Statement
    on Form S-1, Registration No. 33-51682, and
    incorporated herein by reference.                                           
|
| | (8) | Filed as an exhibit to the Companys Proxy Statement for
    the 2002 Annual Meeting of Shareholders, filed on March 28,
    2002, and incorporated herein by reference.                    
|
| | (9) | Filed as an exhibit to the Companys Registration Statement
    Form S-4, Registration Statement No. 333-87611, filed
    on September 23, 1999, and incorporated herein by reference.      



|     |                                                                                                                                                                                              
|---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(10) | Filed as an exhibit to the Companys Registration Statement
    on Form S-8, Registration Statement No. 333-46990,
    filed on September 29, 2000, and incorporated herein by
    reference.
|    
|(11) | Filed as an exhibit to the Companys Quarterly Report on
    Form 10-Q for the quarter ended June 30, 2002, and
    incorporated herein by reference.                                        
|    
|(12) | Filed as an exhibit to the Companys Quarterly Report on
    Form 10-Q for the quarter ended June 30, 2001, and
    incorporated herein by reference.                                        
|    
|(13) | Filed as an exhibit to the Companys Annual Report on
    Form 10-K for the fiscal year ended December 31, 2001,
    and incorporated herein by reference.                                   
|    
|(14) | Filed as an exhibit to the Companys Annual Report on
    Form 10-K for the fiscal year ended December 31, 2003,
    and incorporated herein by reference.                                   



---



##### 





|     |                                                                                                                                                                         
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(15) | Filed as an exhibit to the Companys Quarterly Report on
    Form 10-Q for the quarter ended June 30, 2004, and
    incorporated herein by reference.                   
|    
|(16) | Filed as an exhibit to the Companys Quarterly Report on
    Form 10-Q for the quarter ended September 30, 2004,
    and incorporated herein by reference.              
|    
|(17) | Filed as an exhibit to the Companys Current Report on
    Form 8-K filed on February 23, 2005, and incorporated
    herein by reference.                               
|    
|(18) | Filed as an exhibit to the Companys Current Report on
    Form 8-K filed on March 14, 2005, and incorporated
    herein by reference.                                  
|    
|(19) | Filed as an exhibit to the Companys Proxy Statement for
    the 2004 Annual Meeting of Stockholders, filed on March 29,
    2004, and incorporated herein by reference.



| |   |                                                                                               
| | - | ----------------------------------------------------------------------------------------------
| |  | The Company has requested confidential treatment with respect to
    portions of this exhibit.