QUESTCOR PHARMACEUTICALS INC - 10-Q Quarterly Report

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

(MARK ONE)

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

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2002,

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

For the transition period from ___________ to __________.

Commission file number: 0-20772

QUESTCOR PHARMACEUTICALS, INC.
(Exact name of Registrant as specified in its charter)

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

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

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

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

At August 12, 2002 there were 38,630,763 shares of the Registrant’s common stock, no par value per share, outstanding.

QUESTCOR PHARMACEUTICALS, INC.

FORM 10-Q

TABLE OF CONTENTS

		Page

PART I. FINANCIAL INFORMATION

Item 1	Financial Statements and Notes (Unaudited)	3
	Consolidated Balance Sheets—June 30, 2002 and December 31, 2001	3
	Consolidated Statements of Operations—for the three and six months ended June 30, 2002 and June 30, 2001	4
	Consolidated Statements of Cash Flows—for the six months ended June 30, 2002 and June 30, 2001	5
	Notes to Consolidated Financial Statements	6
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	10
Item 3	Quantitative and Qualitative Disclosures about Market Risk	24

PART II. OTHER INFORMATION

Item 1	Legal Proceedings	25
Item 2	Changes in Securities and Use of Proceeds	25
Item 3	Defaults upon Senior Securities	25
Item 4	Submission of Matters to a Vote of Security Holders	25
Item 5	Other Information	25
Item 6	Exhibits and Reports	26
	Signatures	27

ITEM 1. FINANCIAL STATEMENTS

QUESTCOR PHARMACEUTICALS, INC.

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)

			June 30, 2002			December 31, 2001

			(Unaudited)			(Note 1)
ASSETS
Current assets:
	Cash and cash equivalents (which included a compensating balance of $5,000 at December 31, 2001)		$	7,983		$	10,183
	Short-term investments		304			388
	Accounts receivable, net of allowance for doubtful accounts of $80 at June 30, 2002 and $78 at December 31, 2001		1,729			672
	Receivable from a related party (see Note 12)		244			—
	Inventories		417			96
	Prepaid expenses and other current assets		367			265

		Total current assets	11,044			11,604
Property and equipment, net			723			602
Purchased technology, net			673			1,159
Goodwill and other intangible assets, net			479			479
Deposits and other assets			1,297			1,228

		Total assets	$	14,216		$	15,072

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current liabilities:
	Accounts payable		$	1,365		$	1,095
	Accrued compensation		578			575
	Unissued common stock		—			960
	Other accrued liabilities		1,330			1,070
	Note payable to bank		—			5,000
	Current portion of long-term debt		354			368
	Current portion of capital lease obligations		30			57

		Total current liabilities	3,657			9,125
Convertible debentures, (face amount of $4,000), net of deemed discount of $1,319			2,681			—
Long-term debt			—			121
Other non-current liabilities			1,062			1,045
Commitments
Preferred stock, subject to redemption			5,081			5,081
Stockholders’ equity (deficit):
	Common stock		77,381			74,018
	Deferred compensation		(13		)	(20		)
	Accumulated deficit		(75,618		)	(74,183		)
	Accumulated other comprehensive income (loss)		(15		)	(115		)

		Total stockholders’ equity (deficit)	1,735			(300		)

		Total liabilities and stockholders’ equity (deficit)	$	14,216		$	15,072

See accompanying notes.

QUESTCOR PHARMACEUTICALS, INC.

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

			Three Months Ended						Six Months Ended

			June 30, 2002			June 30, 2001			June 30, 2002			June 30, 2001

Revenues:
	Net product sales		$	3,307		$	971		$	7,113		$	1,672
	Contract research and grant revenue		81			57			126			282
	Technology revenue		250			—			250			90
	Royalty revenue		3			5			6			5
	Services revenue from a related party (see Note 12)		100			—			100			—

		Total revenues	3,741			1,033			7,595			2,049

Operating costs and expenses:
	Cost of product sales		579			276			1,155			637
	Sales and marketing (Note A)		1,652			834			3,028			1,478
	General and administrative (Note A)		1,216			1,011			2,747			1,767
	Research and development (Note A)		831			787			1,316			1,537
	Depreciation and amortization		315			553			659			1,112

		Total operating costs and expenses	4,593			3,461			8,905			6,531

Loss from operations			(852		)	(2,428		)	(1,310		)	(4,482		)
Non-cash amortization of deemed discount on convertible debentures			(131		)	—			(175		)	—
Interest income (expense), net			(13		)	32			14			59
Other expense, net			(181		)	(7		)	(110		)	(7		)
Rental income, net			74			406			146			561

Net loss			$	(1,103	)	$	(1,997	)	$	(1,435	)	$	(3,869	)

Basic and diluted net loss per common share			$	(0.03	)	$	(0.07	)	$	(0.04	)	$	(0.14	)

Weighted average shares of common stock outstanding			38,468			28,277			38,157			26,832


Note A:
Includes non-cash charges for stock-based compensation as follows:
	Sales and marketing		$	—		$	—		$	44		$	—
	General and administrative		44			11			243			23
	Research and development		—			1			24			4

Total			$	44		$	12		$	311		$	27

See accompanying notes.

QUESTCOR PHARMACEUTICALS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)

		Six Months Ended

		June 30, 2002			June 30, 2001

OPERATING ACTIVITIES
Net loss		$	(1,435	)	$	(3,869	)
Adjustments to reconcile net loss to net cash used in operating activities:
	Stock-based compensation expense	311			27
	Amortization of deemed discount on convertible debentures	175			—
	Depreciation and amortization	659			1,112
	Other-than-temporary loss on investment	181			—
	Deferred rent expense	17			32
	(Gain)/Loss on the sale of equipment	(2		)	42
Changes in operating assets and liabilities:
	Accounts receivable	(1,057		)	(387		)
	Receivable from a related party	(244		)	—
	Inventories	(321		)	(64		)
	Prepaid expenses and other current assets	(102		)	163
	Accounts payable	270			391
	Accrued compensation	3			117
	Accrued development costs	—			(541		)
	Other accrued liabilities	261			(130		)

Net cash flows used in operating activities		(1,284		)	(3,107		)

INVESTING ACTIVITIES
Proceeds from the maturity of short-term investments, net		—			499
Purchase of property and equipment		(309		)	(104		)
Sale of property and equipment		19			—
Decrease in other assets		5			54

Net cash flows (used in) provided by investing activities		(285		)	449

FINANCING ACTIVITIES
Issuance of common stock, net		532			2,088
Issuance of convertible debentures		4,000			—
Short-term borrowings		119			—
Repayment of note payable to bank		(5,000		)	—
Repayment of long-term debt		(254		)	(143		)
Repayments of capital lease obligations		(28		)	(59		)

Net cash flows (used in) provided by financing activities		(631		)	1,886

Decrease in cash and cash equivalents		(2,200		)	(772		)
Cash and cash equivalents at beginning of period		10,183			6,818