<PAGE>   1
                                    FORM 10-Q
                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549

(Mark One)

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

         For the quarterly period ended March 31, 1999

                                       OR

[  ]     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 0-19777

                           DUSA Pharmaceuticals, Inc.
             (Exact name of registrant as specified in its charter)

                   New Jersey                    22-3103129
         (State or other jurisdiction of       (I.R.S. Employer
          incorporation or organization)      Identification No.)

                        181 University Avenue, Suite 1208
                         Toronto, Ontario M5H 3M7 CANADA
                    (Address of principal executive offices)
                                   (Zip Code)

                                 (416) 363-5059
              (Registrant's telephone number, including area code)


      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 month (or for such shorter period 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 
                                    ----    ----

                APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
                  PROCEEDINGS DURING THE PRECEDING FIVE YEARS:


      Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 subsequent to the distribution of securities under a plan confirmed
by a court.

                                Yes       No    
                                    ----    ----
                      APPLICABLE ONLY TO CORPORATE ISSUERS:

      Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.

                     11,001,385 shares as of April 30, 1999
<PAGE>   2
PART I.
ITEM 1. FINANCIAL STATEMENTS

DUSA PHARMACEUTICALS, INC
(a development stage company)

CONSOLIDATED BALANCE SHEETS


<TABLE>
<CAPTION>
                                                                           MARCH 31,       DECEMBER 31,
                                                                             1999             1998
                                                                          (UNAUDITED)
<S>                                                                       <C>              <C>
ASSETS
CURRENT ASSETS
    Cash (interest bearing)                                               $  1,199,709     $  1,213,757
  U.S. government securities available for sale, at market
         (cost- $11,695,132 and $5,502,841, respectively)                   11,661,107        5,508,375
    Accrued interest receivable                                                 57,742           19,529
    Other current assets                                                        87,906          107,993
                                                                          ------------     ------------
                                                                            13,006,464        6,849,654
FIXED ASSETS, NET                                                              157,106          168,466
DEPOSITS ON EQUIPMENT                                                          122,555          122,555
                                                                          ------------     ------------
                                                                          $ 13,286,125     $  7,140,675
                                                                          ============     ============

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES
    Accounts payable                                                      $    231,057     $    266,737
    Accrued payroll                                                            264,925          410,164
    Other accrued charges                                                      131,206           47,628
                                                                          ------------     ------------
                                                                               627,188          724,529
                                                                          ------------     ------------
SHAREHOLDERS' EQUITY
   Capital Stock
      Authorized: 100,000,000 shares of which 40,000,000
                  shares are designated as Common stock, no par,
                  and 60,000,000 shares issuable in series or classes 
      Issued and outstanding: 11,001,385 shares of  Common
      stock, no par                                                         44,140,251       36,828,579
    Deficit accumulated during the development stage                       (31,447,289)     (30,417,967)
   Net unrealized gain (loss) on U.S. government securities
      available for sale                                                       (34,025)           5,534
                                                                          ------------     ------------
                                                                            12,658,937        6,416,146
                                                                          ------------     ------------
                                                                          $ 13,286,125     $  7,140,675
                                                                          ============     ============
</TABLE>

See the accompanying notes to the Consolidated Financial Statements


                                       -2-
<PAGE>   3
DUSA PHARMACEUTICALS, INC
(a development stage company)

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                                          CUMULATIVE
                                                                                          PERIOD FROM
                                                                                          FEBRUARY 21,
                                                        THREE MONTHS     THREE MONTHS    1991 (DATE OF
                                                          ENDED             ENDED        INCORPORATION)
                                                         MARCH 31,        MARCH 31,       TO MARCH 31,
                                                           1999             1998             1999
                                                        (UNAUDITED)      (UNAUDITED)      (UNAUDITED)
<S>                                                     <C>              <C>             <C>         
RESEARCH AND DEVELOPMENT COSTS                          $    841,922     $  1,079,732     $ 27,409,913
                                                        ------------     ------------     ------------
OPERATING COSTS
      General and administration                             329,631          443,831        9,739,794
      Depreciation and amortization                           18,029           12,222          221,571
                                                        ------------     ------------     ------------
TOTAL OPERATING COSTS                                        347,660          456,053        9,961,365
                                                        ------------     ------------     ------------

TOTAL COSTS                                                1,189,582        1,535,785       37,371,278
                                                        ------------     ------------     ------------

NON-OPERATING REVENUE
       Interest income                                       160,260          160,908        5,574,126
       Gain on foreign currency exchange                                       (2,059)          27,204
       Gain on sale of U.S. government securities                 --               --          322,659
       Unrealized loss on U.S. government securities
         available for sale                                       --               --          (62,832)
                                                        ------------     ------------     ------------
                                                             160,260          158,849        5,861,157
                                                        ------------     ------------     ------------

LOSS BEFORE CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING PRINCIPLE                             1,029,322        1,376,936       31,510,121
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE                                              --               --          (62,832)
                                                        ------------     ------------     ------------
NET LOSS                                                $  1,029,322     $  1,376,936     $ 31,447,289
OTHER COMPREHENSIVE (INCOME) LOSS
       Net unrealized (gain) loss on U.S. government
       securities available for sale                          39,559           (2,059)          34,025
                                                        ------------     ------------     ------------
COMPREHENSIVE LOSS                                      $  1,068,881     $  1,374,877     $ 31,481,314
                                                        ============     ============     ============
BASIC AND DILUTED NET LOSS PER
COMMON SHARE                                            $       0.10     $       0.15     $       4.78
                                                        ============     ============     ============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING                                 10,761,041        9,365,950        6,584,660
                                                        ============     ============     ============
</TABLE>

See the accompanying notes to the Consolidated Financial Statements


                                       -3-
<PAGE>   4
DUSA PHARMACEUTICALS, INC
(a development stage company)

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                                            CUMULATIVE
                                                                                                            PERIOD FROM
                                                                                                            FEBRUARY 21,
                                                                                                           1991 (DATE OF
                                                                       THREE MONTHS      THREE MONTHS      INCORPORATION)
                                                                          ENDED             ENDED              TO
                                                                         MARCH 31,         MARCH 31,         MARCH 31,
                                                                           1999              1998              1999
                                                                        (UNAUDITED)       (UNAUDITED)       (UNAUDITED)
                                                                       ------------      ------------      ------------
<S>                                                                    <C>               <C>               <C>
CASH FLOWS USED IN OPERATING ACTIVITIES
       Net loss                                                        $  (1,029,322)    $  (1,376,936)    $ (31,447,289)
       Adjustments to reconcile net loss to net cash used in
         operating activities
          Amortization of premiums and accretion of
                  discounts on U.S. government securities
                  available for sale and investment securities, net          (54,489)          (42,964)          128,057
          Depreciation and amortization                                       18,029            12,222           221,571
          Loss on foreign currency exchange                                   39,559             2,059            12,355
          Vesting of non-employee options                                                                         81,586
          Gain on sale of U.S. government securities
                  available for sale                                              --                --          (322,659)
          Unrealized loss on U.S. government securities 
                  available for sale                                              --                --            62,832
          Cumulative effect of change in accounting principle                     --                --           (62,832)
          Write-off of intangible assets                                          --                --           307,519
          Compensation expense resulting from extension of
                  outstanding stock options terms                                 --                --           557,260
          Changes in other assets and liabilities impacting
                  cash flows from operations:
                  Accrued interest receivable                                (38,213)            7,617           (57,742)
                  Other current assets                                        20,087            16,312           (87,906)
                  Accounts payable                                           (35,680)         (328,852)          231,057
                  Accrued payroll and other charges                          (61,661)         (143,697)          396,131
                  License agreement obligations                                   --                --           (12,203)
                                                                       -------------     -------------     -------------
NET CASH USED IN OPERATING ACTIVITIES                                     (1,141,690)       (1,854,239)      (29,992,263)
                                                                       -------------     -------------     -------------

CASH FLOWS PROVIDED BY (USED IN)
        INVESTING ACTIVITIES
        Purchases of U.S. government securities available for
          sale and investment securities                                  (8,937,802)       (4,620,552)     (123,896,648)
        Proceeds from maturing U.S. government securities
          available for sale and investment security                       2,800,000         3,100,000        58,620,000
        Proceeds from sale of U.S. government securities
          available for sale                                                      --                --        53,776,118
        Intangible assets                                                         --                --          (193,022)
        Purchases of fixed assets                                             (6,669)          (28,958)         (361,756)
        Deposits on equipment                                                                                   (122,555)
        Advances by a former parent                                               --                --        (2,867,900)
        Repayment of advances to former parent                                    --                --         2,867,900
                                                                       -------------     -------------     -------------
NET CASH USED IN INVESTING ACTIVITIES                                     (6,144,471)       (1,549,510)      (12,177,863)
                                                                       -------------     -------------     -------------
</TABLE>


                                       -4-
<PAGE>   5
DUSA PHARMACEUTICALS, INC
(a development stage company)

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

<TABLE>
<CAPTION>
                                                                                                 CUMULATIVE
                                                                                                 PERIOD FROM
                                                                                                 FEBRUARY 21,
                                                                                                1991 (DATE OF
                                                               THREE MONTHS     THREE MONTHS    INCORPORATION)
                                                                  ENDED            ENDED             TO
                                                                MARCH 31,        MARCH 31,        MARCH 31,
                                                                  1999             1998             1999
                                                               (UNAUDITED)      (UNAUDITED)      (UNAUDITED)
                                                               -----------      -----------     -----------
<S>                                                            <C>              <C>             <C>
CASH FLOWS PROVIDED BY FINANCING
ACTIVITIES
        Stock offering costs                                   $   (205,203)    $         --     $ (5,253,458)
        Issuance of common stock and underwriters options         7,516,875               --       50,919,691
        Payment received on note receivable from director                --               --           68,047
        Redemption of option held by former parent                       --               --       (2,250,000)
        Receipt of Section 16(b) common stock profits                    --               --           17,125
        Payment on license agreement obligations                         --               --         (119,215)
                                                               ------------     ------------     ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES                         7,311,672               --       43,382,190
                                                               ------------     ------------     ------------
EFFECT OF EXCHANGE RATES ON CASH                                    (39,559)          (2,059)         (12,355)
                                                               ------------     ------------     ------------
NET (DECREASE) INCREASE  IN CASH                                    (14,048)      (3,405,808)       1,199,709
CASH AT BEGINNING OF PERIOD                                       1,213,757        4,033,267               --
                                                               ------------     ------------     ------------
CASH AT END OF PERIOD                                          $  1,199,709     $    627,459     $  1,199,709
                                                               ============     ============     ============
SUPPLEMENTAL SCHEDULE OF CASH FLOW
        INFORMATION
        Issuance of common stock for promissory note from
          former parent                                                                          $    150,000
                                                                                                 ============
        License agreement obligations incurred in the
          acquisition of an intangible asset                                                     $    131,418
                                                                                                 ============
        Deferred stock offering costs offset against common
          stock                                                                                  $  5,253,458
                                                                                                 ============
        Note receivable from director originating upon
          exercise of options for common stock                                                   $     68,047
                                                                                                 ============
        Issue of common stock and warrants as compensation
             to placement agent (note 9)                                                         $  1,805,878
                                                                                                 ============
        Interest paid                                                                            $     12,594
                                                                                                 ============
</TABLE>

There were no income tax payments made during the periods.

See the accompanying notes to the Consolidated Financial Statements


                                       -5-
<PAGE>   6
DUSA PHARMACEUTICALS, INC.
(a development stage company)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1.    The Consolidated Balance Sheet as of March 31, 1999, the Consolidated
      Statements of Operations for the three-month periods ended March 31, 1999,
      and 1998 and for the period from February 21, 1991, (date of
      incorporation) to March 31, 1999, and the Consolidated Statements of Cash
      Flows for the three-month periods ended March 31, 1999, and 1998 and for
      the period from February 21, 1991, (date of incorporation) to March 31,
      1999, have been prepared by the Company, without audit. In the opinion of
      management, all adjustments (which include only normal recurring
      adjustments) necessary to present fairly the financial position, results
      of operations and changes in cash flows as of March 31, 1999, and for all
      periods presented have been made.

            Certain information and footnote disclosures normally included in
      financial statements prepared in accordance with generally accepted
      accounting principles have been condensed or omitted. These financial
      statements should be read in conjunction with the Company's December 31,
      1998 audited consolidated financial statements and notes thereto.

            The consolidated financial statements include the accounts of the
      Company and its wholly-owned subsidiary, DUSA Pharmaceuticals New York,
      Inc. All significant intercompany accounts have been eliminated on
      consolidation.

2.    The Company's United States government securities available for sale
      consist of securities of the United States government, and its agencies,
      with interest rates and yields ranging from 5.01% to 6.358%, and maturity
      dates ranging from April 9,1999 to September 21, 2000.

3.    The Company has implemented SFAS No. 130, Reporting Comprehensive Income
      as of December 31, 1998. The Statement establishes standards for the
      reporting and display of comprehensive income and its components
      (revenues, expenses, gains and losses) in a full set of general-purpose
      financial statements. The Statement requires all items that are required
      to be recognized under accounting standards as components of comprehensive
      income be reported separately from the Company's accumulated deficit
      balance in a financial statement that is displayed with the same
      prominence as other financial statements. The Company has reported
      comprehensive loss and its components as part of its statement of
      operations. Comprehensive loss is not used in the calculations of the
      basic and diluted loss per share.

4.    Basic net loss per common share is based on the weighted average number of
      shares outstanding during each period. Certain common stock issuances
      (2,200,000) were made at prices less than the initial public offering
      price. Accordingly, the associated shares are included in the calculation
      of basic net loss per share as if they were outstanding for the entire
      period. None of the stock options and warrants are included in the
      computation of the weighted average number of shares outstanding for
      diluted net loss per common share during the period as the effect would be
      antidilutive.

5.    The Company has implemented SFAS No. 132, Employers' Disclosure about
      Pension and Other Postretirement Benefits, as of December 31, 1998. The
      Statement standardizes the disclosure requirements for pension and other
      postretirement benefits. No additional disclosures were required as a
      result of the implementation of this statement.


                                       -6-
<PAGE>   7
6.    In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
      Instruments and Hedging Activities. This Statement establishes accounting
      and reporting standards for derivative instruments, including certain
      derivative instruments embedded in other contracts, and for hedging
      activities. It requires that an entity recognize all derivatives as either
      assets or liabilities in the statement of financial position and measure
      those instruments at fair value. As required, the Company adopted SFAS No.
      133 in the quarter ended March 31, 1999. The adoption did not have a
      material effect on the consolidated financial statements.

7.    The Company has entered into a series of agreements for research projects
      and clinical studies. As of March 31, 1999, future payments to be made
      pursuant to these agreements, under certain terms and conditions, total
      approximately $841,000 for the remainder of 1999.

8.    On February 25, 1999, the Company has entered into a partial termination
      agreement with Lumenetics, Inc. ("Lumenetics") whereby in light of the
      employment of the principals of Lumenetics by DUSA, the Company agreed to
      terminate certain provisions of the Consulting and Development Agreement
      dated October 14, 1997. Under the new agreement, all stock options
      previously granted to Lumenetics will remain in force and vest according
      to the terms of the original agreement.

9.    On January 15, 1999, the Company issued 1,500,000 shares of its common
      stock in a private placement pursuant to Regulation D of the Securities
      Act of 1933 at $5.00 per share. The Company received net proceeds of
      $7,311,672. The placement agent received a commission and non-accountable
      expense allowance of 8% of the gross proceeds, which the placement agent
      chose to take in the form of 130,435 shares of common stock. The placement
      agent also received 163,043 warrants to purchase common stock at an
      exercise price of $5.00 per share. These shares and warrants have been
      valued at $1,805,878 and have been recorded as non-cash stock offering
      costs.


                                       -7-
<PAGE>   8
ITEM 2.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

General

      The following discussion should be read in conjunction with the Company's
Consolidated Financial Statements and Notes to the Consolidated Financial
Statements for the year ended December 31, 1998 and for the three-month periods
ended March 31, 1999, and March 31, 1998, respectively. DUSA Pharmaceuticals,
Inc. is a development stage pharmaceutical company engaged primarily in the
research and development of a light sensitive drug named 5- aminolevulinic acid,
or ALA, used in combination with appropriate light devices in order to detect or
treat a variety of human disorders. The trademark for DUSA's brand of ALA is
Levulan(R). DUSA has published trademark applications for its drug applicator,
Kerastick(TM) and one of its light devices, the BLU-U(TM). When Levulan(R) is
used and followed by exposure to light to produce a therapeutic effect the
technology is called photodynamic therapy or PDT. When Levulan(R) is used and
followed by exposure to light to detect medical conditions the technology is
called photodetection or PD. At this time, DUSA's research and development
program includes Levulan(R) photodynamic therapy and photodetection for several
medical uses, such as:

         -    actinic keratoses           -    hair removal
         -    bladder cancer              -    endometrial ablation
         -    acne                        -    cancer or dysplasia of the cervix

      A variety of other conditions may also be candidates for future
development.

      In July, 1998, DUSA filed its first new drug application ("NDA") with the
FDA for marketing approval using Levulan(R) photodynamic therapy to treat
multiple actinic keratoses (pre-cancerous skin lesions)("AKs") of the face and
scalp. Since its inception, the Company has primarily devoted its resources to
funding research and development and as a result the Company has experienced
significant operating losses. To strengthen its cash position and in order to
support on-going operations during the FDA review process, DUSA completed a
private placement on January 15, 1999 of 1,500,000 shares of its common stock
raising gross proceeds of $7,500,000. The placement agent received a commission
and non-accountable expense allowance of 8% of the gross proceeds, which the
placement agent chose to take in the


                                       -8-
<PAGE>   9
form of 130,435 shares of common stock. The placement agent also received
163,043 warrants to purchase common stock at an exercise price equal to the
private placement offering price per share. The warrants expire on January 14,
2004. As of March 31, 1999, the Company had an accumulated deficit of
$31,447,289.

      On February 26, 1999, DUSA filed a Form S-3 Registration Statement to
register the shares purchased in the January private offering. The Company will
not receive any proceeds from the resale of these shares. In addition, the
Registration Statement will register the shares of common stock underlying up to
570,543 options and warrants, including the 163,043 warrants issued by the
Company to the placement agent in the recently completed private placement,
337,500 issued to its underwriters in two previous securities offerings, and
70,000 to its investor relations consultants. These securities may be converted
from time to time at their various exercise prices. See "Liquidity and Capital
Resources".

Financial Condition

      The Company's total assets were $13,286,125 as of March 31, 1999, compared
to $7,140,675 as of December 31, 1998. The increase is the direct result of the
completion of the private placement of the Company's shares. Management expects
that assets will decline as research and development activities proceed, until
and unless the Company successfully makes the transition to profitability, or
concludes and receives funds as part of a corporate alliance and/or from other
financing activities. As of March 31, 1999, the Company had outstanding current
liabilities of $627,188 as compared to $724,529 as of December 31, 1998. The
decrease in current liabilities from December 31, 1998 is due to the timing of
certain expense payments, and lower expenditures in the quarter. Since its
inception the Company has had no long-term debt.

      The profitability of the Company is dependent upon receipt of marketing
approval by the FDA and the ability of the Company to develop a market for its
products. Although the Company believes its clinical trials support the AKs
products' safety and efficacy, there can be no assurance that the products will
be approved by the FDA. Additionally, the Company cannot be sure that a
successful market will develop for its new technology, Levulan(R) PDT for AKs.
At this time the Company is developing various plans for marketing its first
product upon receipt of regulatory marketing approval. The Company is
negotiating potential


                                       -9-
<PAGE>   10
collaborative licensing arrangements with pharmaceutical companies with
manufacturing and/or sales and distribution capability to market its products.
The Company is also developing plans to market the products through distribution
or co-promotion arrangements.

      While the FDA is actively reviewing the Company's first NDA utilizing
Levulan PDT for multiple actinic keratoses, the Company is continuing with
preparations for manufacturing and commercialization of its initial products,
namely the Levulan(R) Kerastick(TM) brand applicator and the BLU-U(TM) brand
light device. As of March 31, 1999, the Company had made capital expenditures of
$122,555 related to these efforts and expects that it will spend approximately
$90,000 more during the balance of 1999.

      The Company has been asked to appear before an FDA Advisory Committee on
June 4, 1999. The recommendations of the FDA Committee, while not binding on the
agency, often have an impact on the FDA's decision concerning the approval of an
NDA. While we remain optimistic regarding FDA approval, we cannot guarantee that
we will receive approval in order to market any of our products. If the Company
does not conclude a dermatology marketing alliance, the Company would require
additional funding to properly market its first product upon approval by the
FDA.

      The Company held United States government securities at a fair market
value of $11,661,107 as of March 31, 1999, as compared to $5,508,375 as of
December 31, 1998. Maturity dates have been selected to match the Company's
requirement for cash for operations.

      DUSA's research and development program is also continuing, as planned,
for the enhancement of bladder cancer detection and for its secondary
indications. Funding of other potential indications beyond the Company's current
commitments will be carefully reviewed in order for the Company to maintain its
operations and prepare for commercialization of its AK drug and light products.
Full development and testing of all potential indications which are currently
under development would require additional funding. The timing of future
expenditures will be dependent on various factors, including the approval of its
AK NDA filing, progress on the Company's other research and development
programs, the results of preclinical and clinical trials, the timing of
regulatory marketing approvals, competitive developments, payments under any
collaborative arrangements, if any, entered into by the Company and the
availability of alternate financing. There can be no assurance, however, that
our current resources will be sufficient to enable the Company to obtain
regulatory marketing


                                      -10-
<PAGE>   11
approval or to market any product for any indications currently under
development. Therefore, there is no way to predict the timing or magnitude of
the revenues from the marketing of the Company's product or whether any such
revenues will be realized.

      If sufficient funds are available, the Company may also use its resources
to acquire by license, purchase or other arrangements, businesses, technologies,
or products that enhance or expand the Company's business. The Company is
actively seeking relationships with pharmaceutical or other suitable
organizations to market the Company's products and technologies, or provide
funding for research projects.

Results of Operations

      The Company has had no sales to date. Interest income, earned primarily on
United States government securities, decreased slightly to $160,260 for the
three-month period ended March 31, 1999, as compared to $160,908 for the
three-month period ended March 31, 1998, as the Company continues to expend
funds for ongoing research and development. This trend is expected to continue
throughout the Company's development stage, unless the Company raises funds by
concluding a strategic alliance or other financing activities. Interest income
for the cumulative period from February 21, 1991 (date of incorporation) to
March 31, 1999 was $5,574,126.

      Research and development costs for the three-month period ended March 31,
1999 decreased to $841,922 from $1,079,732 for the comparable three-month period
ended March 31, 1998. In the first quarter of 1998, the Company was in the
process of compiling its clinical data into the format required to file the NDA
for the AK indication, which was an expensive and tedious task. During the FDA
review of the NDA, the Company has been funding its research and development
activities selectively in order to make the best use of its existing resources.
While continuing to fund the bladder cancer detection trials, the Company
expects to fund its own and/or investigator trials in hair removal, acne and
endometrial ablation during the balance of 1999. Should the Company conclude a
corporate alliance or other financing activity, it will accelerate research and
development funding of certain secondary indications.

      DUSA has completed a purchase and supply agreement with its supplier of
BLU-U(TM) brand light devices and is negotiating a supply agreement with the
manufacturer for commercial production of the Kerastick(TM). Similarly, the
Company has secured a supply but is dependent 


                                      -11-
<PAGE>   12
upon a sole supplier for bulk ALA which the Company formulates into Levulan(R).
The Company has recently been informed that the facility of our bulk ALA
supplier does not yet meet FDA's "good manufacturing practices" (GMP)
regulations. The Company is in regular communication with the supplier on these
issues. DUSA believes that the supplier is actively working to resolve the
deficiencies in order to be GMP compliant upon re-inspection by the FDA. The
Company has identified other suppliers of bulk ALA, but if DUSA is forced to use
an alternate supplier, DUSA believes that FDA approval and the marketing of
Levulan(R) PDT for AKs would be delayed. DUSA may develop a back-up supply of
Kerasticks(TM) by establishing its own limited production line.

      The Company incurred a net loss of $1,029,322, or $0.10 per share, for the
three-month period ended March 31, 1999, as compared to a net loss of
$1,376,936, or $0.15 per share, for the three-month period ended March 31, 1998.
Operating expenses were $347,660 and $456,053 for the three-month periods ended
March 31, 1999, and March 31, 1998 respectively. Operating expenses are expected
to increase as the Company hires additional employees and scales up the
manufacturing process for the commercial production of the Levulan(R) Kerastick,
and the BLU-U(TM), the products that will be used as part of the Levulan(R) PDT
system to treat actinic keratoses. The Company expects to incur increased rental
expenses for new office space in Massachusetts for the anticipated expansion of
operational, technical and marketing personnel.

Liquidity and Capital Resources

      The Company's United States government securities available for sale have
an aggregate cost of $11,695,132 and a current aggregate market value of
$11,661,107 as of March 31, 1999, resulting in a net unrealized loss on
securities available for sale of $34,025, which has been included in the
shareholders' equity. Some losses could be realized, depending upon the timing
of the Company's need to convert government securities into cash to meet its
working capital requirements. The Company's securities currently have interest
rates and yields ranging from 5.01% to 6.358%, and maturity dates ranging from
April 9, 1999 to September 21, 2000.

      As a result of the completion in January, 1999 of the private placement of
1,500,000 shares, the Company raised net proceeds of $7,311,672. These funds
have been added to the working capital accounts of the Company. The Company
believes it has sufficient capital 


                                      -12-
<PAGE>   13
resources to proceed with its current development program for Levulan(R) PDT/ PD
through 2000 if the Company does not reallocate resources to marketing
activities related to the actinic keratoses launch. Management is focusing on a
limited number of indications to enhance the Company's ability to complete the
regulatory process, but full development and testing of all potential
indications which are currently under development would require additional
funding See "--Financial Condition".

      Any proceeds that DUSA may receive upon the exercise of warrants and/or
options which are being registered on the pending Form S-3 mentioned-above will
be used for working capital, primarily to advance research and product
development activities of its Levulan(R) PDT/PD technology platform, including
conducting pre-clinical studies and clinical trials. The Company may receive
proceeds of up to $3,802,215 from the conversion of these options and warrants.
The amount that the Company receives will depend upon the exercise price of the
warrants and the options and the extent to which they are exercised. See
"--General and Financial Condition".

      The Company has invested its funds in liquid investments, so that it will
have ready access to its cash reserves, as needed, for the funding of its
development plans on a short-term and long-term basis.

Adoption of SFAS No. 133

      In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. This Statement establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. It requires
that an entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value. As
required, the Company adopted SFAS No. 133 in the quarter ended March 31, 1999.
The adoption did not have a material effect on the consolidated financial
statements.

Year 2000 Compliance

      The Year 2000 issue is the result of computer programs having been written
using two digits, rather than four, to define the applicable year. Any of the
Company's computers, computer programs, and administrative equipment that have
date-sensitive software may 


                                      -13-
<PAGE>   14
recognize a date using "00" as the year 1900 rather than the year 2000. If any
of the Company's systems that have date-sensitive software use only two digits,
system failures or miscalculations may result causing disruptions to operations,
including among other things, a temporary inability to process transactions or
send and receive electronic data with third-parties or engage in similar normal
business activities. The Company's relatively new management information
systems, which were supplied and are maintained by third-parties, have been
certified as Year 2000 compliant. However, because most computer systems are, by
their very nature, interdependent, it is possible that non-compliant third-party
computers could have an adverse effect on the Company's computer systems. The
Company can give no assurance that such third-party systems do not contain
undetected errors or defects associated with the year 2000 date functions that
may have a material adverse effect on its business, results of operation or
financial condition.

      The Company is in the process of contacting its key unrelated
third-parties to certify their Year 2000 compliance. The Company expects to
complete the process of obtaining certifications from unrelated third-parties by
June, 1999. In the event such certifications are not available, the Company is
developing plans to evaluate the potential impact on its operations if such
third-parties are unable to perform their obligations. To the extent that such
third-parties are materially adversely effected by the Year 2000 issue, the
Company could have disruptions and delays in its operations, and in receipt of
supplies of our drug or light devices. These events could negatively impact our
research and development activities and our revenues of any products which may
have been commercialized by that date.

      The Company believes that it is devoting the necessary resources to
identify and resolve significant Year 2000 issues in a timely manner. The costs
incurred in addressing Year 2000 compliance are not considered at this time to
be material and will be expensed as incurred.

Inflation

      Although inflation rates have been comparatively low in recent years,
inflation is expected to apply upward pressure on the operating costs of the
Company. The Company has included an inflation factor in its cost estimates,
however, the overall net effect of inflation on the operations of the Company
should be minimal.


                                      -14-
<PAGE>   15
Forward-Looking Statements

      The foregoing Management Discussion and Analysis contains various
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1993 and Section 21E of the Securities and Exchange Act of 1934, as
amended, which represent the Company's expectations or beliefs concerning future
events. These statements refer to management's expectations of potential future
indications, conversion of options and warrants which are subject to a pending
registration statement and the use of any proceeds derived from such conversion,
the decline of assets and increase in operating expenses, the likelihood of
regulatory approval and the commencement and magnitude of sales, the amount of
capital expenditures for 1999, the sufficiency of the Company's resources for
future research and development efforts, and capital requirements, the actions
of its bulk ALA supplier to resolve GMP deficiencies, and the potential adverse
effect from Year 2000 computer problems. These forward-looking statements are
further qualified by important factors that could cause actual results to differ
materially from those in the forward-looking statements. These factors include,
without limitation, changing stock market conditions, availability of suitable
light sources and drug supplies, clinical results of its trials, the impact of
competitive products and pricing, and the timely development, FDA approval and
market acceptance of the Company's products, none of which can be assured.
Results actually achieved may differ materially from expected results included
in these statements as a result of these or other factors.


                                      -15-
<PAGE>   16
                           PART II- OTHER INFORMATION

Item 1-5.

      None.

Item 6. Exhibits and Reports on Form 8-K.

      a)    Exhibits 27 - Financial Data Schedule, which is submitted
            electronically to the Securities and Exchange Commission for
            information only and not filed.

      b)    The following Reports on Form 8-K were filed during the quarter: 
               
               i) Form 8-K dated January 7, 1999 and filed on January 11, 1999
              which reported interim clinical trial results for its Phase I/II
              bladder cancer detection study; and 

               ii) Form 8-K dated and filed on January 14, 1999 which reported a
              fully-subscribed private placement of 1,500,000 shares of the
              registrant's common stock.

                                   SIGNATURES

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

                                        DUSA Pharmaceuticals, Inc.


      Date May 3, 1999                  By: /s/ D. Geoffrey Shulman             
                                        -------------------------------------
                                        D. Geoffrey Shulman, MD, FRCPC
                                        President, Chief Executive Officer,
                                        and Chief Financial Officer


                                      -16-
<PAGE>   17
                                  EXHIBIT INDEX


        Exhibit No.                          Description
        -----------                          -----------

            27          Financial Data schedule, which is submitted
                        electronically to the Securities and Exchange Commission
                        for information only and not filed.


                                      -17-