<PAGE>

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                    FORM 10-Q

                                   (Mark One)

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

                  For the quarterly period ended: June 30, 2007

[ ]  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: 001-31533

                           DUSA PHARMACEUTICALS, INC.
             (Exact Name of Registrant as Specified in Its Charter)

<TABLE>
<S>                                                          <C>
           New Jersey                                             22-3103129
(State or Other Jurisdiction of                               (I.R.S. Employer
Incorporation or Organization)                               Identification No.)
</TABLE>

<TABLE>
<S>                                                                <C>
     25 Upton Drive, Wilmington, MA                                  01887
(Address of Principal Executive Offices)                          (Zip Code)
</TABLE>

                                 (978) 657-7500
              (Registrant's Telephone Number, Including Area Code)


_______________________________________________________________________________
              (Former Name, Former Address and Former Fiscal Year,
                          if Changed Since Last Report)

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 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 [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer" in Rule 12b-2 of the Exchange Act. (Check one):

LARGE ACCELERATED FILER [ ]   ACCELERATED FILER [X]   NON-ACCELERATED FILER [ ]

Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).

Yes [ ] No [X]

As of August 6, 2007, the registrant had 19,495,067 shares of Common Stock, no
par value per share, outstanding.




<PAGE>

DUSA PHARMACEUTICALS, INC.
TABLE OF CONTENTS TO FORM 10-Q

<TABLE>
<CAPTION>
                                                                           Page
                                                                          Number
                                                                          ------
<S>                                                                       <C>
                          PART I. FINANCIAL INFORMATION

Item 1.   Financial Statements                                               3

          -    Condensed Consolidated Balance Sheets at June 30, 2007
               and December 31, 2006 (Unaudited)

          -    Condensed Consolidated Statements of Operations for the
               three and six-month periods ended June 30, 2007 and 2006
               (Unaudited)

          -    Condensed Consolidated Statements of Cash Flows for the
               six-month periods ended June 30, 2007 and 2006
               (Unaudited)

          -    Notes to the Condensed Consolidated Financial Statements
               (Unaudited)

Item 2.   Management's Discussion and Analysis of Financial Condition
          and Results of Operations                                         17

Item 3.   Quantitative and Qualitative Disclosures About Market Risk        29

Item 4.   Controls and Procedures                                           30

                           PART II. OTHER INFORMATION

Item 1.   Legal Proceedings                                                 31

Item 1A.  Risk Factors                                                      31

Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds       42

Item 3.   Defaults Upon Senior Securities                                   42

Item 4.   Submission of Matters to a Vote of Security Holders               42

Item 5.   Other Information                                                 42

Item 6.   Exhibits                                                          42
</TABLE>

SIGNATURES                                                                  43

Exhibit Index                                                               44

EX-10     Supply and  License Agreement

EX-31(A)  SECTION 302 CERTIFICATION OF THE C.E.O.

EX-31(B)  SECTION 302 CERTIFICATION OF THE C.F.O.

EX-32(A)  SECTION 906 CERTIFICATION OF THE C.E.O.

EX-32(B)  SECTION 906 CERTIFICATION OF THE C.F.O.

EX-99     Press Release


                                        2

<PAGE>

                                     PART I.

DUSA PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

<TABLE>
<CAPTION>
                                                                   JUNE 30, 2007   DECEMBER 31, 2006
                                                                   -------------   -----------------
<S>                                                                <C>             <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents                                          $   3,028,932    $   3,267,071
Marketable securities available-for-sale                              10,020,979       14,943,196
Accrued interest receivable                                               76,840          158,374
Accounts receivable, net                                               1,858,270        2,060,565
Inventory                                                              2,912,166        2,343,472
Prepaids and other current assets                                      1,078,409        1,535,819
                                                                   -------------    -------------
TOTAL CURRENT ASSETS                                                  18,975,596       24,308,497
Restricted cash                                                          166,813          162,805
Property, plant and equipment, net                                     2,421,531        2,567,286
Goodwill                                                               6,272,505        5,772,505
Deferred charges and other assets                                      1,026,272          944,720
                                                                   -------------    -------------
TOTAL ASSETS                                                       $  28,862,717    $  33,755,813
                                                                   =============    =============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable                                                   $   1,167,478    $     649,523
Accrued compensation                                                     750,100        1,674,470
Other accrued expenses                                                 2,782,808        3,841,891
Deferred revenue                                                         412,002           57,270
                                                                   -------------    -------------
TOTAL CURRENT LIABILITIES                                              5,112,388        6,223,154
Other liabilities                                                      2,244,146        1,199,086
                                                                   -------------    -------------
TOTAL LIABILITIES                                                      7,356,534        7,422,240
                                                                   -------------    -------------
COMMITMENTS AND CONTINGENCIES (NOTE 15)
SHAREHOLDERS' EQUITY
Capital Stock
Authorized: 100,000,000 shares; 40,000,000 shares
   designated as common stock, no par, and 60,000,000 shares
   issuable in series or classes; and 40,000 junior Series
   A preferred shares.
Issued and outstanding: 19,495,067 and 19,480,067 shares of
   common stock, no par, at June 30, 2007 and December 31, 2006,
   respectively                                                      143,250,537      142,959,298
Additional paid-in capital                                             5,038,324        4,320,625
Accumulated deficit                                                 (126,735,309)    (120,886,977)
Accumulated other comprehensive loss                                     (47,369)         (59,373)
                                                                   -------------    -------------
TOTAL SHAREHOLDERS' EQUITY                                            21,506,183       26,333,573
                                                                   -------------    -------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                         $  28,862,717     $ 33,755,813
                                                                   =============    =============
</TABLE>

See the accompanying notes to the Condensed Consolidated Financial Statements


                                        3
<PAGE>

DUSA PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

<TABLE>
<CAPTION>
                                          THREE MONTHS ENDED           SIX MONTHS ENDED
                                               JUNE 30,                    JUNE 30,
                                      -------------------------   -------------------------
                                          2007          2006          2007          2006
                                      -----------   -----------   -----------   -----------
<S>                                   <C>           <C>           <C>           <C>
Product Revenues                      $ 6,862,198   $ 6,619,109   $13,539,038   $11,369,630
Cost of Product Revenues                1,776,491     2,995,163     3,932,643     4,785,922
                                      -----------   -----------   -----------   -----------
GROSS MARGIN                            5,085,707     3,623,946     9,606,395     6,583,708
Operating Costs
Research and Development                1,576,909     1,527,523     3,103,013     3,038,254
In-process Research and Development            --            --            --     1,600,000
Marketing and Sales                     3,309,583     3,176,523     6,840,290     5,867,207
General and Administrative              2,832,576     3,753,796     5,856,025     5,824,087
                                      -----------   -----------   -----------   -----------
TOTAL OPERATING COSTS                   7,719,068     8,457,842    15,799,328    16,329,548
                                      -----------   -----------   -----------   -----------
LOSS FROM OPERATIONS                   (2,633,361)   (4,833,896)   (6,192,933)   (9,745,840)
OTHER INCOME
Other income, net                         155,954       179,942       344,598       451,578
                                      -----------   -----------   -----------   -----------
NET LOSS                              $(2,477,407)  $(4,653,954)  $(5,848,335)  $(9,294,262)
                                      ===========   ===========   ===========   ===========
BASIC AND DILUTED NET LOSS PER
   COMMON SHARE                       $     (0.13)  $     (0.24)  $     (0.30)  $     (0.50)
                                      ===========   ===========   ===========   ===========
WEIGHTED AVERAGE NUMBER OF COMMON
   SHARES OUTSTANDING, BASIC AND
   DILUTED                             19,487,485    19,448,824    19,483,796    18,544,084
                                      ===========   ===========   ===========   ===========
</TABLE>

See the accompanying notes to the Condensed Consolidated Financial Statements


                                        4

<PAGE>

DUSA PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

<TABLE>
<CAPTION>
                                                               SIX MONTHS ENDED JUNE 30,
                                                              --------------------------
                                                                  2007           2006
                                                              ------------   -----------
<S>                                                           <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss                                                      $ (5,848,335)  $(9,294,262)
Adjustments to reconcile net loss to net
   cash used in operating activities:
Amortization of premiums and accretion of discounts
   on marketable securities available-for-sale                     (98,092)       44,422
Realized gains on sale of marketable securities,
   available for sale                                               (7,113)      (14,015)
Depreciation and amortization                                      349,667     2,002,994
Deferred revenue recognized                                       (203,300)           --
In-process research and development charge                              --     1,600,000
Stock-based compensation                                           717,698       970,064
Changes in other assets and liabilities impacting cash
   flows from operations (net of impact of acquisition):
   Accrued interest receivable                                      81,534       153,274
   Accounts receivable                                             202,295        22,841
   Inventory                                                      (568,694)     (143,335)
   Prepaid and other current assets                                457,410      (666,173)
   Deferred charges and other assets                               (81,552)     (726,132)
   Accounts payable                                                517,955    (1,015,086)
   Accrued compensation and other accrued expenses              (1,732,859)     (539,494)
   Deferred revenue                                              1,504,586       972,417
   Other liabilities                                                98,504           215
                                                              ------------   -----------
NET CASH USED IN OPERATING ACTIVITIES                           (4,610,296)   (6,632,270)
                                                              ------------   -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Cash paid for acquisition, net of cash received                   (500,000)   (7,767,006)
Purchases of marketable securities                             (11,399,203)   (1,059,725)
Proceeds from maturities and sales of marketable securities     16,438,627    16,994,393
Restricted cash                                                     (4,008)       (9,745)
Purchases of property, plant and equipment                        (203,909)     (162,160)
                                                              ------------   -----------
NET CASH PROVIDED BY INVESTING ACTIVITIES                        4,331,507     7,995,757
                                                              ------------   -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from exercise of options                                   40,650        40,956
                                                              ------------   -----------
NET (DECREASE) INCREASE  IN CASH AND CASH EQUIVALENTS             (238,139)    1,404,443
                                                              ------------   -----------
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                 3,267,071     4,210,675
                                                              ------------   -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD                    $  3,028,932   $ 5,615,118
                                                              ============   ===========
</TABLE>

See the accompanying notes to the Condensed Consolidated Financial Statements


                                        5

<PAGE>

DUSA PHARMACEUTICALS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1) BASIS OF PRESENTATION AND GOING CONCERN

The Condensed Consolidated Balance Sheet as of June 30, 2007, and the Condensed
Consolidated Statements of Operations for the three and six months ended June
30, 2007 and 2006, and Condensed Consolidated Statements of Cash Flows for the
six months ended June 30, 2007 and 2006 of DUSA Pharmaceuticals, Inc. (the
"Company" or "DUSA") have been prepared in accordance with accounting principles
generally accepted in the United States of America ("U.S. GAAP"). These
condensed consolidated financial statements are unaudited but include all normal
recurring adjustments, which management of the Company believes to be necessary
for fair presentation of the periods presented. The results of the Company's
operations for any interim period are not necessarily indicative of the results
of the Company's operations for any other interim period or for a full year.

Certain information and footnote disclosures normally included in financial
statements prepared in accordance with U.S. GAAP have been condensed or omitted
as they are prepared in accordance with Securities and Exchange Commission rules
and regulations for interim financial results. These condensed consolidated
financial statements should be read in conjunction with the Consolidated
Financial Statements and Notes to the Consolidated Financial Statements included
in our Annual Report on Form 10-K for the year ended December 31, 2006 filed
with the Securities and Exchange Commission. The balance sheet as of December
31, 2006 has been derived from the audited financial statements at that date but
does not include all of the information and footnotes required by U.S. GAAP for
complete financial statements.

The Company has an accumulated deficit of $126,735,000 as of June 30, 2007. The
Company has funded its operations primarily through public offerings, private
placements of equity securities and payments received under our collaboration
agreements. The Company expects to incur significant additional research and
development and other costs including costs related to preclinical studies and
clinical trials. The Company's costs, including research and development costs
for our product candidates and sales, marketing and promotion expenses for any
of our existing or future products to be marketed by us or our collaborators
currently exceed and may continue to exceed revenues in the future, which may
result in continued losses from operations. At June 30, 2007, the Company had
cash and cash equivalents of $3,029,000 and marketable securities
available-for-sale of $10,020,979. For the six months ended June 30, 2007, the
Company used cash in operating activities of $4,610,296. Based on current
operations and plans, management believes there is sufficient cash to fund
operations through at least June 2008. Improvements in cash flows from
operations, or obtaining additional financing, is required to continue as a
going concern thereafter.

Successful completion of the Company's development program and, ultimately, the
attainment of profitable operations is dependent upon achieving a level of
revenues adequate to support the Company's cost structure and if necessary,
obtaining additional financing and/or reducing expenditures. There are no
assurances, however, that the Company will be able to achieve an adequate level
of sales to support the Company's cost structure or obtain additional financing
on favorable terms, or at all. Failure to raise capital when needed could
materially adversely impact the Company's business, financial condition, results
of operations and cash flows and impact the Company's ability to continue as a
going concern.

2) SIGNIFICANT ACCOUNTING POLICIES

REVENUE RECOGNITION AND PROVISIONS FOR ESTIMATED REDUCTIONS TO GROSS REVENUES

The Company recognizes revenues in accordance with Staff Accounting Bulletin
(SAB) No. 101, Revenue Recognition in Financial Statements, as amended by SAB
No. 104, Revenue Recognition. This accounting policy for revenue recognition has
a substantial impact on our reported results and relies on certain estimates
that require difficult, subjective and complex judgments by management.

PHOTODYNAMIC THERAPY (PDT) DRUG AND DEVICE PRODUCTS. Revenues on the Levulan(R)
Kerastick(R) and BLU-U(R) product sales are recognized when persuasive evidence
of an arrangement exists, the price is fixed and determinable, delivery has
occurred, and collection is probable. Product sales made through distributors,
historically, have been recorded as deferred revenue until the product was sold
by the distributors to the end users because the Company did not have sufficient
history with its distributors to be able to reliably estimate returns. Beginning
in the first quarter of 2006, the Company began recognizing revenue as product
is sold to distributors because it believes it has sufficient history to
reliably estimate returns from distributors. This change in estimate was not
material to the Company's revenues or results of operations. We offer programs
that allow physicians access to our BLU-U(R) device for a trial period. No
revenue is recognized on these units until the physician elects to purchase the
equipment and all other revenue recognition criteria are met.

NON-PDT DRUG PRODUCTS. The Company recognizes revenue for sales of Non-PDT Drug
Products when substantially all the risks and rewards of ownership have
transferred to the customer, which generally occurs on the date of shipment to
wholesale


                                        6

<PAGE>

customers, with the exceptions described below. Revenue is recognized net of
revenue reserves, which consist of allowances for discounts, returns, rebates,
chargebacks and fees paid to wholesalers under distribution service agreements.

In the case of sales made to wholesalers as a result of incentives and that are
in excess of the wholesaler's ordinary course of business inventory level,
substantially all the risks and rewards of ownership do not transfer upon
shipment and, accordingly, such sales are recorded as deferred revenue and the
related costs as deferred cost of revenue until the product is sold through to
the wholesalers' customers on a first in, first out basis.

The Company evaluates inventory levels at its wholesaler customers, which
account for the vast majority of its sales in the Non-PDT Drug Products segment,
through an analysis that considers, among other things, wholesaler purchases,
wholesaler shipments to retailers, available end-user prescription data
purchased from third parties and on-hand inventory data received directly from
our three largest wholesaler customers. The Company believes that this
evaluation of wholesaler inventory levels, allows it to make reasonable
estimates for its applicable revenue related reserves. Additionally, the
Company's products are sold to wholesalers with a product shelf life that allows
sufficient time for its wholesaler customers to sell its products in their
inventory through to retailers and, ultimately, to end-user consumers prior to
product expiration.

For new product launches where the Company does not have the ability to reliably
estimate returns, it recognizes revenues based on end-user demand, which is
typically based on dispensed subscription data. When inventories have been
reduced to targeted stocking levels at wholesalers, and the Company has
sufficient data to determine product acceptance in the marketplace which allows
the Company to estimate product returns, the Company recognizes revenue upon
shipment to wholesalers, net of discounts and allowances. As of June 30, 2007,
the Company deferred $347,000 in revenue related to the launch of its new
product, ClindaReach(TM), that has not been sold through to the end users.

RETURNS AND ALLOWANCES - The Company's provision for returns and allowances
consists of its estimates of future sales returns, rebates and chargebacks.

SALES RETURNS - The Company accounts for sales returns in accordance with
Statements of Financial Accounting Standards (SFAS) No. 48, Revenue Recognition
When Right of Return Exists, by establishing an accrual in an amount equal to
its estimate of sales recorded for which the related products are expected to be
returned. The Company determines the estimate of the sales return accrual
primarily based on historical experience regarding sales returns, but also by
considering other factors that could impact sales returns. These factors include
levels of inventory in the distribution channel, estimated shelf life, product
recalls, product discontinuances, price changes of competitive products,
introductions of generic products and introductions of competitive new products.
It is the Company's policy to accept returns of Non-PDT Drug products when
product is within six months of expiration. The Company considers all of these
factors and adjusts the accrual periodically to reflect actual experience.

CHARGEBACKS AND REBATES - Chargebacks typically occur when suppliers enter into
contractual pricing arrangements with end-user customers, including certain
federally mandated programs, who then purchase from wholesalers at prices below
what the supplier charges the wholesaler. Since the Company only offers
"preferred pricing" to end-user customers under federally mandated programs,
chargebacks have not been significant to the Company. The Company's rebate
programs can generally be categorized into the following two types: Medicaid
rebates and consumer rebates. Medicaid rebates are amounts owed based on legal
requirements with public sector benefit providers after the final dispensing of
the product by a pharmacy to a benefit plan participant. Consumer rebates are
amounts owed as a result of mail-in coupons that are distributed by health care
providers to consumers at the time a prescription is written. Since only a small
percentage of its prescriptions are reimbursed under Medicaid and the quantity
of consumer coupon redemptions have not been substantial, rebates have not been
significant to the Company.

The Company offers many of its customers a 2% prompt pay discount. The Company
evaluates the amount accrued for prompt pay discounts by analyzing the unpaid
invoices in its accounts receivable aging subject to a prompt pay discount.
Prompt pay discounts are known within 15 to 30 days of sale, and therefore can
be reliably estimated based on actual and expected activity at each reporting
date. The Company records these discounts at the time of sale and they are
accounted for as a reduction of revenues. A summary of activity in the Company's
valuation accounts are as follows:


                                        7

<PAGE>

<TABLE>
<CAPTION>
                                                     FOR THE THREE MONTH PERIOD ENDED JUNE 30, 2007:
                                           ------------------------------------------------------------------
                                           PROVISION RELATED                   ACTUAL RETURNS
                                             TO SALES MADE     PROVISION FOR     OR CREDITS
                             BALANCE AT      IN THE CURRENT    SALES MADE IN       IN THE         BALANCE AT
                           APRIL 1, 2007         PERIOD        PRIOR PERIODS   CURRENT PERIOD   JUNE 30, 2007
                           -------------   -----------------   -------------   --------------   -------------
<S>                        <C>             <C>                 <C>             <C>              <C>
Accrued Expenses:
Returns and allowances        $653,000          $242,000            $--           $190,000         $705,000
Accounts receivable:
Prompt payment discounts      $ 39,000          $ 65,000            $--           $ 87,000         $ 17,000
</TABLE>

<TABLE>
<CAPTION>
                                                        FOR THE SIX MONTH PERIOD ENDED JUNE 30, 2007:
                                             ------------------------------------------------------------------
                                             PROVISION RELATED                   ACTUAL RETURNS
                                               TO SALES MADE     PROVISION FOR     OR CREDITS
                              BALANCE AT      IN THE CURRENT     SALES MADE IN       IN THE         BALANCE AT
                           JANUARY 1, 2007        PERIOD         PRIOR PERIODS   CURRENT PERIOD   JUNE 30, 2007
                           ---------------   -----------------   -------------   --------------   -------------
<S>                        <C>               <C>                 <C>             <C>              <C>
Accrued Expenses:
Returns and allowances         $632,000           $500,000            $--           $427,000         $705,000
Accounts receivable:
Prompt payment discounts       $ 23,000           $128,000            $--           $134,000         $ 17,000
</TABLE>

WARRANTIES

The Company routinely accrues for estimated future warranty costs on its product
sales at the time of sale. Our products are subject to rigorous regulation and
quality standards. Warranty costs were $19,000 and $52,000 for the three and six
month periods ended June 30, 2007 compared to $9,000 and $21,000, respectively,
in the comparable 2006 periods, and were included in cost of product revenues.

GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill and intangible assets with indefinite lives are not amortized but are
reviewed annually for impairment or more frequently if impairment indicators
arise. Separable intangible assets that are not deemed to have indefinite lives
will continue to be amortized over their useful lives. The Company has adopted
December 1st as the date of the annual impairment test for goodwill.

SHARE-BASED COMPENSATION

The Company adopted SFAS 123(R), Share-Based Payment, effective January 1, 2006,
using the modified prospective application method, and beginning with the first
quarter of 2006, the Company measures all employee share-based compensation
awards using a fair value based method and records share-based compensation
expense in its financial statements if the requisite service to earn the award
is provided. In accordance with SFAS 123(R), the Company recognizes the expense
attributable to stock awards that are granted or vest in periods ending
subsequent to December 31, 2005 in the accompanying condensed consolidated
statements of operations.


                                        8

<PAGE>

RECENTLY ISSUED ACCOUNTING STANDARDS

In September 2006, the FASB issued SFAS No. 157, Fair Market Measurements ("SFAS
157"), which establishes a framework for measuring fair value and expands
disclosures about the use of fair value measurements and liabilities in interim
and annual reporting periods subsequent to initial recognition. Prior to SFAS
157, which emphasizes that fair value is a market-based measurement and not an
entity-specific measurement, there were different definitions of fair value and
limited definitions for applying those definitions in GAAP. SFAS 157 is
effective for the Company on a prospective basis for the reporting period
beginning January 1, 2008. The effect of adoption on the Company's financial
position and results of operations have not been determined.

In February 2007 the FASB issued Statement No. 159, The Fair Value Option for
Financial Assets and Financial Liabilities ("SFAS No. 159"). SFAS No. 159
expands opportunities to use fair value measurement in financial reporting and
permits entities to choose to measure many financial instruments and certain
other items at fair value. This Statement is effective for fiscal years
beginning after November 15, 2007. The Company will not early adopt the
provisions of SFAS No. 159 and is in the process of evaluating whether it will
choose to measure any eligible financial assets and liabilities at fair value.

In September 2006, Emerging Issues Task Force Issue No. 06-4, "Accounting for
Deferred Compensation and Postretirement Benefit Aspects of Endorsement
Split-Dollar Life Insurance Arrangements" (EITF 06-4) was issued. EITF 06-4
requires the recognition of a liability for an agreement with an employee to
provide future postretirement benefits, as this obligation is not effectively
settled upon entering into an insurance arrangement. The provisions of this
standard are effective for years beginning after December 15, 2007. The Company
is currently evaluating what effect the adoption of EITF 06-4 will have on its
consolidated financial statements.

3) BUSINESS ACQUISITION

On March 10, 2006, the Company acquired all of the outstanding common stock of
Sirius Laboratories, Inc. (Sirius) in exchange for 2,396,245 shares of
unregistered DUSA common stock and $8 million in cash. Pursuant to the terms of
the merger agreement, the actual number of shares that were issued in the
transaction was derived by dividing $17 million by the average closing price of
the Company's shares over the 20 trading day period prior to the closing of the
merger, or $7.094 per share. For accounting purposes, these shares are valued at
$7.30 per share, the average market price of the Company's common stock over the
five day period beginning two days prior and ending two days subsequent to the
public announcement of the signing of the first amendment to the merger
agreement. The former Sirius was a dermatology specialty pharmaceuticals company
founded in 2000 with a primary focus on the treatment of acne vulgaris and acne
rosacea. The merger with Sirius has enabled DUSA to expand its product
portfolio, capitalize on cross-selling and marketing opportunities, increase its
sales force size; as well as, develop a pipeline of new products.

The aggregate purchase price, net of cash received of $0.5 million, was
approximately $26.8 million, which consisted of $17.2 million in shares of
common stock, net of estimated registration costs of $0.3 million, $7.5 million
in cash, $0.3 million outstanding balance on line of credit, and transaction
costs of $1.8 million, which primarily consisted of fees for legal and financial
advisory services. Of the 2,396,245 shares issued in the acquisition, 422,892
shares have been placed in an escrow account established to secure the
indemnification obligations of the shareholders of Sirius as set forth in the
merger agreement. The escrow account is established for a period of two years
and will be used to satisfy liability claims, if any, made by the Company. No
amounts may be distributed from the liability escrow account unless and until
any individual claim exceeds $25,000 and cumulative claims exceed $100,000.

The Company has agreed to pay additional consideration in future periods, based
upon the attainment of defined operating objectives, including new product
approvals or launches and the achievement of pre-determined total cumulative
sales milestones for the Sirius products over the period ending 42 months from
the date of closing. The pre-determined cumulative sales milestones for the
Sirius products and the related milestone payments earned are, as follows:

<TABLE>
<CAPTION>
  CUMULATIVE
    SALES
  MILESTONE:    PAYMENT EARNED:
(in millions)    (in millions)
-------------   ---------------
<S>             <C>
$25.00               $1.50
 35.00                1.00
 45.00                1.00
                     -----
   Total:            $3.50
                     =====
</TABLE>

In addition, there are three milestones related to new product approvals and/or
launches each in the amount of $500,000 per milestone, or $1.5 million in the
aggregate, that will be paid if the milestones are achieved. The Company will
not accrue contingent consideration obligations prior to the attainment of the
objectives. During the first quarter of 2007, the Company paid $500,000 to the
former shareholders of Sirius related to the March 2007 launch of
ClindaReach(TM). This payment has increased goodwill in the


                                        9

<PAGE>

accompanying Condensed Consolidated Balance Sheet. The maximum remaining
potential future consideration pursuant to such arrangements, to be resolved
over the period ending 42 months from the date of close, is $4.5 million. If
attained, the new product or launch portion of the contingent consideration is
payable in cash and the sales milestone portion is payable in either common
stock or cash, at the Company's sole discretion. Any such payments will result
in increases in goodwill at time of payment.

The acquisition was accounted for using the purchase method of accounting and
the results of operations of the acquired business since March 10, 2006, the
date of acquisition, were included in the results of the Company. The total
purchase consideration was allocated to the assets acquired and liabilities
assumed at their estimated fair values as of the date of acquisition, as
determined by management and, with respect to identified intangible assets, by
management with the assistance of an appraisal provided by a third-party
valuation firm. The excess of the purchase price over the amounts allocated to
assets acquired and liabilities assumed has been recorded as goodwill. The value
of the goodwill from this acquisition can be attributed to a number of business
factors including, but not limited to, expanded product portfolio, cross selling
and marketing opportunities, increased sales force and a pipeline of new
products.

The following table summarizes the estimated fair value of the assets acquired
and liabilities assumed at the date of acquisition:

<TABLE>
<CAPTION>
                                              (IN THOUSANDS)
                                              --------------
<S>                                           <C>
Total consideration:
Common stock issued                              $17,454
Cash paid to stockholders                          8,000
Balance on line-of-credit                            251
Transaction costs paid                             1,620
                                                 -------
Total purchase consideration                      27,325
                                                 =======
Allocation of the purchase consideration
   Current assets (including cash of $485),
   exclusive of inventory                          2,198
Inventory                                          1,983
Fixed assets                                         109
Long-term assets                                      14
Identifiable intangible assets                    17,160
In-process research and development                1,600
Goodwill                                           5,773
                                                 -------
Total assets acquired                             28,837
                                                 -------
Fair value of liabilities assumed                 (1,512)
                                                 -------
Fair value of assets acquired and
   liabilities assumed                           $27,325
                                                 =======
</TABLE>

The amount allocated to goodwill and other intangible assets are not deductible
for tax purposes.

4) GOODWILL AND INTANGIBLE ASSETS

Under Statement of Financial Accounting Standards No. 142, Goodwill and Other
Intangible Assets ("SFAS No. 142"), goodwill and certain intangible assets are
deemed to have indefinite lives and are not amortized, but are reviewed at least
annually for impairment. Other identifiable intangible assets are amortized over
their estimated useful lives. SFAS No. 142 requires that goodwill be tested for
impairment annually, utilizing the fair value methodology. The Company has
adopted December 1st as the date of the annual impairment test for goodwill.

At June 30, 2007, goodwill was $6.3 million and was all attributable to the
Non-PDT Drug Products operating segment and reporting unit (see Note 12).
Amortization expense related to intangible assets was $437,000 and $539,000 for
the three and six-month periods ended June 30, 2006 and is included in cost of
product revenues in the accompanying Condensed Consolidated Statements of
Operations. Shortly after the closing of the merger, the Company became engaged
in patent litigation with River's Edge Pharmaceuticals, LLC ("River's Edge"), a
company that launched its niacinamide-based product which is being substituted
for Nicomide(R). River's Edge also requested that the United States Patent and
Trademark Office, or USPTO, reexamine the Nicomide(R) patent claiming that it is
invalid. The USPTO accepted the application for reexamination of the patent and
the parties have submitted their responses to the first office action. Although
the court issued a preliminary injunction against sales of River's Edge's
product in May 2006, the injunction was lifted on March 7, 2007, due, in part,
to the court's determination that the reexamination process presented sufficient
changed circumstances to warrant the dissolution of the injunction. River's Edge
has reentered the market with its product in competition with Nicomide(R). As a
result, in 2006 the identifiable intangible assets resulting from the Sirius
acquisition were determined to be impaired based on an analysis of the carrying
value and projected future cash flows of the assets. The impairment analysis
resulted in a write down of approximately $15.7 million in 2006, the then
remaining net book value of the


                                       10

<PAGE>

intangible assets.

5) MARKETABLE SECURITIES

The Company's investment securities consist of securities of the U.S. government
and its agencies, and investment grade corporate bonds, all classified as
available-for-sale. As of June 30, 2007, current yields range from 2.6% to 6.2%
and maturity dates range from July 2007 to October 2011. The estimated fair
value and cost of marketable securities at June 30, 2007 and December 31, 2006
are as follows:

<TABLE>
<CAPTION>
                                                          June 30, 2007
                                      ----------------------------------------------------
                                                        Gross        Gross
                                        Amortized    Unrealized   Unrealized
                                          Cost          Gains       Losses      Fair Value
                                      ------------   ----------   ----------   -----------
<S>                                   <C>            <C>          <C>          <C>
United States government securities    $ 8,163,836     $3,791      $(44,316)   $ 8,123,311
Corporate securities                     1,904,512         40        (6,884)     1,897,668
                                       -----------     ------      --------    -----------
Total marketable securities
   available-for-sale                  $10,068,348     $3,831      $(51,200)   $10,020,979
                                       ===========     ======      ========    ===========
</TABLE>

<TABLE>
<CAPTION>
                                                        December 31, 2006
                                      ----------------------------------------------------
                                                        Gross        Gross
                                        Amortized    Unrealized   Unrealized
                                          Cost          Gains       Losses      Fair Value
                                      ------------   ----------   ----------   -----------
<S>                                   <C>            <C>          <C>          <C>
United States government securities   $11,673,884       $112        $(51,687)  $11,622,309
Corporate securities                    3,328,685        295          (8,093)    3,320,887
                                      -----------       ----        --------   -----------
Total marketable securities
   available-for-sale                 $15,002,569       $407        $(59,780)  $14,943,196
                                      ===========       ====        ========   ===========
</TABLE>

The change in net unrealized gains and losses on such securities for the three
and six month periods ended June 30, 2007 were ($8,675) and $12,004,
respectively, as compared to ($338) and $29,443 for the three and six months
ended June 30, 2006, and have been recorded in accumulated other comprehensive
loss, which is reported as part of shareholder's equity in the Condensed
Consolidated Balance Sheets. Realized gains on sales of marketable securities
were $9,343 and $7,113 for the three and six month periods ended June 30, 2007,
respectively, as compared to $0 and $14,015 for the three and six month periods
ended June 30, 2006.

The Company does not consider investments with unrealized losses to be
other-than-temporarily impaired at June 30, 2007.

6) CONCENTRATIONS

The Company invests cash in accordance with a policy objective that seeks to
preserve both liquidity and safety of principal. The Company manages the credit
risk associated with its investments in marketable securities by investing in
U.S. government securities and investment grade corporate bonds.

The Company is also exposed to concentration of credit risk related to accounts
receivable that are generated from its distributors and customers. To manage
credit risk, the Company performs regular credit evaluations of its customers
and provides allowances for potential credit losses, when applicable.
Concentrations in the Company's total revenues for the three and six month
periods ended June 30, 2007 and 2006, and accounts receivable as of June 30,
2007 and December 31, 2006 are as follows:

<TABLE>
<CAPTION>
                      % OF REVENUE          % OF REVENUE           % OF ACCOUNTS
                   THREE MONTHS ENDED     SIX MONTHS ENDED        RECEIVABLE AS OF
                  -------------------   -------------------   -----------------------
                  JUNE 30,   JUNE 30,   JUNE 30,   JUNE 30,   JUNE 30,   DECEMBER 31,
                    2007       2006       2007       2006       2007         2006
                  --------   --------   --------   --------   --------   ------------
<S>               <C>        <C>        <C>        <C>        <C>        <C>
Customer A            7%         7%         6%         8%         9%          14%
Customer B           12%        15%        11%        10%        15%          16%
Customer C           20%        17%        18%        15%        29%          17%
Customer D            7%         7%         5%         5%         9%          10%
Other customers      54%        54%        60%        62%        38%          43%
                    ---        ---        ---        ---        ---          ---
Total               100%       100%       100%       100%       100%         100%
                    ===        ===        ===        ===        ===          ===
</TABLE>

The Company is dependent upon sole-source suppliers for a number of its
products. There can be no assurance that these suppliers


                                       11

<PAGE>

will be able to meet the Company's future requirements for such products or
parts or that they will be available at favorable terms. Any extended
interruption in the supply of any such products or parts or any significant
price increase could have a material adverse effect on the Company's operating
results in any given period.

7) INVENTORY

Inventory consisted of the following:

<TABLE>
<CAPTION>
                             June 30,    December 31,
                               2007          2006
                            ----------   ------------
<S>                         <C>          <C>
Finished goods              $1,744,004    $1,425,131
BLU-U(R) evaluation units      133,565       166,812
Work in process                496,079       257,358
Raw materials                  538,518       494,171
                            ----------    ----------
                            $2,912,166    $2,343,472
                            ==========    ==========
</TABLE>

BLU-U(R) commercial light sources placed in physicians' offices for an initial
evaluation period are included in inventory until all revenue recognition
criteria are met. The cost of the evaluation units is amortized during the
evaluation period to cost of product revenues to approximate their net
realizable value.

Finished goods inventory is recorded net of a reserve of approximately $85,000
for excess Nicomide(R) inventory resulting from the March 2007 dissolution of
the preliminary injunction allowing River's Edge to sell its niacinamide-based
product which is being substituted for Nicomide(R). The related expense is
recorded in cost of product revenues.

8) OTHER ACCRUED EXPENSES

Other accrued expenses consisted of the following:

<TABLE>
<CAPTION>
                                     June 30,    December 31,
                                       2007          2006
                                    ----------   ------------
<S>                                 <C>          <C>
Research and development costs      $  226,858    $  458,792
Marketing and sales costs              111,123       314,770
Product related costs                1,369,404     1,739,424
Legal and other professional fees      690,947       634,655
Employee benefits                      285,073       294,673
Other expenses                          99,403       399,577
                                    ----------    ----------
                                    $2,782,808    $3,841,891
                                    ----------    ----------
</TABLE>

9) INCOME TAXES

On July 13, 2006, the FASB issued FASB Interpretation No. 48, "Accounting for
Uncertainty in Income Taxes - An Interpretation of FASB Statement No. 109" ("FIN
48"). FIN 48 prescribes a recognition threshold and measurement attributes for
financial statement disclosure of tax positions taken or expected to be taken on
a tax return. Under FIN 48, the amount of tax benefits recognized must be the
largest amount of tax benefit that has a greater than 50% likelihood of being
sustained upon audit by the relevant taxing authority. In addition, FIN 48
provides guidance on derecognition, classification, interest and penalties, and
accounting for interim periods and requires expanded disclosure with respect to
the uncertainty in income taxes. FIN 48 is effective for fiscal years beginning
after December 15, 2006. The cumulative effect, if any, of adopting FIN 48 is to
be reported as an adjustment to the opening balance of retained earnings in the
year of adoption.

The Company adopted the provisions of FIN 48 on January 1, 2007. As of the date
of adoption, the total amount of unrecognized tax benefits is $1,800,000, all of
which, if recognized, would affect the effective tax rate prior to the
adjustment for the Company's valuation allowance. As a result of the
implementation of FIN 48, the Company did not recognize an increase in tax
liability for the unrecognized tax benefits because the Company has recorded a
tax net operating loss carryforward that would offset this liability.

The Company recognizes interest and penalties related to unrecognized tax
benefits in operating expenses. Since a full valuation allowance was recorded
against the Company's net deferred tax assets and the unrecognized tax benefits
determined under FIN 48 would not result in a tax liability, the Company has not
accrued for any interest and penalties relating to these unrecognized tax
benefits.


                                       12

<PAGE>

Tax years ended December 31, 2003, 2004, 2005 and 2006 remain subject to
examination by major tax jurisdictions, which are Federal and the Commonwealth
of Massachusetts. However, since the Company has net operating loss and tax
credit carryforwards which may be utilized in future years to offset taxable
income, those years may also be subject to review by relevant taxing authorities
if utilized.

The Company has performed an analysis of its changes in ownership under Internal
Revenue Code Section 382 and has determined that approximately $5,400,000 of
state NOL's are limited and unavailable to offset future taxable income,
resulting in a reduction of the related deferred tax asset and valuation
allowance of approximately $280,000.

10) SHARE-BASED COMPENSATION

Total share-based compensation expense, related to all of the Company's
share-based awards, recognized for the three and six month periods ended June
30, 2007 and 2006 included the following line items:

<TABLE>
<CAPTION>
                                         Three-months ended               Six-months ended
                                   -----------------------------   -----------------------------
                                   June 30, 2007   June 30, 2006   June 30, 2007   June 30, 2006
                                   -------------   -------------   -------------   -------------
<S>                                <C>             <C>             <C>             <C>
Cost of Product Revenues              $ 24,000        $ 17,000        $ 50,000        $ 36,000
Research and Development                92,000          81,000         186,000         162,000
Marketing and Sales                     75,000          78,000          18,000         147,000
General & Administrative               285,000         476,000         464,000         625,000
                                      --------        --------        --------        --------
Share-based compensation expense      $476,000        $652,000        $718,000        $970,000
                                      ========        ========        ========        ========
</TABLE>

The weighted-average estimated fair value of employee stock options granted
during the three and six-month periods ended June 30, 2007 and 2006 was $2.01
and $4.62 per share, respectively, using the Black-Scholes option valuation
model with the following weighted-average assumptions (annualized percentages):

<TABLE>
<CAPTION>
                                             Three-months ended               Six-months ended
                                       -----------------------------   -----------------------------
                                       June 30, 2007   June 30, 2006   June 30, 2007   June 30, 2006
                                       -------------   -------------   -------------   -------------
<S>                                    <C>             <C>             <C>             <C>
Volatility                                    62.2%           63.7%           62.2%           63.7%
Risk-free interest rate                       4.92%            5.0%           4.53%           5.10%
Expected dividend yield                          0%              0%              0%              0%
Expected life-directors and officers     5.9 years       8.0 years       5.9 years       8.0 years
Expected life-non-officer employees      5.5 years       6.3 years       5.5 years       6.3 years
</TABLE>

Under the Company's 2006 Equity Compensation Plan (the "2006 Plan"), the Company
may grant share-based awards in amounts not to exceed the lesser of: (i) 20% of
the total number of shares of the Company's common stock issued and outstanding
at any given time less the number of shares issued and outstanding under any
other equity compensation plan of the Company at such time; or (ii) 3,888,488
shares less the number of shares issued and outstanding under any other equity
compensation plan of the Company from time to time. The maximum number of shares
of common stock that may be granted to any individual during any calendar year
is 300,000.

The 2006 Plan is administered by the Compensation Committee of the Board of
Directors (the "Committee"). The 2006 Plan provides for the grant of incentive
stock options ("ISO"), nonqualified stock options ("NSO"), stock awards, and
stock appreciation rights to (i) employees, consultants, and advisors; (ii) the
employees, consultants, and advisors of the Company's parents, subsidiaries, and
affiliates; and (iii) the Company's non-employee directors.

Non-Qualified Stock Options - All the non-qualified stock options, or NSOs,
granted under the 2006 Plan have an expiration period not exceeding seven years
and are issued at a price not less than the market value of the common stock on
the grant date. The Committee may establish such vesting and other conditions
with respect to options as it deems appropriate. In addition, the Company
initially grants each individual who agrees to become a director 15,000 NSOs to
purchase common stock of the Company. Thereafter, each director reelected at an
Annual Meeting of Shareholders will automatically receive an additional 10,000
NSOs on June 30 of each year. Grants to directors immediately vest on the date
of the grant.

Incentive Stock Options - All the incentive stock options, or ISOs, granted
under the 2006 Plan have an expiration period not exceeding seven years (five
years for ISOs granted to employees who are also ten percent shareholders) and
are issued at a price not less than the market value of the common stock on the
grant date. The Committee may establish such vesting and other conditions with
respect to options as it deems appropriate.


                                       13

<PAGE>

On October 18, 2006 the Company's Board of Directors extended the term of Two
Hundred Fifty Thousand (250,000) Class B warrants, originally issued to the
Company's Chairman of the Board of Directors and Chief Executive Officer at the
time the Company's initial public offering, for an additional four years to
January 29, 2011. An additional Fifty Thousand (50,000) of the Three Hundred
Thousand (300,000) Class B warrants lapsed on January 29, 2007. The warrants
have an exercise price of CDN $6.79 per share. No other terms of the warrants
were amended. There are no other holders of the Class B warrants. A summary of
stock option activity for the six month period ended June 30, 2007 is as
follows:

<TABLE>
<CAPTION>
                                                    WEIGHTED
                                       NUMBER       AVERAGE
                                      OF SHARES     EXERCISE
                                   (IN THOUSANDS)    PRICE
                                   --------------   --------
<S>                                <C>              <C>
OUTSTANDING AT DECEMBER 31, 2006     2,730,875       $11.58
Options granted                        404,000         3.33
Options forfeited                      (22,999)        7.75
Options expired                        (71,000)        6.67
Options exercised                      (15,000)        2.71
                                     ---------
OUTSTANDING AT JUNE 30, 2007         3,025,876        10.66
                                     =========
EXERCISABLE AT JUNE 30, 2007         2,158,443       $12.30
                                     =========
</TABLE>

The weighted average remaining contractual term was approximately 5.32 years for
stock options outstanding and approximately 4.45 years for stock options
exercisable as of June 30, 2007.

The total intrinsic value (the excess of the market price over the exercise
price) was approximately $176,000 for stock options outstanding and exercisable
as of June 30, 2007. The total intrinsic value for stock options exercised in
2007 was $31,000.

11) BASIC AND DILUTED NET LOSS PER SHARE

Basic net loss per common share is based on the weighted-average number of
shares outstanding during each period. For the periods ended June 30, 2007, and
2006, stock options, warrants and rights totaling approximately 3,276,000 and
3,490,000 shares, respectively, have been excluded from the computation of
diluted net loss per share as the effect would be antidilutive. The 2,396,245
shares issued in the Sirius acquisition, which includes 422,892 shares placed
into a liability escrow account, are included in the weighted-average number of
shares outstanding from the date of issuance, March 10, 2006.

12) SEGMENT REPORTING

Beginning in the first quarter of 2006 with the acquisition of Sirius, the
Company has two reportable segments, Photodynamic Therapy (PDT) Drug and Device
Products and Non-Photodynamic Therapy (Non-PDT) Drug Products. Operating
segments are defined as components of the Company for which separate financial
information is available to manage resources and evaluate performance regularly
by the chief operating decision maker. The table below presents the revenues,
costs of revenues and gross margins attributable to these operating segments for
the periods presented. The Company does not allocate selling and marketing and
general and administrative expenses to its business unit segments, because these
activities are managed at a corporate level.

<TABLE>
<CAPTION>
                                              THREE MONTHS ENDED          SIX MONTHS ENDED
                                           -----------------------   -------------------------
                                            JUNE 30,     JUNE 30,      JUNE 30,      JUNE 30,
                                              2007         2006          2007          2006
                                           ----------   ----------   -----------   -----------
<S>                                        <C>          <C>          <C>           <C>
REVENUES
PDT Drug & Device Product Revenues         $4,062,042   $3,841,926   $ 8,618,487   $ 7,694,323
Non-PDT Drug Product Revenues               2,800,156    2,777,183     4,920,551     3,675,307
                                           ----------   ----------   -----------   -----------
Total Revenues                              6,862,198    6,619,109    13,539,038    11,369,630
COSTS OF REVENUES
PDT Drug & Device Cost of Product
   Revenues and Royalties                   1,144,043    1,219,970     2,453,589     2,728,233
Non-PDT Drug Cost of Product
   Revenues and Royalties                     632,448    1,775,193     1,479,054     2,057,689
                                           ----------   ----------   -----------   -----------
Total Costs of Product Revenues and
   Royalties                                1,776,491    2,995,163     3,932,643     4,785,922
GROSS MARGINS
PDT Drug and Device Product Gross Margin    2,917,999    2,621,956     6,164,898     4,966,091
</TABLE>


                                       14

<PAGE>

<TABLE>
<S>                                        <C>          <C>          <C>           <C>
Non-PDT Drug Product Gross Margin           2,167,708    1,001,990     3,441,497     1,617,617
                                           ----------   ----------   -----------   -----------
Total Gross Margins                        $5,085,707   $3,623,946   $ 9,606,395   $ 6,583,708
                                           ==========   ==========   ===========   ===========
</TABLE>


                                       15
<PAGE>

During the three-month periods ended June 30, 2007 and 2006, the Company derived
revenues from the following geographies (as a percentage of product revenues):

<TABLE>
<CAPTION>
                 THREE MONTHS ENDED     SIX MONTHS ENDED
                -------------------   -------------------
                JUNE 30,   JUNE 30,   JUNE 30,   JUNE 30,
                  2007       2006       2007       2006
                --------   --------   --------   --------
<S>             <C>        <C>        <C>        <C>
United States      97%        94%        96%        92%
Canada              3%         6%         4%         8%
                  ---        ---        ---        ---
Total             100%       100%       100%       100%
</TABLE>

Asset information by operating segment is not reported to or reviewed by the
chief operating decision maker and, therefore, the Company has not disclosed
asset information for each operating segment.

13) COMPREHENSIVE LOSS

For the three-month periods ended June 30, 2007 and 2006, comprehensive loss
consisted of the following:

<TABLE>
<CAPTION>
                                       THREE MONTHS ENDED           SIX MONTHS ENDED
                                            JUNE 30,                    JUNE 30,
                                   -------------------------   -------------------------
                                       2007          2006          2007          2006
                                   -----------   -----------   -----------   -----------
<S>                                <C>           <C>           <C>           <C>
NET LOSS                           $(2,477,407)  $(4,653,954)  $(5,848,335)  $(9,294,262)
Change in net unrealized gains
   and losses on marketable
   securities available-for-sale        (8,675)          338        12,004       (29,443)
                                   -----------   -----------   -----------   -----------
COMPREHENSIVE LOSS                 $(2,486,082)  $(4,653,616)  $(5,836,331)  $(9,323,705)
                                   ===========   ===========   ===========   ===========
</TABLE>

Accumulated other comprehensive loss consists of net unrealized gains and losses
on marketable securities available-for-sale, which is reported as part of
shareholders' equity in the Condensed Consolidated Balance Sheets.

14) DEFERRED COMPENSATION PLAN

In October 2006, the Company adopted the DUSA Pharmaceuticals, Inc.
Non-Qualified Deferred Compensation Plan (the "Plan"), a non-qualified
supplemental retirement plan maintained primarily for the purpose of providing
deferred compensation for a select group of management or highly compensated
employees and members of the Board of Directors of DUSA (the "Participants").
Participants may defer up to 80% of their compensation. A Participant will be
100% vested in all of the amounts he or she defers as well as in the earnings
attributable to a Participant's deferred account. A Participant may elect to
receive distributions from the deferred account at various times, either in a
lump sum or in up to ten annual installments. Included in other liabilities is
$105,000 at June 30, 2007, representing the Company's obligation under the Plan.
DUSA's obligation to pay the Participant an amount from his or her deferred
account is an unsecured promise and benefits shall be paid out of the general
assets of the Company. The Company has purchased corporate owned life insurance
to serve as the funding vehicle for the Plan. The cash surrender value of the
life insurance policy is recorded in deferred charges and other assets and
totaled $103,000 at June 30, 2007.

15) COMMITMENTS AND CONTINGENCIES

LEGAL MATTERS:

RIVER'S EDGE

On March 28, 2006, a lawsuit was filed by River's Edge Pharmaceuticals, LLC
against us alleging, among other things, that, prior to the merger, Sirius
Laboratories, Inc. agreed to authorize River's Edge to market a generic version
of Nicomide(R), and that the United States patent covering Nicomide(R) issued to
Sirius in December 2005 is invalid. The declaratory judgment suit was filed in
the United States District Court for the Northern District of Georgia,
Gainesville Division but has been dismissed. Nicomide(R) is one of the key
products DUSA acquired from Sirius in its merger. River's Edge has also filed an
application with the U.S. Patent and Trademark Office requesting reexamination
of the Nicomide(R) patent. On April 20, 2006, the Company filed a patent
infringement suit in the United States District Court in Trenton, New Jersey
alleging that the River's Edge niacinamide product infringes U.S. patent
6,979,468. The Company has posted $750,000 with the court that is being held in
an interest bearing account. The parties are in the discovery stage of the New
Jersey litigation. Although the court issued a preliminary injunction against
sales of River's Edge's product in May 2006, the injunction was lifted on March
7, 2007, due, in part, to the court's determination that the reexamination
process


                                       16

<PAGE>

presented sufficient changed circumstances to warrant the dissolution of the
injunction. On June 14, 2007, the court granted DUSA's request to amend its
complaint to assert claims against River's Edge for violations of the Lanham Act
and infringement of its copyright. Also, the court dismissed the various state
law claims that River's Edge had alleged against the Company. The court has also
ordered that the parties participate in a non-binding mediation. The mediation
is set to occur on August 9, 2007. Since the lifting of the preliminary
injunction River's Edge has reentered the market with its niacinamide-based
product in competition with Nicomide(R). The Company expects that Nicomide(R)
sales will be adversely impacted throughout the litigation process and could
have a material impact on the Company's revenues, results of operations and
liquidity.

The Company has not accrued any amounts for potential contingencies as of June
30, 2007, as the amounts are neither probable nor estimable.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

OVERVIEW

DUSA is a vertically integrated dermatology company that is developing and
marketing Levulan(R) PDT and other products for common skin conditions. Our
currently marketed products include among others Levulan(R) Kerastick(R) 20%
Topical Solution with PDT, the BLU-U(R) brand light source, and the products
acquired in the March 10, 2006 merger with Sirius Laboratories, Inc, including,
Nicomide(R), Nicomide-T(R) and the AVAR(R) line of products and the newly
launched product, ClindaReach(TM).

Historically, we devoted most of our resources to advancing the development and
marketing of our Levulan(R) PDT/PD technology platform. Besides our marketed
products, our drug, Levulan(R) brand of aminolevulinic acid HCl, or ALA, in
combination with light, has been studied in a broad range of medical conditions.
When Levulan(R) is used and followed with exposure to light to treat a medical
condition, it is known as Levulan(R) PDT. When Levulan(R) is used and followed
with exposure to light to detect medical conditions, it is known as Levulan(R)
photodetection, or Levulan(R) PD. Our Kerastick(R) is the proprietary applicator
that delivers Levulan(R).

The Levulan(R) Kerastick(R) 20% Topical Solution with PDT and the BLU-U(R) brand
light source were launched in the United States, or U.S., in September 2000 for
the treatment of non-hyperkeratotic actinic keratoses, or AKs, of the face or
scalp under a former dermatology collaboration. AKs are precancerous skin
lesions caused by chronic sun exposure that can develop over time into a form of
skin cancer called squamous cell carcinoma. In addition, in September 2003 we
received clearance from the United States Food and Drug Administration, or FDA,
to market the BLU-U(R) without Levulan(R) PDT for the treatment of moderate
inflammatory acne vulgaris and general dermatological conditions.

Sirius, a dermatology specialty pharmaceuticals company, was founded in 2000
with a primary focus on the treatment of acne vulgaris and acne rosacea.
Nicomide(R), an oral prescription vitamin supplement and Nicomide-T(R), a
topical cosmetic product, two of the important Sirius products, target the acne
and acne rosacea markets. The AVAR line of products includes a number of
leave-on and cleanser formulations of sodium sulfacetamide and sulphur, a drug
combination long known to have anti-acne, anti-inflammatory properties. This
acquisition has allowed us to expand our product portfolio, capitalize on
cross-selling and marketing opportunities, increase our sales force size, as
well as provide a pipeline of potential new products, including ClindaReach(TM)
which was launched in March 2007.

Acne is a common skin condition caused, in part, by the blockage and/or
inflammation of sebaceous (oil) glands. We are currently conducting a Phase II
study examining the use of Levulan(R) PDT for the treatment of moderate to
severe acne. We currently expect results from this study by the end of the third
quarter of 2008 depending upon how quickly we complete enrollment of patients.
Acne rosacea is a condition that primarily affects the skin of the face and
typically first appears between the ages of 30 and 60 as a transient flushing or
blushing on the nose, cheeks, chin or forehead, progressing in many patients to
a papulopustular form clinically similar to acne vulgaris (inflammatory acne).
Given its resemblance to inflammatory acne, and the general public's limited
knowledge of rosacea, the condition is frequently mistaken by patients as adult
acne. If untreated, rosacea has the tendency to worsen over time, although it
can also wax and wane.

We are responsible for manufacturing of our Levulan(R) Kerastick(R) and for the
regulatory, sales, marketing, and customer service of our Levulan(R)
Kerastick(R), and other related product activities for all of our products. Our
current objectives include increasing the sales of our products in the United
States and Canada, launching Levulan(R) with our distributors in Latin America
and Asia, continuing our efforts of exploring partnership opportunities for
Levulan(R) PDT for dermatology in Europe, continuing our Levulan(R) PDT clinical
development programs for the moderate to severe acne indication and development
of our pipeline product programs. To further these objectives, we entered into a
marketing and distribution agreement with Stiefel Laboratories, Inc. in January
2006 granting Stiefel an exclusive right to distribute the Levulan(R)
Kerastick(R) in Mexico, Central and South America. We have been actively working
with Stiefel to obtain acceptable final pricing from the Brazilian regulatory
authorities. At the same time, we are anticipating a launch in Latin America in
countries other than Brazil. Subsequent to the end of the quarter, we received
our first purchase orders from Stiefel for distribution of the Levulan(R)
Kerastick(R) in Argentina and Mexico. In light of the unexpected delay in
receiving acceptable final pricing in Brazil, we are in the process of amending
certain terms of the original Stiefel agreement to reflect


                                       17

<PAGE>

current plans to launch in other Latin American countries prior to Brazil.
Similarly, we entered into a marketing and distribution agreement with Daewoong
Pharmaceutical Co., Ltd. and DNC Daewoong Derma & Plastic Surgery Network
Company, or collectively, Daewoong, granting Daewoong exclusive rights to
distribute the Levulan(R) Kerastick(R) in certain Asian countries. Regulatory
submissions for Korea have been filed and we currently expect regulatory
approval and launch of our product during the first quarter of 2008.

We are developing Levulan(R) PDT and PD under an exclusive worldwide license of
patents and technology from PARTEQ Research and Development Innovations, the
licensing arm of Queen's University, Kingston, Ontario, Canada. We also own or
license certain other patents relating to methods for using pharmaceutical
formulations which contain our drug and related processes and improvements. In
the United States, DUSA(R), DUSA Pharmaceuticals, Inc. (R), Levulan(R),
Kerastick(R), BLU-U(R) Nicomide(R), Nicomide-T(R), Meted(R), AVAR(R),
Psoriacap(R) and Psoriatec(R) are registered trademarks. Several of these
trademarks are also registered in Europe, Australia, Canada, and in other parts
of the world. Numerous other trademark applications are pending. As of June 30,
2007, we had an accumulated deficit of approximately $126,735,000. We expect to
continue to incur operating losses through 2007 until sales of our products
increase. Achieving our goal of becoming a profitable operating company is
dependent upon greater acceptance of our therapy by the medical and consumer
constituencies, and our ability to develop and/or acquire new profitable
products.

We operate in a highly regulated and competitive environment. Our competitors
include larger fully integrated pharmaceutical companies and biotechnology
companies. Many of the organizations competing with us have substantially
greater capital resources, larger research and development staffs and
facilities, greater experience in drug development and in obtaining regulatory
approvals, and greater manufacturing and sales and marketing capabilities than
we do. On May 30, 2006, we entered into a patent license agreement with
PhotoCure ASA whereby in settlement of patent disputes we granted a
non-exclusive license to PhotoCure under the patents we license from PARTEQ for
esters of aminolevulinic acid, or ALA. Furthermore, we granted a non-exclusive
license to PhotoCure for its existing formulations of its Hexvix(R) and
Metvix(R) (known in the United States as Metvixia(R)) products for any relevant
patents that may issue to DUSA or that we may license in the future. PhotoCure
received FDA approval to market Metvixia(R) for treatment of actinic keratosis
in July 2004 and it would be directly competitive with our Levulan(R)
Kerastick(R) product should PhotoCure with its marketing partner, Galderma S.A.,
decide to begin marketing this product in the United States. While we are
entitled to royalties from PhotoCure on its net sales of Metvixia in certain
territories, this product may adversely affect our ability to maintain or
increase our Levulan(R) market.

We are dependent upon sole-source suppliers for a number of our products
including Nicomide(R), Levulan(R) and the BLU-U(R). There can be no assurance
that these suppliers will be able to meet our future requirements for such
products or parts or that they will be available at favorable terms. Any
extended interruption in the supply of any such products or parts or any
significant price increase could have a material adverse effect on our operating
results in any given period.

Marketing and sales activities since the launch of our sales force in 2005 have
resulted in significant additional revenues as well as expenses. Levulan(R)
Kerastick(R) unit sales to end-users were 35,886 and 74,256 for the three and
six-month periods ended June 30, 2007, respectively, including 2,544 and 5,208,
respectively, sold in Canada. This represents an increase from 34,944 and 67,878
units sold in the three and six-month periods ended June 30, 2006, respectively,
including 5,736 and 10,590, respectively, sold in Canada.

The net number of BLU-U(R) units placed in physicians' offices during the six
months ended June 30, 2007 and 2006 was 120 and 142, respectively, including 16
placed in Canada in both years. As of June 30, 2007 and December 31, 2006 there
were 1,757 and 1,637 units in physicians' offices, respectively. During 2005 we
began a BLU-U(R) marketing effort to allow prospective customers to evaluate a
BLU-U(R) for a short period of time prior to making a purchase decision.
BLU-U(R) commercial light sources placed in physicians' offices pursuant to the
Company's BLU-U(R) evaluation program are classified as inventory in the
accompanying Consolidated Balance Sheets. We amortize the cost of the evaluation
units during the evaluation period to cost of product revenues to approximate
its net realizable value.

Net revenues generated by the products acquired as part of our merger with
Sirius totaled $2,800,000 and $4,921,000 for the three and six month periods
ended June 30, 2007, respectively, compared to $2,777,000 and $3,676,000 for the
three-month period ended June 30, 2006 and the period March 10, 2006 (date of
acquisition) through June 30, 2006, respectively. The substantial majority of
these revenues were from sales of Nicomide(R). With the dissolution of the
preliminary injunction on March 7, 2007 which had previously enjoined River's
Edge from selling its niacinamide-based product, which is being substituted for
Nicomide(R), we believe that our Non-PDT Drug Products revenues will be
materially adversely impacted for the remainder of 2007. We have instituted
strategies aimed at mitigating the impact of the re-entry of the River's Edge
product to the market. See section entitled "Part II. Other Information - Legal
Proceedings - River's Edge."

Certain of the products acquired in connection with the Sirius merger must meet
certain minimum manufacturing and labeling standards established by the FDA and
applicable to products marketed without approved marketing applications
including Nicomide(R). FDA regulates such products under its marketed unapproved
drugs compliance policy guide entitled, "Marketed New Drugs without Approved
NDAs or ANDAs." Under this policy, the FDA recognizes that certain unapproved
products, based on the introduction date of their active ingredients and the
lack of safety concerns, have been marketed for many years and, at this time,
will not be the subject of any enforcement action. The FDA has recently taken a
more proactive role and is strongly encouraging manufacturers of such products
to submit applications to obtain marketing approval and we have begun
discussions with FDA to


                                       18

<PAGE>

begin that process. The FDA's enforcement discretion policy does not apply to
drugs or firms that may be in violation of regulatory requirements other than
preapproval submission requirements and the FDA may bring an action against a
drug or a firm when the FDA concludes that such other violations exist. The
contract manufacturer of Nicomide(R) has received a request from the FDA for
labeling information and justification for the belief that the product is exempt
from drug approval requirements, has received a warning letter to cease
manufacturing a different marketed unapproved drug, and has been cited for
violations of current Good Manufacturing Practices, or cGMP. We believe that the
cGMP issues do not directly involve our products. There can be no assurance that
the FDA will continue this policy or not take a contrary position with any
individual products. If the FDA were to do so, we may be required to make
certain labeling changes and market these products as over-the-counter products
or as dietary supplements under applicable legislation, or withdraw such
products from the market, unless and until we submit a marketing application and
obtain FDA marketing approval. Any such action by the FDA would have a material
impact on our Non-PDT Drug Product revenues, particularly if the action were
taken with respect to Nicomide(R). Label changes eliminating claims of certain
medicinal benefits could make it more difficult to market these products and
could therefore, negatively affect our revenues and profits.

We are encouraged with the year-over-year increase in PDT sales, as well as the
positive feedback we continue to receive from physicians across the country that
believe Levulan(R) PDT should become a routine part of standard dermatological
practice. During the quarter, we invested a considerable amount of sales
resources on the launch of our new product, ClindaReach(TM). While we believe
our efforts will result in incremental future revenues, our revenues for the
three month period ended on June 30, 2007 were not reflective of the launch
effort due to our revenue recognition policy during product launch which is
based on end-user demand. We believe the focus on the launch of ClindaReach(TM)
during the quarter limited the amount of resources allocated to the other
products in DUSA's portfolio and may have impacted the U.S. growth rate of our
other products. In addition, we instituted strategies aimed at mitigating the
effects of the re-entry of the River's Edge product to the market. While
managing these factors, we are pleased to report that we were able to grow our
U.S. Kerastick(R) revenue by 19% year over year. In addition, we believe that we
are experiencing a general trend in our PDT business during which sales slow
down somewhat during the Summer months, and increase in the Fall and respond to
our normal year-end announcement of price increases. See section entitled
"Management's Discussion and Analysis -- Results of Operations, Marketing and
Sales Costs". We are continuing to explore opportunities to develop, market, and
distribute our Levulan(R) PDT platform in Europe and expect that our
distribution partners, Stiefel for Latin America and Daewoong for Asia will give
the product increased visibility in the market and thereby advance our
international strategy. We are also continuing to seek to acquire and/or license
additional dermatology products that complement our current product portfolio
that would provide our sales force with additional complementary products to
sell in the near term.

We believe that issues related to reimbursement negatively impacted the economic
competitiveness of our therapy with other AK therapies and hindered its adoption
in the past. We have continued to support efforts to improve reimbursement
levels to physicians. Such efforts included working with the Centers for
Medicare and Medicaid Services, or CMS, and the American Academy of Dermatology
Association, or AADA, on matters related to PDT-related procedures fee and the
separate drug reimbursement. In addition, in many cases, physicians can also
bill for any applicable office visit reimbursements. We continue to support
ongoing efforts that might lead to further increases in reimbursement in the
future, and intend to continue supporting efforts to seek reimbursement for our
FDA-cleared use of the BLU-U(R) alone in the treatment of mild to moderate
inflammatory acne of the face. The currently proposed reimbursement amount for
our PDT drug product would increase by approximately 18% effective January, 2008
if adopted as proposed.

Most major private insurers have approved coverage for our AK therapy. We
believe that due to these efforts, plus potential future improvements, along
with our education and marketing programs, a more widespread adoption of our
therapy should occur over time.

We recognize that we have to continue to demonstrate the clinical value of our
unique therapy, and the related product benefits as compared to other
well-established conventional therapies, in order for the medical community to
accept our products on a large scale. Since we cannot predict when product sales
may offset the costs associated with these efforts, we expect that we will
continue to generate operating losses through 2007. We are aware that physicians
have been using Levulan(R) with the BLU-U(R) using short incubation times, and
with light devices manufactured by other companies, and for uses other than our
FDA-approved use. While we are not permitted to market our products for
so-called 'off-label' uses, we believe that these activities are positively
affecting the sales of our products.

We believe that some compounding pharmacies are exceeding the legal limits for
their activities, including manufacturing and/or selling quantities of ALA in
circumstances which may be inducing purchasers to infringe our intellectual
property. We believe that these activities are negatively impacting our
Levulan(R) sales growth. Therefore during the last two years we have filed
lawsuits against compounding pharmacies, chemical companies, a distributor and
sales representative, as well as against a number of physicians. Many of these
lawsuits have already settled favorably to us. See section entitled "Part II.
Other Information-Legal Proceedings - Levulan(R) Lawsuits."

Shortly after the closing of the merger with Sirius, we became engaged in patent
litigation with River's Edge Pharmaceuticals LLC, or River's Edge, a company
that launched a niacinamide-based product. River's Edge has also requested that
the United States Patent and Trademark Office reexamine the Nicomide(R) patent
claiming that it is invalid. The USPTO accepted the application for
reexamination of the patent and the parties have submitted their responses to
the first office action. Although the court issued a preliminary injunction
against sales of River's Edge's product in May, 2006, the injunction was lifted
on March 7, 2007, due, in part, to the court's determination that the
reexamination process by the USPTO presented sufficient changed circumstances to
warrant the dissolution of the injunction. Since then, River's Edge has
reentered the market with its product in competition with Nicomide(R). We expect
that Nicomide(R) sales will be adversely impacted throughout the litigation
process and have a material negative impact on our revenues, results of
operations and liquidity. On June 14, 2007, the court granted DUSA's request to
amend its complaint to assert claims against River's Edge for violations of the
Lanham Act and infringement of our copyright. Also, the court dismissed the
various state law


                                       19

<PAGE>

claims that River's Edge had alleged against us. The court has also ordered that
the parties participate in a non-binding mediation. The mediation is set to
occur on August 9, 2007. If we do not ultimately prevail in our lawsuit, or if
the Nicomide(R) patent is found to be invalid, our revenues from sales of
Nicomide(R) will decrease permanently, and our ability to become profitable will
be more difficult.

As of June 30, 2007, we had a staff of 87 employees, including 4 part-time
employees, as compared to 85 full-time employees, including 2 part-time
employees at the end of 2006, who worked across all operating functions at DUSA.
We may add and/or replace employees during the remainder of 2007 as business
circumstances change.

CRITICAL ACCOUNTING POLICIES

Our accounting policies are disclosed in Note 2 to the Notes to the Consolidated
Financial Statements in our Annual Report on Form 10-K for the year ended
December 31, 2006. Since all of these accounting policies do not require
management to make difficult, subjective or complex judgments or estimates, they
are not all considered critical accounting policies. We have discussed these
policies and the underlying estimates used in applying these accounting policies
with our Audit Committee. We consider the following policies and estimates to be
critical to our financial statements.

REVENUE RECOGNITION AND PROVISIONS FOR ESTIMATED REDUCTIONS TO GROSS REVENUES

We recognize revenues in accordance with Staff Accounting Bulletin (SAB) No.
101, Revenue Recognition in Financial Statements, as amended by SAB No. 104,
Revenue Recognition. This accounting policy for revenue recognition has a
substantial impact on our reported results and relies on certain estimates that
require difficult, subjective and complex judgments on the part of management.

PHOTODYNAMIC THERAPY (PDT) DRUG AND DEVICE PRODUCTS. Revenues on the Levulan(R)
Kerastick(R) and BLU-U(R) product sales are recognized when persuasive evidence
of an arrangement exists, the price is fixed and determinable, delivery has
occurred, and collection is probable. Product sales made through distributors,
historically, have been recorded as deferred revenue until the product was sold
by the distributors to the end users because we did not have sufficient history
with our distributors to be able to reliably estimate returns. Beginning in the
first quarter of 2006, we began recognizing revenue as product is sold to
distributors because we believe we have sufficient history to reliably estimate
returns from distributors. This change in estimate was not material to our
revenues or results of operations. We offer programs that allow physicians
access to our BLU-U(R) device for a trial period. No revenue is recognized on
these units until the physician elects to purchase the equipment and all other
revenue recognition criteria are met.

NON-PDT DRUG PRODUCTS. We recognize revenue for sales of Non-PDT Drug Products
when substantially all the risks and rewards of ownership have transferred to
the customer, which generally occurs on the date of shipment to wholesale
customers, with the exceptions described below. Revenue is recognized net of
revenue reserves which consist of allowances for discounts, returns, rebates
chargebacks and fees paid to wholesalers under distribution service agreements.

In the case of sales made to wholesalers as a result of incentives and that are
in excess of a wholesaler's ordinary course of business inventory level,
substantially all the risks and rewards of ownership do not transfer upon
shipment and, accordingly, such sales are recorded as deferred revenue and the
related costs as deferred cost of revenue until the product is sold through to
the wholesaler's customers on a FIFO basis.

We evaluate inventory levels at our wholesaler customers, which account for the
vast majority of our sales in the Non-PDT Drug Products segment, through an
analysis that considers, among other things, wholesaler purchases, wholesaler
shipments to retailers, available end-user prescription data obtained from third
parties and on-hand inventory data received directly from our three largest
wholesaler customers. We believe that our evaluation of wholesaler inventory
levels allows us to make reasonable estimates for our applicable revenue related
reserves. Additionally, our products are sold to wholesalers with a product
shelf life that allows sufficient time for our wholesaler customers to sell its
products in their inventory through to the retailers and, ultimately, to the
end-user consumer prior to product expiration.

For new product launches where we do not have the ability to reliably estimate
returns, we recognize revenues based on end-user demand, which is typically
based on dispensed subscription data. When inventories have been reduced to
targeted stocking levels at wholesalers, and we have sufficient data to
determine product acceptance in the marketplace which allows us to estimate
product returns, we recognize revenue upon shipment to wholesalers, net of
discounts and allowances. As of June 30, 2007, we deferred $347,000 in revenue
related to the launch of our new product, ClindaReach(TM), which has not been
sold through to end user customers.

RETURNS AND ALLOWANCES - Our provision for returns and allowances consists of
our estimates of future sales returns, rebates and chargebacks.

SALES RETURNS - We account for sales returns in accordance with Statements of
Financial Accounting Standards (SFAS) No. 48, Revenue Recognition When Right of
Return Exists, by establishing an accrual in an amount equal to our estimate of
sales recorded for which the related products are expected to be returned. We
determine the estimate of the sales return accrual primarily based on


                                       20

<PAGE>

historical experience regarding sales returns, but also by considering other
factors that could impact sales returns. These factors include levels of
inventory in the distribution channel, estimated shelf life, product recalls,
product discontinuances, price changes of competitive products, introductions of
generic products and introductions of competitive new products. It is our policy
to accept returns of Non-PDT Drug products when product is within six months of
expiration. We consider all of these factors and adjust the accrual periodically
to reflect our actual experience.

CHARGEBACKS AND REBATES - Chargebacks typically occur when suppliers enter into
contractual pricing arrangements with end-user customers, including certain
federally mandated programs, who then purchase from wholesalers at prices below
what the supplier charges the wholesaler. Since we only offer "preferred
pricing" to end-user customers under federally mandated programs, chargebacks
have not been significant to us. Our rebate programs can generally be
categorized into the following two types: Medicaid rebates and consumer rebates.
Medicaid rebates are amounts owed based on legal requirements with public sector
benefit providers after the final dispensing of the product by a pharmacy to a
benefit plan participant. Consumer rebates are amounts owed as a result of
mail-in coupons that are distributed by health care providers to consumers at
the time a prescription is written. Since only a small percentage of our
prescriptions are reimbursed under Medicaid and the quantity of consumer coupon
redemptions have not been substantial, rebates have not been significant.

We offer many of our customers a 2% prompt pay discount. We evaluate the amount
accrued for prompt pay discounts by analyzing the unpaid invoices in our
accounts receivable aging subject to a prompt pay discount. Prompt pay discounts
are known within 15 to 30 days of sale, and therefore we can reliably estimate
them based on actual and expected activity at each reporting date. We record
these discounts at the time of sale and they are accounted for as a reduction of
revenues.

WARRANTIES

The Company routinely accrues for estimated future warranty costs on its product
sales at the time of sale. Our products are subject to rigorous regulation and
quality standards. Warranty costs are included in cost of product revenues
within the consolidated statements of operations.

INVENTORY

Inventories are stated at the lower of cost or market value. Cost is determined
using the first-in, first-out method. Inventories are continually reviewed for
slow moving, obsolete and excess items. Inventory items identified as
slow-moving are evaluated to determine if an adjustment is required.
Additionally, our industry is characterized by regular technological
developments that could result in obsolete inventory. Although we make every
effort to assure the reasonableness of our estimates, any significant
unanticipated changes in demand, technological development, or significant
changes to our business model could have a significant impact on the value of
our inventory and our results of operations. We use sales projections to
estimate the appropriate level of inventory reserves, if any, that are necessary
at each balance sheet date. As a result of the March 2007 dissolution of the
preliminary injunction allowing River's Edge to sell its niacinamide-based
product, which is being substituted for Nicomide(R), we recorded an adjustment
to increase our reserve for excess and obsolete inventory of Nicomide(R). The
related expense is recorded in cost of product revenues.

VALUATION OF LONG-LIVED AND INTANGIBLE ASSETS

We review long-lived assets for impairment whenever events or changes in
business circumstances indicate that the carrying amount of assets may not be
fully recoverable or that the useful lives of these assets are no longer
appropriate. Factors considered important which could trigger an impairment
review include significant changes relative to: (i) projected future operating
results; (ii) the use of the assets or the strategy for the overall business;
(iii) business collaborations; and (iv) industry, business, or economic trends
and developments. Each impairment test is based on a comparison of the
undiscounted cash flow to the recorded value of the asset. If it is determined
that the carrying value of long-lived or intangible assets may not be
recoverable, the asset is written down to its estimated fair value on a
discounted cash flow basis. At June 30, 2007 and December 31, 2006,
respectively, total property, plant and equipment had a net carrying value of
$2,422,000 and $2,567,000, including $1,558,000 and $1,639,000 at June 30, 2007
and December 31, 2006 associated with our manufacturing facility. As of June 30,
2007 and December 31, 2006, respectively, we had intangible assets totaling
$78,000 and $102,000 recorded in deferred charges and other assets relating to
the unamortized balance of payments made in 2004 to a light source supplier
related to an amendment to our agreement and to a licensor related to the
reacquisition of our product rights in Canada. We reviewed the valuation of our
intangible assets and goodwill associated with Nicomide(R) for impairment as a
result of a decision by the U.S. federal district court in the River's Edge
litigation to dissolve a preliminary injunction, which had previously enjoined
River's Edge from manufacturing and selling its niacinamide-based product, which
is being substituted for Nicomide(R). As a result of this review, we recorded a
write down in 2006 of $15.7 million representing the then remaining net asset
value of the intangible assets.

Goodwill is deemed to have an indefinite life and is not amortized, but is
reviewed at least annually for impairment utilizing the fair value methodology.
The Company has adopted December 1st as the date of the annual impairment test
for goodwill.

SHARE-BASED COMPENSATION


                                       21

<PAGE>

We adopted SFAS 123R effective January 1, 2006, using the modified prospective
application method, and beginning with the first quarter of 2006, we measure all
employee share-based compensation awards using a fair value based method and
record share-based compensation expense in our financial statements if the
requisite service to earn the award is provided. The adoption of SFAS No. 123R
did not affect our net cash flow, but it did have a material negative impact on
our results of operations. In accordance with SFAS 123R, we recognize the
expense attributable to stock awards that are granted or vest in periods ending
subsequent to December 31, 2005 in the accompanying condensed consolidated
statements of operations.

RESULTS OF OPERATIONS --THREE AND SIX MONTHS ENDING JUNE 30, 2007 VERSUS JUNE
30, 2006

REVENUES -- Total revenues for the three and six month periods ended June 30,
2007 were $6,862,000 and $13,539,000, respectively, as compared to $6,619,000
and $11,370,000 in 2006, and were comprised of the following:

<TABLE>
<CAPTION>
                                            Three months ended                       Six months ended
                                                 June 30,                                June 30,
                                         -----------------------    INCREASE/   -------------------------   INCREASE/
                                            2007          2006     (DECREASE)       2007          2006      (DECREASE)
                                         ----------   ----------   ----------   -----------   -----------   ----------
<S>                                      <C>          <C>          <C>          <C>           <C>           <C>
PDT DRUG & DEVICE PRODUCT REVENUES
KERASTICK(R) PRODUCT REVENUES
United States                            $3,461,000   $2,912,000   $ 549,000    $ 7,185,000   $ 5,722,000   $1,463,000
Canada                                      192,000      420,000    (228,000)       393,000       763,000     (370,000)
                                         ----------   ----------   ---------    -----------   -----------   ----------
Subtotal Kerastick(R) product revenues    3,653,000    3,332,000     321,000      7,578,000     6,485,000    1,093,000
                                         ----------   ----------   ---------    -----------   -----------   ----------
BLU-U(R) PRODUCT REVENUES
United States                               380,000      451,000     (71,000)       946,000     1,117,000     (171,000)
Canada                                       29,000       59,000     (30,000)        94,000        92,000        2,000
                                         ----------   ----------   ---------    -----------   -----------   ----------
Subtotal BLU-U(R) product revenues          409,000      510,000    (101,000)     1,040,000     1,209,000     (169,000)
                                         ----------   ----------   ---------    -----------   -----------   ----------
TOTAL PDT DRUG & DEVICE
PRODUCT REVENUES                          4,062,000    3,842,000     220,000      8,618,000     7,694,000      924,000
TOTAL NON-PDT DRUG PRODUCT
REVENUES                                  2,800,000    2,777,000      23,000      4,921,000     3,676,000    1,245,000
                                         ----------   ----------   ---------    -----------   -----------   ----------
TOTAL PRODUCT REVENUES                   $6,862,000   $6,619,000   $ 243,000    $13,539,000   $11,370,000   $2,169,000
                                         ==========   ==========   =========    ===========   ===========   ==========
</TABLE>

For the three and six month periods ended June 30, 2007 total PDT Drug and
Device Product Revenues were $4,062,000 and $8,618,000, respectively. This
represents an increase of $220,000 or 6%, and $924,000 or 12% over the
comparable 2006 totals of $3,842,000 and $7,694,000, respectively. The
incremental revenue on a year-to-date basis was driven by increased Levulan(R)
Kerastick(R) revenues which were partially offset by decreased BLU-U(R)
revenues.

For the three and six month periods ended June 30, 2007, Levulan(R) Kerastick(R)
revenues were $3,653,000 and $7,578,000, respectively, representing a $321,000
or 10%, and $1,093,000 or 17% increase over the comparable 2006 totals of
$3,332,000 and $6,485,000, respectively. Levulan(R) Kerastick(R) unit sales to
end-users were 35,886 and 74,256 for the three and six-month periods ended June
30, 2007, respectively, including 2,544 and 5,208, respectively, sold in Canada.
This represents an increase from 34,944 and 67,878 Levulan(R) Kerastick(R) units
sold in the three and six-month periods ended June 30, 2007, respectively,
including 5,736 and 10,590, respectively, sold in Canada. Our average net
selling price for the Levulan(R) Kerastick(R) increased to $101.99 for the first
six months of 2007 from $95.55 for the first six months of 2006. Our average net
selling price for the Levulan(R) Kerastick(R) includes sales made directly to
our end-user customers, as well as sales made to our distributors, both in the
United States and Canada. The increase in 2007 Levulan(R) Kerastick(R) revenues
was driven mainly by increased sales volumes and an increase in our average unit
selling price.

For the three and six month periods ended June 30, 2007, BLU-U(R) revenues were
$409,000 and $1,040,000, respectively, representing a $101,000, or 20% decrease,
and $169,000, or 14%, decrease over the comparable 2006 totals of $510,000 and
$1,209,000, respectively. The decrease in year-to-date 2007 BLU-U(R) revenue
versus the comparable 2006 period was driven by a decrease in our overall sales
volumes, partially offset by an increase in our average selling price to $8,034
for the six-month period ended June 30, 2007 from $7,478 for the six-month
period ended June 30, 2006. In the three and six-month periods ended June 30,
2007, there were 46 and 121 units sold, respectively, versus 66 and 158 units,
respectively, in the comparable 2006 periods. The 2007 total consists of 105
units sold in the United States and 16 sold in Canada by Coherent-AMT. The 2006
total consists of 142 sold in


                                       22

<PAGE>

the United States and 16 sold in Canada. During the fourth quarter of 2005, we
introduced a BLU-U(R) evaluation program, which, for a limited number of
BLU-U(R) units, allows customers to take delivery of a unit for a period of up
to 4 months for private practitioners and up to one year for hospital clinics,
before a purchase decision is required. At June 30, 2007, there were
approximately 36 units in the field pursuant to this evaluation program.
BLU-U(R) commercial light sources placed in physicians' offices for an initial
evaluation period are included in inventory until all revenue recognition
criteria are met. We amortize the cost of the evaluation units during the
evaluation period to cost of product revenues to approximate their net
realizable value.

Non-PDT Drug Product Revenues reflect the revenues generated by the products
acquired as part of our March 10, 2006 merger with Sirius. Total revenues for
the three and six month periods ended June 30, 2007 were $2,800,000 and
$4,921,000, respectively, compared to $2,777,000 and $3,676,000, respectively
for the three month period ended June 30, 2006 and the period March 10, 2006
through June 30, 2006. The substantial majority of the Non-PDT product revenues
were from sales of Nicomide(R). The products acquired from Sirius all belong to
the same therapeutic category, "non-photodynamic therapy dermatological
treatment of acne and rosacea."

The increase in our total revenues results from the Sirius acquisition, as well
as from the efforts of our sales force and related marketing and sales
activities. With respect to United States sales, we increased our average
selling prices and reduced our overall sales volume discount programs, both of
which had a positive impact on our average selling prices during 2007. However,
we must increase sales significantly from these levels in order for us to become
profitable. We remain confident that PDT Drug Product sales should continue to
increase through increased consumption of our PDT segment products by our
existing customers, as well as through the addition of new customers. However,
with the dissolution of the preliminary injunction on March 7, 2007 which had
previously enjoined River's Edge from selling its niacinamide-based product, we
believe that our Non-PDT Drug Products revenues will be materially adversely
impacted for 2007, which will make it more difficult to achieve profitability.

Certain of the products acquired in connection with the Sirius merger must meet
certain minimum manufacturing and labeling standards established by the FDA and
applicable to products marketed without approved marketing applications
including Nicomide(R). The FDA regulates such products under its marketed
unapproved drugs compliance policy guide entitled, "Marketed New Drugs without
Approved NDAs or ANDAs." Under this policy, the FDA recognizes that certain
unapproved products, based on the introduction date of their active ingredients
and the lack of safety concerns, have been marketed for many years and, at this
time, will not be the subject of any enforcement action. The FDA has recently
taken a more proactive role and is strongly encouraging manufacturers of such
products to submit applications to obtain marketing approval and we have begun
discussions with FDA to begin that process. The FDA's enforcement discretion
policy does not apply to drugs or firms that may be in violation of regulatory
requirements other than preapproval submission requirements and the FDA may
bring an action against a drug or a firm when the FDA concludes that such other
violations exist. The contract manufacturer of Nicomide(R) has received a
request from the FDA for labeling information and justification for the belief
that the product is exempt from drug approval requirements, has received a
warning letter to cease manufacturing a different marketed unapproved drug, and
has been cited for violations of cGMP. We believe that the cGMP issues do not
directly involve our products. There can be no assurance that the FDA will
continue this policy or not take a contrary position with any individual
products. If the FDA were to do so, we may be required to make certain labeling
changes and market these products as over-the-counter products or as dietary
supplements under applicable legislation, or withdraw such products from the
market, unless and until we submit a marketing application and obtain FDA
marketing approval. Any such action by the FDA could have a material impact on
our Non-PDT Drug Product revenues, particularly if the action were taken with
respect to Nicomide(R). Label changes eliminating claims of certain medicinal
benefits could make it more difficult to market these products and could
therefore, negatively affect our revenues and profits. Also see section entitled
"Risk Factors - Any Failure to Comply with Government Regulations in the United
States and Elsewhere Will Limit Our Ability to Market Our Products."

COST OF PRODUCT REVENUES -- Cost of product revenues for the three and six month
periods ended June 30, 2007 were $1,776,000 and $3,933,000, respectively, as
compared to $2,995,000 and $4,786,000 in the comparable periods in 2006. A
summary of the components of cost of product revenues and royalties is provided
below:

<TABLE>
<CAPTION>
                                                         THREE MONTHS ENDED JUNE 30,
                                                    -------------------------------------
                                                                               INCREASE/
                                                       2007         2006       (DECREASE)
                                                    ----------   ----------   -----------
<S>                                                 <C>          <C>          <C>
LEVULAN(R) KERASTICK(R) COST OF PRODUCT REVENUES
Direct Levulan(R) Kerastick(R) Product Costs        $  519,000   $  484,000   $    35,000
Other Levulan(R) Kerastick(R) Product costs
   including internal costs assigned to support
   products                                             97,000      100,000        (3,000)
Royalty and supply fees (1)                            168,000      174,000        (6,000)
                                                    ----------   ----------   -----------
Subtotal Levulan(R) Kerastick(R) Cost of Product
   Revenues                                         $  784,000   $  758,000   $    26,000
                                                    ----------   ----------   -----------
BLU-U(R) COST OF PRODUCT REVENUES
Direct BLU-U(R) Product costs                       $  160,000   $  226,000   $   (66,000)
Other BLU-U(R) Product costs including internal
   costs assigned to support products; as well
   as costs
</TABLE>


                                       23

<PAGE>

<TABLE>
<S>                                                 <C>          <C>          <C>
   incurred to ship, install and service
   the BLU-U(R) in physicians offices                  200,000      236,000       (36,000)
                                                    ----------   ----------   -----------
Total Device cost of product revenues               $  360,000   $  462,000   $  (102,000)
                                                    ----------   ----------   -----------
TOTAL PDT DRUG & DEVICE COST OF PRODUCT REVENUES    $1,144,000   $1,220,000   $   (76,000)
                                                    ----------   ----------   -----------
TOTAL NON-PDT DRUG COST OF PRODUCT REVENUES         $  632,000   $1,775,000   $(1,143,000)
                                                    ----------   ----------   -----------
TOTAL COST OF PRODUCT REVENUES AND ROYALTIES        $1,776,000   $2,995,000   $(1,219,000)
                                                    ==========   ==========   ===========
</TABLE>

<TABLE>
<CAPTION>
                                                          SIX MONTHS ENDED JUNE 30,
                                                    ------------------------------------
                                                                               INCREASE/
                                                       2007         2006      (DECREASE)
                                                    ----------   ----------   ----------
<S>                                                 <C>          <C>          <C>
LEVULAN(R) KERASTICK(R) COST OF PRODUCT REVENUES
Direct Levulan(R) Kerastick(R) Product Costs        $1,075,000   $  938,000   $ 137,000
Other Levulan(R) Kerastick(R) Product costs
   including internal costs assigned to support
   products                                            155,000      413,000    (258,000)
Royalty and supply fees (1)                            348,000      334,000      14,000
                                                    ----------   ----------   ---------
Subtotal Levulan(R) Kerastick(R) Cost of Product
   Revenues                                         $1,578,000   $1,685,000   $(107,000)
                                                    ----------   ----------   ---------
BLU-U(R) COST OF PRODUCT REVENUES
Direct BLU-U(R) Product costs                       $  422,000   $  538,000   $(116,000)
Other BLU-U(R) Product costs including internal
   costs assigned to support products; as well as
   costs incurred to ship, install and service
   the BLU-U(R) in physicians offices                  454,000      505,000     (51,000)
                                                    ----------   ----------   ---------
Total Device cost of product revenues               $  876,000   $1,043,000   $(167,000)
                                                    ----------   ----------   ---------
TOTAL PDT DRUG & DEVICE COST OF PRODUCT REVENUES    $2,454,000   $2,728,000   $(274,000)
                                                    ----------   ----------   ---------
TOTAL NON-PDT DRUG COST OF PRODUCT REVENUES(2)      $1,479,000   $2,058,000   $(579,000)
                                                    ----------   ----------   ---------
TOTAL COST OF PRODUCT REVENUES AND ROYALTIES        $3,933,000   $4,786,000   $(853,000)
                                                    ==========   ==========   =========
</TABLE>

1)   Royalties and supply fees reflect amounts paid to our licensor, PARTEQ
     Research and Development Innovations, the licensing arm of Queen's
     University, Kingston, Ontario, and amortization of an upfront fee and
     ongoing royalties paid to Draxis Health, Inc., on sales of the Levulan(R)
     Kerastick(R) in Canada.

2)   Non-PDT Drug Cost of Product Revenues reflects the costs associated with
     the products acquired as part of our March 10, 2006 merger with Sirius.

MARGINS -- Total product margins for the three and six month periods ended June
30, 2007 were $5,086,000 and $9,606,000, respectively, as compared to $3,624,000
and $6,584,000 for the comparable 2006 periods, as shown below:

<TABLE>
<CAPTION>
                                                 THREE MONTHS ENDED JUNE 30,
                                       ----------------------------------------------
                                                                            INCREASE/
                                          2007              2006           (DECREASE)
                                       ----------        ----------        ----------
<S>                                    <C>          <C>  <C>          <C>  <C>
Levulan(R) Kerastick(R) Gross Margin   $2,869,000   79%  $2,574,000   77%  $  295,000
BLU-U(R) Gross Margin                      49,000   12%      48,000    9%       1,000
                                       ----------        ----------        ----------
Total PDT Drug & Device Gross Margin   $2,918,000   72%  $2,622,000   68%  $  296,000
                                       ----------        ----------        ----------
Total Non-PDT Drug Gross Margin         2,168,000   77%   1,002,000   36%  $1,166,000
                                       ----------        ----------        ----------
TOTAL GROSS MARGIN                     $5,086,000   74%  $3,624,000   55%  $1,462,000
                                       ==========        ==========        ==========
</TABLE>

<TABLE>
<CAPTION>
                                                  SIX MONTHS ENDED JUNE 30,
                                       ----------------------------------------------
                                                                            INCREASE/
                                          2007              2006           (DECREASE)
                                       ----------        ----------        ----------
<S>                                    <C>          <C>  <C>          <C>  <C>
Levulan(R) Kerastick(R) Gross Margin   $6,001,000   79%  $4,800,000   74%  $1,201,000
BLU-U(R) Gross Margin                     164,000   16%     166,000   14%      (2,000)
                                       ----------        ----------        ----------
Total PDT Drug & Device Gross Margin   $6,165,000   72%  $4,966,000   65%  $1,199,000
                                       ----------        ----------        ----------
Total Non-PDT Drug Gross Margin         3,441,000   70%   1,618,000   44%  $1,823,000
                                       ----------        ----------        ----------
TOTAL GROSS MARGIN                     $9,606,000   71%  $6,584,000   58%  $3,022,000
                                       ==========        ==========        ==========
</TABLE>

For the three and six month periods ended June 30, 2007 total PDT Drug and
Device Product Margins were 72% versus 68% and 65%, respectively, for the
comparable 2006 periods. The incremental margin was driven by positive margin
gains on both the


                                       24

<PAGE>

Levulan(R) Kerastick(R) and BLU-U(R).

Levulan(R) Kerastick(R) gross margins for the three and six month periods ended
June 30, 2007 were 79% versus 77% and 74%, respectively, for the comparable 2006
periods. Similar to the increase in revenues, the increase in margin is mainly
attributable to an increase in our average unit selling price, as well as a
reduction in our overall sales volume discount programs. Our long-term goal is
to achieve higher gross margins on Levulan(R) Kerastick(R) sales which will be
significantly dependent on increased volume.

BLU-U(R) margins for the three and six month periods ended June 30, 2007 were
12% and 16%, respectively, versus 9% and 14% for the comparable 2006 periods.
The increase in margin is a result of an increase in the average selling price
per unit; as well as, lower overall costs incurred to support the product line.
Our short-term strategy is to at a minimum breakeven on device sales in an
effort to drive Levulan(R) Kerastick(R) sales volumes.

Non-PDT Drug Product margins reflect the gross margin generated by the products
acquired as part of our acquisition of Sirius. Gross margins for the three and
six month periods ended June 30, 2007 were 77% and 70%, respectively, compared
to 36% and 44% for the three month period ended June 30, 2006 and the period
March 10, 2006 (date of acquisition) through June 30, 2006, respectively. The
improvement in gross margin is primarily related to purchase accounting
adjustments recorded in 2006 related to fair value accounting for the inventory
acquired in the Sirius acquisition. During the three and six month periods ended
June 30, 2007, Non-PDT Drug Product margins were negatively impacted by the
recording of a reserve for excess Nicomide(R) inventory resulting from the March
2007 dissolution of the preliminary injunction allowing River's Edge to sell its
niacinamide-based product, which is being substituted for Nicomide(R); as well
as an increase in both the number and dollar amount of rebate redemptions on
sales of Nicomide(R). We expect Non-PDT Drug Product gross margins to be in the
70-80% range during the remainder of 2007.

RESEARCH AND DEVELOPMENT COSTS -- Research and development costs for the three
and six month periods ended June 30, 2007 were $1,577,000 and 3,103,000, as
compared to $1,527,000 and 4,638,000, which for 2006 included $1,600,000 related
to in-process research and development acquired as part of the merger with
Sirius, in the comparable 2006 periods. Increased spending on our Phase IIb
clinical trial on acne, was offset by reduced spending in the areas of
photodamaged skin and Barrett's Esophagus.

Research and development expenses are expected to increase now that our Phase
IIb clinical trial for acne has commenced, and to an even greater extent at such
time as we may commence Phase III trials. The Phase II trial is being conducted
at twelve (12) sites with approximately 250 patients, when fully enrolled. To
date, 54 patients have been enrolled. We had entered into a clinical trial
agreement in September 2004 with the National Cancer Institute, Division of
Cancer Prevention, or NCI DCP, to study the use of ALA to treat high grade
dysplasia within Barrett's Esophagus. However, the NCI DCP notified us that it
will not be pursuing this study at this time. Therefore, at this time, we will
not be incurring expenses for the laser devices, fiber optics and units of our
proprietary sheath device that we were obligated to provide under the agreement.
In March 2007, the U.S. Food and Drug Administration granted orphan drug status
for Levulan(R) PDT for treatment of esophageal dysplasia. In November 2004, we
also signed a clinical trial agreement with the NCI DCP for the treatment of
oral cavity dysplasia. DUSA and the NCI DCP are working together to prepare the
overall clinical development plan for Levulan(R) PDT in this indication,
starting with Phase I/II trials. A Phase I/II protocol has been finalized. The
NCI DCP used its resources to file its own Investigational New Drug application
with the FDA, and approval to initiate the study was received. Our costs related
to this study will be limited to providing Levulan(R), leasing lasers and the
necessary training for the investigators involved. All other costs of this study
are the responsibility of the NCI DCP. We have options on any new intellectual
property.

We have retained the services of a regulatory consultant to assist us with
seeking foreign marketing approvals for our products, which will also cause
research and development expenses to increase.

We have entered into a series of agreements for our research projects and
clinical studies. As of June 30, 2007, future payments to be made pursuant to
these agreements, under certain terms and conditions, total approximately
$1,274,000 for the remainder of 2007.

MARKETING AND SALES COSTS -- Marketing and sales costs for the three and
six-month periods ended June 30, 2007 were $3,310,000 and $6,840,000,
respectively, as compared to $3,177,000 and $5,867,000 for the comparable 2006
periods. These costs consist primarily of expenses such as salaries and benefits
for the marketing and sales staff, commissions, and related support expenses
such as travel, and telephone, totaling $2,005,000 and $4,247,000 for the three
and six-month periods ended June 30, 2007, compared to $2,416,000 and $4,012,000
in the comparable periods in 2006. The increase in this category on a
year-to-date basis is due to a higher average headcount in 2007 in comparison to
2006, primarily as the result of the Sirius merger. The remaining expenses
consist of tradeshows, miscellaneous marketing and outside consultants totaling
$1,304,000 and $2,593,000 for the three and six month periods ended June 30,
2007, respectively, compared to $763,000 and $1,855,000 for the comparable 2006
periods. We expect marketing and sales costs to increase in 2007, compared with
2006, reflecting a full year of the expanded sales force, as well as expenses
associated with the launch of our new product, ClindaReach(TM), but to decrease
as a percentage of revenues.

GENERAL AND ADMINISTRATIVE COSTS -- General and administrative costs for the
three and six-month periods ended June 30, 2007 were $2,833,000 and $5,856,000,
respectively, as compared to $3,754,000 and $5,824,000 for the comparable 2006
periods. The decrease for the three month period ended June 30, 2007 compared to
the same period in the prior year is mainly attributable to decreased legal
costs, however, on a year-to-date basis, legal costs have increased slightly.
These costs have been offset by a decrease in share-based compensation expense.
General and administrative expenses are highly dependent on our legal fees,
which can vary significantly from period to period, particularly in light of our
litigation strategy to protect our intellectual property.


                                       25

<PAGE>

OTHER INCOME, NET -- Other income for the three and six-month periods ended June
30, 2007 decreased to $156,000 and $345,000, respectively, from $180,000 and
$452,000 during the comparable 2006 periods. This decrease is primarily
attributable to a decrease in our average investable cash balances during 2007
as we used cash to purchase Sirius, as well as to support our operating
activities.

NET LOSSES - For the three and six months ended June 30, 2007, we incurred net
losses of $2,477,000, or $0.13 per share, and $5,848,000, or $0.30 per share,
respectively, as compared to net losses of $4,654,000, or $0.24 per share, and
$9,294,000, or $0.50 per share, for the comparable periods in 2006. Net losses
are expected to continue until end-user sales offset the cost of our sales force
and marketing initiatives, and the costs for other business support functions.

LIQUIDITY AND CAPITAL RESOURCES

At June 30, 2007, we had approximately $13,050,000 of total liquid assets,
comprised of $3,029,000 of cash and cash equivalents and marketable securities
available-for-sale totaling $10,021,000. As of June 30, 2007, these securities
had yields ranging from 2.6% to 6.2% and maturity dates ranging from July 2007
to October 2011. We estimate that existing cash and cash equivalents and
marketable securities will be sufficient to meet our cash requirements through
at least June 30, 2008. Our net cash used in operations for the six-month period
ended June 30, 2007 was $4,610,000, versus $6,632,000 used in the comparable
2006 period. The year-over-year decrease is directly attributable to the growth
in our PDT segment products, as well as the addition of the Non-PDT Drug
Products acquired in the Sirius merger, and the receipt of a milestone payment
in the amount of $1.0 million from Daewoong, our distribution partner for
certain Asian countries. During the first quarter of 2007, we made a milestone
payment of $500,000 to the former shareholders of Sirius related to the launch
of ClindaReach(TM). We expect that a second payment of $500,000 could become due
in 2008 when the next product from the Sirius pipeline is approved. An
abbreviated new drug application is currently pending.

Since our inception, we have generated significant losses while we have advanced
our product candidates into preclinical and clinical trials, development and
commercialization. We have funded our operations primarily through public
offerings, private placements of equity securities and payments received under
our collaboration agreements. We expect to incur significant additional research
and development and other costs including costs related to preclinical studies
and clinical trials. Our costs, including research and development costs for our
product candidates and sales, marketing and promotion expenses for any of our
existing or future products to be marketed by us or our collaborators may exceed
revenues in the future, which may result in continued losses from operations.

Our current operating plan includes initiatives aimed at both preserving and
improving our cash position through various strategies, including the following:

     -    Continued revenue growth.

     -    Successfully executing our collaboration agreements related to the
          international expansion of our Levulan(R) PDT franchise into Latin
          America and certain Asian territories.

     -    Expanding our product offerings through in-licensing, development and
          commercialization of new products.

     -    Out-licensing our Levulan(R) products or technology to additional
          countries.

In the short term, our liquidity would be most positively impacted from sales
growth domestically and internationally. We will continue to pursue additional
product offerings and licensing opportunities. However, we cannot be certain
these initiatives will be successful. Accordingly, we may be required to raise
additional funds. Such fund raising activities may include various sources,
which could include debt and/or equity offerings, corporate collaborations, bank
borrowings, and arrangements relating to asset-based or other financing methods.
The source, amount, timing and availability of any financings will depend on the
level of revenues from operations, market conditions, interest rates and other
factors. Our future capital requirements will also depend on many factors,
including continued progress in our research and development programs, the
magnitude of these programs, progress with preclinical testing and clinical
trials, the time and costs involved in obtaining regulatory approvals, the costs
involved in filing, prosecuting and enforcing patent claims, competing
technological and market developments, the receipt of additional milestones
under existing licenses, establishment of additional collaborative arrangements,
the cost of commercialization activities and arrangements and the cost of
product in-licensing and any possible acquisitions and, for any future
proprietary products, the sales, marketing and promotion expenses associated
with marketing such products. If adequate working capital is not available, we
may be required to curtail significantly one or more of our research and
development programs and/or obtain funds through arrangements with collaborative
partners or others that may require us to relinquish rights to certain of our
technologies, product candidates or future products.

The availability of additional capital to us is highly uncertain. There can be
no assurance that additional funding will be available to us on favorable terms,
or at all. Any equity financing, if needed, would likely result in dilution to
our existing stockholders and debt financing, if available, would likely involve
significant cash payment obligations and include covenants that restrict our
ability to operate our business on our own. Failure to raise capital or improve
our liquidity from operations could materially adversely impact our business,
our financial condition, results of operations and cash flows. If we fail to
adequately address our liquidity issues,


                                       26

<PAGE>

through increasing our cash flows from operations or obtaining additional
capital from fund raising, this would impact our ability to continue as a going
concern.

With the dissolution of the preliminary injunction in the River's Edge case, we
expect that Nicomide(R) sales will decrease significantly during the litigation
process. If we do not ultimately prevail in our lawsuit, or if the Nicomide(R)
patent is found to be invalid, revenues from sales of Nicomide(R) will decrease
permanently. We expect to eliminate some expenses planned for 2007 and
reallocate others to provide more support to Levulan(R) and our new product,
ClindaReach(TM).

As of June 30, 2007, working capital (total current assets minus total current
liabilities) was $13,863,000, as compared to $18,085,000 as of December 31,
2006. Total current assets decreased by $5.3 million during the six-month period
ended June 30, 2007, due primarily to a decrease in our marketable securities,
and total current liabilities decreased by $1.1 million during the same period
due primarily to a decrease in accrued compensation and accrued expenses,
partially offset by an increase in accounts payable.

In consummating the merger with Sirius in 2006, we acquired all of the
outstanding common stock of Sirius in exchange for 2,396,245 shares of our
common stock and cash. At closing, we paid $8.0 million less certain expenses,
in cash, and 1,973,353 shares of our common stock, no par value per share to the
shareholders of Sirius and issued an additional 422,892 shares to an escrow
agent to be held for up to two years subject to certain indemnification
provisions of the merger agreement. We agreed to pay additional consideration in
future periods, based upon the attainment of defined operating objectives,
including new product approvals or launches and the achievement of
pre-determined total cumulative sales milestones for the Sirius products. The
pre-determined cumulative sales milestones for the Sirius products and the
related milestone payments are as follows:

<TABLE>
<CAPTION>
CUMULATIVE
    SALES
  MILESTONE:    PAYMENT EARNED:
(in millions)    (in millions)
-------------   ---------------
<S>             <C>
$25.00               $1.50
 35.00                1.00
 45.00                1.00
                     -----
   Total:            $3.50
                     =====
</TABLE>

During the first quarter of 2007, the Company paid $500,000 to the former
shareholders of Sirius related to the March 2007 launch of ClindaReach(TM). This
payment has increased goodwill in the accompanying Condensed Consolidated
Balance Sheet. The maximum remaining potential future consideration pursuant to
such arrangements, to be resolved over the period ending 42 months from the date
of closing, is $4.5 million. If attained, the product launch portion of the
contingent consideration is payable in cash and the cumulative sales milestone
portion is payable in either common stock or cash, at our sole discretion. We
expect that any such payments will result in increases in goodwill at the time
of payment.

We are actively seeking to further expand or enhance our business by using our
resources to acquire by license, purchase or other arrangements, additional
businesses, new technologies, or products in the field of dermatology. For 2007,
we are focusing primarily on increasing the sales of the Levulan(R) Kerastick(R)
and the BLU- U(R), as well as the Non-PDT Drug Products, advancing our Phase II
study for use of Levulan(R) PDT in acne, and continuing to pursue our product
development pipeline.

DUSA has no off-balance sheet financing arrangements.

CONTRACTUAL OBLIGATIONS AND OTHER COMMERCIAL COMMITMENTS

ALTANA, INC.

In September 2005, Sirius entered into a development and product license
agreement with Altana, Inc. relating to a reformulated dermatology product. The
agreement was assigned to us by virtue of the Sirius merger. According to the
agreement, we will pay for all development costs. Should development efforts be
successful, Altana will manufacture the product for us and we will be obligated
to pay royalties, including certain minimum royalties on net sales of the
product. The agreement expires six years after the first commercial sale of the
product.

ACTAVIS TOTOWA, LLC

Under an agreement dated May 18, 2001, and amended on February 8, 2006, Sirius
entered into an arrangement for the supply of Nicomide(R) with Amide
Pharmaceuticals, Inc., now known as Actavis Totowa, LLC. The agreement was
assigned to us as part of the Sirius merger. Actavis Totowa supplies all of our
requirements; however, we have the right to use a second source for a
significant portion of our needs if we choose to do so. The agreement expires on
February 8, 2009. Actavis Totowa has received several warning letters from the
FDA regarding certain regulatory observations. To our knowledge, the primary
observations noted in the warning letters were not related to Nicomide(R).
However, with respect to Nicomide(R) and certain other products manufactured by
Actavis


                                       27

<PAGE>

Totowa that would be covered under the FDA's compliance policy guide entitled,
"Marketed New Drugs without Approved NDAs or ANDAs", the FDA requested that the
manufacturer provide a copy of the labeling and information providing the basis
for an exemption from the drug approval requirements. The FDA may take further
action against Actavis Totowa and we are evaluating our options in order to
maintain supply of Nicomide(R).

HARMONY LABS, INC.

Under an agreement dated September 18, 2001, and amended on February 16, 2006
and March 10, 2006 Sirius entered into an arrangement for the manufacturing and
supply of the AVAR(R) line of products and Nicomide-T(R) with Harmony Labs, Inc.
The agreement was assigned to us as part of the Sirius merger. Harmony supplies
all of our requirements, however, we have the right to use a second source for a
significant portion of our needs if we choose to do so. The agreement expires on
February 16, 2009.

L. PERRIGO COMPANY

On October 25, 2005, Sirius entered into a supply agreement with L. Perrigo
Company, or Perrigo, for the exclusive manufacture and supply of a proprietary
device/drug kit designed by Sirius pursuant to an approved ANDA owned by
Perrigo. The agreement was assigned to us as part of the Sirius merger. We have
now launched this product, called ClindaReach(TM). Perrigo is entitled to
royalties on net sales of ClindaReach(TM), including certain minimum annual
royalties, which commenced May 1, 2006, in the amount of $250,000. The initial
term of the agreement expires in July, 2011 and may be renewed based on certain
minimum purchase levels and other terms and conditions.

WINSTON LABORATORIES, INC.

On or about January 30, 2006 Winston Laboratories, Inc., or Winston, and Sirius
entered into a license agreement relating to a Sirius product, Psoriatec(R)
(known by Winston as Micanol) revising a former agreement. Winston Laboratories,
Inc. is controlled by Dr. Joel Bernstein, a principal shareholder of the former
Sirius. This agreement was assigned to us as part of the Sirius merger. The 2006
agreement grants an exclusive license, with limitation on rights to sublicense,
to all property rights, including all intellectual property and improvements,
owned or controlled by Winston to manufacture, sell and distribute products
containing anthralin, in the United States. We pay royalties on net sales of the
product, and certain minimum royalties are due each year to maintain the
license. We have an option to purchase the product from Winston at certain times
prior to the expiration of the agreement on January 31, 2008, subject to rights
to extend or terminate the agreement earlier. Minimum royalties to Winston are
$300,000 per year ending January 31, 2008.

PARTEQ AGREEMENT

We license certain patents underlying its Levulan(R) PDT/PD systems under a
license agreement with PARTEQ Research and Development Innovations, or PARTEQ,
the licensing arm of Queen's University, Kingston, Ontario. Under the agreement,
we have been granted an exclusive worldwide license, with a right to sublicense,
under PARTEQ patent rights, to make, have made, use and sell certain products,
including ALA. The agreement covers certain use patent rights. When we are
selling our products directly, we agreed to pay to PARTEQ royalties of 6% and 4%
on 66% of the net selling price in countries where patent rights do and do not
exist, respectively. In cases where we have a sublicensee, we will pay 6% and 4%
when patent rights do and do not exist, respectively, on its net selling price
less the cost of goods for products sold to the sublicensee, and 6% of payments
we receive on sales of products by the sublicensee.

Annual minimum royalties to PARTEQ must total at least CDN $100,000 (U.S.
$94,000 as of June 30, 2007).

We are also obligated to pay to PARTEQ 5% of any lump sum sublicense fees we
receive, such as milestone payments, excluding amounts designated by a
sublicensee for future research and development efforts.

LICENSE AND SUPPLY AGREEMENTS

On August 7, 2007, we terminated our former License and Development Agreement
with photonamic GmbH & Co. KG, a subsidiary of medac GmbH, a German
pharmaceutical company, and a supply agreement with medac. These agreements
provided for the licensing to DUSA of photonamic's proprietary technology
related to ALA for systemic dosing in the field of brain cancer. Since we did
not believe that the results from medac's European Phase III clinical study
would be acceptable to the FDA and we do not intend to conduct additional
clinical trials in the brain cancer field, we mutually terminated these
agreements, without penalty, relinquishing our rights to the technology for
fluorescent-guided resection of brain cancer. However, certain provisions of
these agreements survive the termination. We entered a new License and Supply
Agreement as of August 7, 2007 among photonamic, medac and us confirming our
rights to use certain pre-clinical data and licensed technology on a
non-exclusive basis outside of this field, in the U.S., and other territories
and providing for a supply of medac's oral and intravenous formulation of ALA on
terms to be mutually agreed upon. The term of the agreement is five (5) years,
subject to rights to earlier termination and automatic renewals. No additional
royalties or payments for the license is due to photonamic.

AMENDED AND RESTATED PURCHASE AND SUPPLY AGREEMENT

On June 21, 2004, we signed an Amended and Restated Purchase and Supply
Agreement with National Biological Corporation ("NBC"), the manufacturer of our
BLU-U(R) light source. This agreement provides for the elimination of certain
exclusivity clauses,


                                       28

<PAGE>

permits us to order on a purchase order basis without minimums, and includes
other modifications of the original agreement providing both parties greater
flexibility related to the development and manufacture of light sources and the
associated technology within the field of PDT. We paid $110,000 to NBC upon
execution of the agreement which is being amortized over the remaining term of
the agreement, expiring November 5, 2008.

DRAXIS TERMINATION AND TRANSFER AGREEMENT

On February 24, 2004, we reacquired the rights to the aminolevulinic acid
(Levulan(R)) technology for Canada held by Draxis Health Inc. ("Draxis"). These
rights were initially assigned to Draxis in 1991. We mutually agreed to
terminate the assignment and we agreed to pay to Draxis an upfront fee of
$150,000 CDN ($114,000 USD at February 24, 2004) and a 10% royalty on sales of
the Levulan(R) Kerastick(R) in Canada over a five year term commencing in June
2004 based on the first Kerastick(R) sale in Canada by Coherent, our Canadian
marketing and distribution partner.

LEASE AGREEMENTS

We have entered into lease commitments for office space in Wilmington,
Massachusetts, Valhalla, New York, and Toronto, Ontario. These leases generally
have five or ten year terms. The minimum lease payments disclosed below include
the non-cancelable terms of the leases.

RESEARCH AGREEMENTS

We have entered into various agreements for research projects and clinical
studies. As of June 30, 2007, future payments to be made pursuant to these
agreements, under certain terms and conditions, totaled approximately
$3,124,000. Included in this future payment is a master services agreement,
effective June 15, 2001, with Therapeutics, Inc. for an initial term of two
years, with annual renewal periods thereafter, to engage Therapeutics to manage
the clinical development of our products in the field of dermatology. The
agreement was renewed on June 15, 2007 for a one year period. Therapeutics is
entitled to receive a bonus of between $50,000 and $200,000, in cash or stock at
our discretion, upon each anniversary of the effective date. Therapeutics has
the opportunity for additional bonuses for each product indication ranging from
$250,000 to $1,250,000 depending on the regulatory phase of development of
products during Therapeutics' management.

Our contractual obligations and other commercial commitments to make future
payments under contracts, including lease agreements, research and development
contracts, manufacturing contracts, or other related agreements, are as follows
at June 30, 2007:

<TABLE>
<CAPTION>
                                    Total     1 Yr or less    2-3 Years    4-5 Years   After 5
                                 ----------   ------------   ----------   ----------   --------
<S>                              <C>           <C>           <C>          <C>          <C>
Operating lease obligations      $2,323,000    $  469,000    $  886,000   $  836,000   $132,000
Purchase obligations (1, 2)       4,882,000     3,308,000     1,574,000           --         --
Minimum royalty obligations(3)    1,588,000       511,000       672,000      297,000    108,000
                                 ----------    ----------    ----------   ----------   --------
Total obligations                $8,793,000    $4,288,000    $3,132,000   $1,133,000   $240,000
                                 ==========    ==========    ==========   ==========   ========
</TABLE>

1)   Research and development projects include various commitments including
     obligations for our Phase IIb clinical study for moderate to severe acne.

2)   In addition to the obligations disclosed above, we have contracted with
     Therapeutics, Inc., a clinical research organization, to manage the
     clinical development of our products in the field of dermatology. This
     organization has the opportunity for bonuses for each product indication
     ranging from $250,000 to $1,250,000 depending on the regulatory phase of
     development of products under Therapeutics' management.

3)   Minimum royalty obligations relate to our agreements with PARTEQ, Winston
     and Perrigo described above.

INFLATION

Although inflation rates have been comparatively low in recent years, inflation
is expected to apply upward pressure on our operating costs. We have included an
inflation factor in our cost estimates. However, we expect the overall net
effect of inflation on our operations to be minimal.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our exposure to market risk for changes in interest rates relates primarily to
our investment portfolio. We do not use derivative financial instruments in our
investment portfolio. Our investment policy specifies credit quality standards
for our investments and limits the amount of credit exposure to any single
issue, issuer or type of investment. Our investments consist of United States
government securities and high grade corporate bonds. All investments are
carried at market value, which approximates cost.


                                       29

<PAGE>

As of June 30, 2007, the weighted average rate of return on our investments was
3.6%. If market interest rates were to increase immediately and uniformly by 100
basis points from levels as of June 30, 2007, the fair market value of the
portfolio would decline by $153,000. Declines in interest rates could, over
time, reduce our interest income.

ITEM 4. CONTROLS AND PROCEDURES

We carried out an evaluation, under the direction of our Chief Executive Officer
and Chief Financial Officer, of the effectiveness of the design and operation of
our disclosure controls and procedures (as defined in the Securities Exchange
Act of 1934, Rules 13a-15(e) and 15d-15(e)). Based upon that evaluation, the
Chief Executive Officer and Chief Financial Officer concluded that our
disclosure controls and procedures were effective as of June 30, 2007.

There have been no changes in our internal control over financial reporting that
occurred during the quarter ended June 30, 2007 that have materially affected,
or are reasonably likely to materially affect, DUSA's internal control over
financial reporting.

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q, including the Management's Discussion and
Analysis, and certain written and oral statements incorporated herein by
reference of DUSA Pharmaceuticals, Inc. (referred to as "DUSA," "we," and "us")
contain forward-looking statements that have been made pursuant to the
provisions of the Private Securities Litigation Reform Act of 1995 and Section
27A of the Securities Act of 1933, as amended. Such forward-looking statements
are based on current expectations, estimates, beliefs and projections about
future events, including, but not limited to expectations for Korean regulatory
approval and launch, beliefs concerning the impact of compounding pharmacies,
beliefs regarding estimates, our expectations regarding our merger with Sirius
Laboratories, Inc. and matters relating thereto, our expectations concerning the
introduction of niacinamide-based product, which is being substituted for
Nicomide(R) and such products' impact on sales of Nicomide(R), beliefs
concerning the focus on ClindaReach(TM) and its impact on other products and
revenues, our expectations with respect to the River's Edge litigation and the
patent reexamination process, management's beliefs regarding the unique nature
of Levulan(R) and its use and potential use, expectations regarding the timing
of results of clinical trials, future development of Levulan(R) and our other
products and other potential indications, intention to pursue licensing,
marketing, co-promotion, collaboration or acquisition opportunities, status of
clinical programs for all other indications and beliefs regarding potential
efficacy and marketing, our intention to develop combination drug and light
device systems, our expectations regarding new proprietary endoscopic light
delivery systems and the potential use of other light devices, our beliefs
regarding the safety, simplicity, reliability and cost-effectiveness of certain
light sources, our expectations regarding other product launches in Brazil,
Mexico, Korea and other territories, hope that our products will be an AK
therapy of choice and barriers to achieving that status, our beliefs regarding
growth, revenues and market opportunities from approved and potential products,
our intention to postpone or commence or postpone clinical trials and
investigator studies in 2007, our plans to eliminate certain expenses for the
coming year and reallocate others, beliefs regarding the clinical benefit of
Levulan(R) PDT for acne and other indications, beliefs regarding the suitability
of clinical data, expectations regarding the confidentiality of our proprietary
information, intentions to seek additional U.S. and foreign regulatory
approvals, and to market and increase sales outside the U.S., beliefs regarding
regulatory classifications, filings, timelines, off-label use and environmental
compliance, beliefs concerning patent disputes and litigation, the impact of a
third-party's regulatory compliance and fulfillment of contractual obligations,
and our anticipation that third parties will launch products upon receipt of
regulatory approval, expectations of increases in cost of product sales,
expectations regarding margins on Kerastick(R) and other products, expected use
of cash resources, requirements of cash resources for our future liquidity,
beliefs regarding investments and economic conditions, beliefs regarding
accounting policies and practices, expectations regarding outstanding options
and warrants and our dividend policy, anticipation of increases or decreases in
personnel, effect of reimbursement policies on revenues and acceptance of our
therapies, expectations for future strategic opportunities and research and
development programs and expenses, expectations for continuing operating losses
and competition including from Metvixia, expectations regarding the adequacy and
availability of insurance, expectations regarding general and administrative
costs, expectations regarding increased sales and marketing costs, levels of
interest income and our capital resource needs, intention to raise additional
funds to meet capital requirements and the potential dilution and impact on our
business, potential for additional inspection and testing of our manufacturing
facilities or additional FDA actions, beliefs regarding the adequacy of our
inventory of Kerastick(R) and BLU-U(R) units, our manufacturing capabilities and
the impact of inventories on revenues, belief regarding interest rate risks to
our investments and effects of inflation and new and existing accounting
standards and policies, beliefs regarding the impact of any current or future
legal proceedings, dependence on key personnel, and beliefs concerning product
liability insurance. Words such as "anticipates," "expects," "intends," "plans,"
"believes," "seeks," "estimates," or variations of such words and similar
expressions, are intended to identify such forward-looking statements. These
statements are not guarantees of future performance and are subject to certain
risks, uncertainties and assumptions that are difficult to predict particularly
in the highly regulated pharmaceutical industry in which we operate. Therefore,
actual results may differ materially from those expressed or forecasted in any
such forward-looking statements. Such risks and uncertainties include changing
market, regulatory and marketplace conditions, actual clinical results of our
trials, our ability to sell, market and develop our products and product
candidates, the potential need to hire additional personnel or retain existing
personnel, the impact of competitive products and pricing, the timely
development, FDA approval, and market acceptance of our products, the
maintenance of our patent portfolio, changes in our long and short term goals,
financial and operational risks associated with our merger with Sirius
Laboratories, Inc., the litigation process, the ability to obtain competitive
levels of reimbursement by third-party payors, and other risks noted herein and
in our other SEC filings from time to time and those set forth herein under
"Risk Factors" on pages 36 through


                                       30
<PAGE>

48, as well as those noted in the documents incorporated herein by reference.
Unless required by law, we undertake no obligation to update publicly any
forward-looking statements, whether as a result of new information, future
events or otherwise. However, readers should carefully review the statements set
forth in other reports or documents we file from time to time with the
Securities and Exchange Commission, particularly our Quarterly Reports on Form
10-Q and any Current Reports on Form 8-K.

                           PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

LEVULAN(R) LAWSUITS

In December 2004, we began a litigation strategy to protect our intellectual
property. We began to file lawsuits against physicians to prevent their
unlicensed use of versions of our Levulan(R) brand of ALA produced by
third-parties for use in our patented PDT treatment for actinic keratosis, basal
cell carcinoma, or acne. We have also sued compounding pharmacies which we
believed were inducing physicians to infringe our patents on the photodynamic
treatment of acne or actinic keratosis. The lawsuits against physicians and
compounding pharmacies have settled favorably to us and we have the right to
review their books and records to verify ongoing compliance. We expect to
maintain this strategy as long as we believe physicians and compounding
pharmacies are infringing our intellectual property.

We are in litigation with a chemical supplier in United States District Court
for the District of District of Utah, and a light device manufacturer, a
distributor, and a sales representative in United States District Court for the
Southern District of Ohio, Eastern Division, alleging that these defendants
induce physicians to infringe patents licensed to us, among other things. These
cases are still at an early stage.

While we believe that certain actions of compounding pharmacies and others go
beyond the activities which are permitted under the Food, Drug and Cosmetic Act
and we have advised the FDA and local health authorities of our concerns, we
cannot be certain that our lawsuits will be successful in curbing the practices
of these companies or that regulatory authorities will intervene to stop their
activities. In addition, there may be other compounding pharmacies which are
following FDA guidelines, or others conducting illegal activities of which we
are not aware, which may be negatively impacting our sales revenues.

RIVER'S EDGE

On March 28, 2006, a lawsuit was filed in the United States District Court for
the Northern District of Georgia, Gainesville Division by River's Edge
Pharmaceuticals, LLC against us alleging, among other things, that, prior to our
merger with the former Sirius Laboratories, Inc., Sirius agreed to authorize
River's Edge to market a generic version of Nicomide(R), and that the United
States patent covering Nicomide(R) issued to Sirius in December, 2005 is
invalid. Nicomide(R) is one of the key products DUSA acquired from Sirius in our
merger. On June 19, 2006, the Georgia court dismissed the River's Edge
complaint.

River's Edge also filed an application with the United States Patent and
Trademark Office, or USPTO, requesting an inter partes reexamination of the
Nicomide(R) patent. The USPTO has accepted the application and the parties have
submitted their responses to the USPTO's first office action.

On April 20, 2006, we filed a patent infringement suit in the United States
District Court in Trenton, New Jersey alleging that River's Edge's niacinamide
product infringes our United States patent 6,979,468. We have posted $750,000
with the court that is being held in an interest bearing account. We expect that
Nicomide(R) sales will be adversely impacted throughout the litigation process.
An unfavorable ruling in the USPTO or in the New Jersey litigation with respect
to the validity of the Nicomide(R) patent, would allow generic manufacturers,
including River's Edge, to lawfully compete directly with us and would have a
material negative impact on our revenues, results of operations and liquidity.
The parties are in the discovery stage of the New Jersey litigation. In
addition, on June 14, 2007, the court granted the Company's motion for leave to
file an amended complaint to assert claims against River's Edge for violations
of the Lanham Act and infringement of our copyright. Also, the court dismissed
the various state law claims that River's Edge had alleged against us. The court
has also ordered that the parties participate in a non-binding mediation. The
mediation is set to occur on August 9, 2007.

The Company has not accrued any amounts for potential contingencies as of June
30, 2007, as the amounts are neither probable nor estimable.

ITEM 1A. RISK FACTORS.

A description of the risk factors associated with our business is set forth
below. This description includes any material changes to and supersedes the
description of the risk factors associated with our business previously
disclosed in Item 1A. of our 2006 Annual Report on Form 10-K for the year ended
December 31, 2006 and Item 1 of our Form S-8 filed in March 2007.

You should carefully consider and evaluate all of the information in, or
incorporated by reference in, this Quarterly Report on Form 10-


                                       31

<PAGE>

Q. The following are among the risks we face related to our business, assets and
operations. They are not the only ones we face. Any of these risks could
materially and adversely affect our business, results of operations and
financial condition, which in turn could materially and adversely affect the
value of our securities.

This section of the Quarterly Report on Form 10-Q contains forward-looking
statements of our plans, objectives, expectations and intentions. We use words
such as "anticipate," "believe," "expect," future" and "intend" and similar
expressions to identify forward-looking statements. Our actual results could
differ materially from those anticipated in these forward-looking statements for
many reasons, including the risks factors described below and elsewhere in this
report. You should not place undue reliance on these forward-looking statements,
which apply only as of the date of this report.

                              RISKS RELATED TO DUSA

 WE ARE NOT CURRENTLY PROFITABLE AND MAY NOT BE PROFITABLE IN THE FUTURE UNLESS
   WE CAN SUCCESSFULLY MARKET AND SELL SIGNIFICANTLY HIGHER QUANTITIES OF OUR
                                    PRODUCTS.

NICOMIDE(R) WILL LIKELY LOSE SIGNIFICANT MARKET SHARE WITH THE RECENT ENTRY OF A
   GENERIC PRODUCT AND OUR ABILITY TO BECOME PROFITABLE WILL BE MORE DIFFICULT

In March 2006, we acquired Nicomide(R), in connection with our merger with
Sirius Laboratories, Inc. Shortly after the closing of the merger, we became
engaged in patent litigation with River's Edge Pharmaceuticals, LLC, or River's
Edge, a company that launched a niacinamide-based product in competition with
our Nicomide(R) product. River's Edge has also requested that the United States
Patent and Trademark Office reexamine the Nicomide(R) patent claiming that it is
invalid. The USPTO accepted the application for reexamination of the patent and
the parties have submitted their responses to the first office action. Although
the court issued a preliminary injunction against sales of River's Edge's
product in May 2006, the injunction was lifted on March 7, 2007, due, in part,
to the court's determination that the reexamination process by the USPTO
presented sufficient changed circumstances to warrant the dissolution of the
injunction. River's Edge has reentered the market with its product in
competition with Nicomide(R). We expect that Nicomide(R) sales will be adversely
impacted throughout the litigation process and have a material negative impact
on our revenues, results of operations and liquidity. If we do not ultimately
prevail in our lawsuit, or if the Nicomide(R) patent is found to be invalid, our
revenues from sales of Nicomide(R) will decrease permanently, and our ability to
become profitable will be more difficult. We reviewed the valuation of our
intangible assets and goodwill associated with Nicomide(R) for impairment and
recorded an impairment charge of $15.7 million in 2006 to write down the then
remaining net book value of the intangible assets. On August 9, 2007, we will
participate in a court-ordered mediation.

ANY FAILURE TO COMPLY WITH ONGOING GOVERNMENTAL REGULATIONS IN THE UNITED STATES
          AND ELSEWHERE WILL LIMIT OUR ABILITY TO MARKET OUR PRODUCTS.

The manufacture and marketing of our products are subject to continuing FDA
review as well as comprehensive regulation by the FDA and by state and local
regulatory authorities. These laws require, among other things:

-    approval of manufacturing facilities, including adherence to good
     manufacturing and laboratory practices during production and storage,

-    controlled research and testing of some of these products even after
     approval, and

-    control of marketing activities, including advertising and labeling.

If we, or any of our contract manufacturers, fail to comply with these
requirements, we may be limited in the jurisdictions in which we are permitted
to sell our products. Additionally, if we or our manufacturers fail to comply
with applicable regulatory approval requirements, a regulatory agency may also:

-    send us warning letters,

-    impose fines and other civil penalties on us,

-    seize our products,

-    suspend our regulatory approvals,

-    cease the manufacture of our products

-    refuse to approve pending applications or supplements to approved
     applications filed by us,

-    refuse to permit exports of our products from the United States,


                                       32

<PAGE>

-    require us to recall products,

-    require us to notify physicians of labeling changes and/or product related
     problems,

-    impose restrictions on our operations, and/or

-    criminally prosecute us.

We and our manufacturers must continue to comply with cGMP and Quality System
Regulation, or QSR, and equivalent foreign regulatory requirements. The cGMP
requirements govern quality control and documentation policies and procedures.
In complying with cGMP and foreign regulatory requirements, we and our
third-party manufacturers will be obligated to expend time, money and effort in
production, record keeping and quality control to assure that our products meet
applicable specifications and other requirements.

As part of our FDA approval for the Levulan(R) Kerastick(R) for AK, we were
required to conduct two Phase IV follow-up studies. We successfully completed
the first study; and submitted our final report on the second study to the FDA
in January 2004. The FDA could request additional information and/or studies.
Additionally, if previously unknown problems with the product, a manufacturer or
its facility are discovered in the future, changes in product labeling
restrictions or withdrawal of the product from the market may occur. We are in
the process of changing some of our Levulan(R) marketing materials due to a
warning letter we recently received from the FDA. This letter caused us to cease
using a good portion of our marketing materials which made the selling effort of
our Levulan(R) Kerastick(R) more difficult. If we receive other warning letters,
our revenues may suffer.

Manufacturing facilities are subject to ongoing periodic inspection by the FDA,
including unannounced inspections. We cannot guarantee that our third-party
supply sources, or our own Kerastick(R) facility, will continue to meet all
applicable FDA regulations. If we, or any of our manufacturers, including
without limitation, the manufacturer of Nicomide(R), who has received warning
letters from the FDA, or the manufacturer of the AVAR(R) products, fail to
maintain compliance with FDA regulatory requirements, it would be time consuming
and costly to remedy the problem(s) or to qualify other sources. These
consequences could have a significant adverse effect on our financial condition
and operations.

Certain of the products acquired in connection with the Sirius merger must meet
certain minimum manufacturing and labeling standards established by the FDA and
applicable to products marketed without approved marketing applications
including Nicomide(R). The FDA regulates such products under its marketed
unapproved drugs compliance policy guide entitled, "Marketed New Drugs without
Approved NDAs or ANDAs." Under this policy, the FDA recognizes that certain
unapproved products, based on the introduction date of their active ingredients
and the lack of safety concerns, have been marketed for many years and, at this
time, will not be the subject of any enforcement action. The FDA has recently
taken a more proactive role and is strongly encouraging manufacturers of such
products to submit applications to obtain marketing approval and we have begun
discussions with the FDA to begin that process. The FDA's enforcement discretion
policy does not apply to drugs or firms that may be in violation of regulatory
requirements other than preapproval submission requirements and the FDA may
bring an action against a drug or a firm when the FDA concludes that such other
violations exist. The contract manufacturer of Nicomide(R) has received a
request from the FDA for labeling information and justification for the belief
that the product is exempt from drug approval requirements, has received a
warning letter to cease manufacturing a different marketed unapproved drug, and
has been cited for cGMP violations. We believe that the cGMP issues do not
directly involve our products. There can be no assurance that the FDA will
continue this policy or not take a contrary position with any individual
products. If the FDA were to do so, we may be required to make certain labeling
changes and market these products as over-the-counter products or as dietary
supplements under applicable legislation, or withdraw such products from the
market, unless and until we submit a marketing application and obtain FDA
marketing approval. Any such action by the FDA could have a material impact on
our Non-PDT Drug Product revenues, particularly if the action were taken with
respect to Nicomide(R). Label changes eliminating claims of certain medicinal
benefits could make it more difficult to market these products and could
therefore, negatively affect our revenues and profits.

   PATENT LITIGATION IS EXPENSIVE AND WE MAY NOT BE ABLE TO AFFORD THE COSTS.

The costs of litigation or any proceeding relating to our intellectual property
rights could be substantial even if resolved in our favor. Some of our
competitors have far greater resources than we do and may be better able to
afford the costs of complex patent litigation. For example, third-parties may
infringe one or more of our patents, and we are spending significant resources
to enforce our patent rights. Also, in a lawsuit against a third-party for
infringement of our patents in the United States, that third-party may challenge
the validity of our patent(s). We cannot guarantee that a third-party will not
claim, with or without merit, that our patents are not valid, as in the case
described below, or that we have infringed their patent(s) or misappropriated
their proprietary material. Defending these types of legal actions involve
considerable expense and could negatively affect our financial results.

Additionally, if a third-party were to file a United States patent application
in the United States, or be issued a patent claiming technology also claimed by
us in a pending United States application(s), we may be required to participate
in interference proceedings in the United States Patent and Trademark Office to
determine the priority of the invention. A third-party could also request the
declaration of a patent interference between one of our issued United States
patents and one of its patent applications. Any


                                       33

<PAGE>

interference proceedings likely would require participation by us and/or PARTEQ,
could involve substantial legal fees and result in a loss or lessening of our
patent protection.

On March 28, 2006, a lawsuit was filed by River's Edge Pharmaceuticals, LLC, or
River's Edge, against us alleging, among other things, that, prior to the
merger, Sirius Laboratories, Inc., or Sirius, agreed to authorize River's Edge
to market a generic version of Nicomide(R), and that the United States patent
covering Nicomide(R) issued to Sirius in December, 2005 is invalid. The
declaratory judgment suit was filed in the United States District Court for the
Northern District of Georgia, Gainesville Division and has been dismissed.
Nicomide is one of the key products DUSA acquired from Sirius in its merger. On
April 20, 2006, we filed a patent infringement suit in the United States
District Court in Trenton, New Jersey alleging that River's Edge's
niacinamide-based product infringes our United States Patent No. 6,979,468.
Although a preliminary injunction against sales of River's Edge's product had
been in place since May, 2006, the injunction was lifted on March 7, 2007, so
River's Edge is now selling its product in competition with Nicomide(R). We
expect that Nicomide(R) sales will decrease significantly during the litigation
process and make it more difficult to afford the cost of the litigation. If we
do not ultimately prevail in our lawsuit, or if the Nicomide(R) patent is found
to be invalid, our revenues from sales of Nicomide(R) will decrease permanently.
We expect to eliminate some expenses planned for 2007 and reallocate others to
provide more support to Levulan(R) and our new product, ClindaReach(TM). We
reviewed the valuation of our intangible assets and goodwill associated with
Nicomide(R) for impairment and recorded an impairment charge of $15.7 million in
2006 to write down the then remaining net book value of the intangible assets.

During 2005 and 2006, we filed several lawsuits against chemical suppliers,
compounding pharmacies, a light device company, its distributor and a sales
representative, and physicians alleging violations of patent law. While we have
been successful in obtaining a default judgment against one compounding
pharmacy, and settled other suits favorably to us, we do not know whether these
lawsuits will prevent others from infringing our patents or whether we will be
successful in stopping these activities which we believe are negatively
affecting our revenues.

IF PRODUCT SALES DO NOT INCREASE SIGNIFICANTLY WE MAY NOT BE ABLE TO ADVANCE
DEVELOPMENT OF OUR OTHER POTENTIAL PRODUCTS AS QUICKLY AS WE WOULD LIKE TO,
WHICH WOULD DELAY THE APPROVAL PROCESS AND MARKETING OF NEW POTENTIAL PRODUCTS.

If we do not generate sufficient revenues from our approved products, we may be
forced to delay or abandon some or all of our product development programs. The
pharmaceutical development and commercialization process is time consuming and
costly, and any delays might result in higher costs which could adversely affect
our financial condition. Without sufficient product sales, we might be required
to seek additional funding. There is no guarantee that adequate funding sources
could be found to continue the development of all our potential products. We
might be required to commit substantially greater capital than we have available
to research and development of such products and we may not have sufficient
funds to complete all or any of our development programs.

IF WE ARE UNABLE TO OBTAIN THE NECESSARY CAPITAL TO FUND OUR OPERATIONS, WE WILL
HAVE TO DELAY OUR DEVELOPMENT PROGRAMS AND MAY NOT BE ABLE TO COMPLETE OUR
CLINICAL TRIALS.

We may need substantial additional funds to fully develop, manufacture, market
and sell our other potential products. We may obtain funds through other public
or private financings, including equity financing, and/or through collaborative
arrangements. We cannot predict whether any financing will be available at all
or on acceptable terms. Depending on the extent of available funding, we may
delay, reduce in scope or eliminate some of our research and development
programs. We may also choose to license rights to third parties to commercialize
products or technologies that we would otherwise have attempted to develop and
commercialize on our own which could reduce our potential revenues.

The availability of additional capital to us is highly uncertain. There can be
no assurance that additional funding will be available to us on favorable terms,
if at all. Any equity financing, if needed, would likely result in dilution to
our existing stockholders and debt financing, if available, would likely involve
significant cash payment obligations and include restrictive covenants that
restrict our ability to operate our business. Failure to raise capital if needed
could materially adversely impact our business, our financial condition, results
of operations and cash flows. If we fail to adequately address our liquidity
issues, through increasing our cash flows from operations or obtaining
additional capital from fund raising, this would impact our ability to continue
as a going concern.

SINCE WE NOW OPERATE THE ONLY FDA APPROVED MANUFACTURING FACILITY FOR THE
KERASTICK(R) AND CONTINUE TO RELY HEAVILY ON SOLE SUPPLIERS FOR THE MANUFACTURE
OF LEVULAN(R), THE BLU-U(R), NICOMIDE(R), NICOMIDE-T(R), THE AVAR(R) LINE OF
PRODUCTS, METED(R), PSORIACAP(R) AND PSORIATEC(R), ANY SUPPLY OR MANUFACTURING
PROBLEMS COULD NEGATIVELY IMPACT OUR SALES.

If we experience problems producing Levulan(R) Kerastick(R) units in our
facility, or if any of our contract suppliers fail to supply our requirements
for products, our business, financial condition and results of operations would
suffer. Although we have received approval by the FDA to manufacture the
BLU-U(R) and the Levulan(R) Kerastick(R) in our Wilmington, Massachusetts
facility, at this time, with respect to the BLU-U(R), We expect to utilize our
own facility only as a back-up to our current third party manufacturer or for
repairs.


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<PAGE>

The sole supplier of Nicomide(R) has received warning letters from the FDA
regarding certain regulatory observations. The primary observations noted in the
warning letters were not related to Nicomide(R). However, with respect to
Nicomide(R) and certain other products manufactured by this supplier, the FDA
has requested that the manufacturer provide a copy of the labeling and
information providing the basis for an exemption from the drug approval
requirements. The FDA regulates such products under the compliance policy guide
described above entitled, "Marketed New Drugs without Approved NDAs or ANDAs."

Nicomide(R) is one of the key products DUSA acquired from Sirius in connection
with our merger completed in March, 2006. Nicomide(R) is an oral prescription
vitamin supplement. If the FDA is not satisfied with the response to the warning
letters issued to the manufacturer of Nicomide(R) and causes the manufacturer to
cease operations, our revenues will be significantly negatively affected.

Manufacturers and their subcontractors often encounter difficulties when
commercial quantities of products are manufactured for the first time, or large
quantities of new products are manufactured, including problems involving:

-    product yields,

-    quality control,

-    component and service availability,

-    compliance with FDA regulations, and

-    the need for further FDA approval if manufacturers make material changes to
     manufacturing processes and/or facilities.

We cannot guarantee that problems will not arise with production yields, costs
or quality as we and our suppliers seek to increase production. Any
manufacturing problems could delay or limit our supplies which would hinder our
marketing and sales efforts. If our facility, any facility of our contract
manufacturers, or any equipment in those facilities is damaged or destroyed, we
may not be able to quickly or inexpensively replace it. Likewise, if there are
any quality or supply problems with any components or materials needed to
manufacturer our products, we may not be able to quickly remedy the problem(s).
Any of these problems could cause our sales to suffer.

WE HAVE ONLY LIMITED EXPERIENCE MARKETING AND SELLING PHARMACEUTICAL PRODUCTS
AND, AS A RESULT, OUR REVENUES FROM PRODUCT SALES MAY SUFFER.

If we are unable to successfully market and sell sufficient quantities of our
products, revenues from product sales will be lower than anticipated and our
financial condition may be adversely affected. We are responsible for marketing
our products in the United States and the rest of the world, except Canada,
Latin America and parts of Asia, where we have distributors. We are doing so
without the experience of having marketed pharmaceutical products prior to 2000.
In October 2003, DUSA began hiring a small direct sales force and we increased
the size of our sales force to market our products in the United States. In
addition, our sales personnel have only recently begun to sell and market the
products we acquired in our merger with Sirius. If our sales and marketing
efforts fail, then sales of the Levulan(R) Kerastick(R), the BLU-U(R),
Nicomide(R) and other products will be adversely affected.

IF WE CANNOT IMPROVE PHYSICIAN REIMBURSEMENT AND/OR CONVINCE MORE PRIVATE
INSURANCE CARRIERS TO ADEQUATELY REIMBURSE PHYSICIANS FOR OUR PRODUCT SALES MAY
SUFFER.

Without adequate levels of reimbursement by government health care programs and
private health insurers, the market for our Levulan(R) Kerastick(R) for AK
therapy will be limited. While we continue to support efforts to improve
reimbursement levels to physicians and are working with the major private
insurance carriers to improve coverage for our therapy, if our efforts are not
successful, a broader adoption of our therapy and sales of our products could be
negatively impacted. Although some reimbursement changes related to AK were made
in 2005 and 2006, some physicians still believe that reimbursement levels do not
fully reflect the required efforts to routinely execute our therapy in their
practices.

If insurance companies do not cover, or stop covering products which are
covered, including Nicomide(R), our sales could be dramatically reduced.

THE COMMERCIAL SUCCESS OF ANY PRODUCTS THAT WE MAY DEVELOP WILL DEPEND UPON THE
DEGREE OF MARKET ACCEPTANCE OF OUR PRODUCTS AMONG PHYSICIANS, PATIENTS, HEALTH
CARE PAYORS, PRIVATE HEALTH INSURERS AND THE MEDICAL COMMUNITY.

Our ability to commercialize any products that we may develop will be highly
dependent upon the extent to which these products gain market acceptance among
physicians, patients, health care payors, such as Medicare and Medicaid, private
health insurers, including managed care organizations and group purchasing
organizations, and the medical community. If these products do not achieve an
adequate level of acceptance, we may not generate material product revenues, and
we may not become profitable. The degree of market acceptance of our product
candidates, if approved for commercial sale, will depend on a number of factors,
including:


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<PAGE>

-    the effectiveness, or perceived effectiveness, of our products in
     comparison to competing products;

-    the existence of any significant side effects, as well as their severity in
     comparison to any competing products;

-    potential advantages over alternative treatments;

-    the ability to offer our products for sale at competitive prices;

-    relative convenience and ease of administration;

-    the strength of marketing and distribution support; and

-    sufficient third-party coverage or reimbursement.

           WE HAVE SIGNIFICANT LOSSES AND ANTICIPATE CONTINUED LOSSES

We have a history of operating losses. We expect to have continued losses until
sales of our products increase substantially. We incurred net losses of
$2,477,000 and $5,848,000 for the three and six-month periods ended June 30,
2007, respectively. As of June 30, 2007, our accumulated deficit was
approximately $126,735,000. We cannot predict whether any of our products will
achieve significant enough market acceptance or generate sufficient revenues to
enable us to become profitable on a sustainable basis.

IF WE ARE UNABLE TO PROTECT OUR PROPRIETARY TECHNOLOGY, TRADE SECRETS OR
KNOW-HOW, WE MAY NOT BE ABLE TO OPERATE OUR BUSINESS PROFITABLY.

WE HAVE LIMITED PATENT PROTECTION AND IF WE ARE UNABLE TO PROTECT OUR
PROPRIETARY RIGHTS, COMPETITORS MIGHT BE ABLE TO DEVELOP SIMILAR PRODUCTS TO
COMPETE WITH OUR PRODUCTS AND TECHNOLOGY.

Our ability to compete successfully depends, in part, on our ability to defend
patents that have issued, obtain new patents, protect trade secrets and operate
without infringing the proprietary rights of others. We have no compound patent
protection for our Levulan(R) brand of the compound ALA. Our basic ALA patents
are for methods of detecting and treating various diseased tissues using ALA (or
related compounds called precursors), in combination with light. We own or
exclusively license ALA patents and patent applications related to the
following:

-    methods of using ALA and its unique physical forms in combination with
     light,

-    compositions and apparatus for those methods, and

-    unique physical forms of ALA.

We have limited ALA patent protection outside the United States, which may make
it easier for third-parties to compete there. Our basic method of treatment
patents and applications have counterparts in only six foreign countries, and
certain countries under the European Patent Convention. Even where we have
patent protection, there is no guarantee that we will be able to enforce our
patents. Additionally, enforcement of a given patent may not be practicable or
an economically viable alternative.

Some of the indications for which we may develop PDT therapies may not be
covered by the claims in any of our existing patents. Even with the issuance of
additional patents to DUSA, other parties are free to develop other uses of ALA,
including medical uses, and to market ALA for such uses, assuming that they have
obtained appropriate regulatory marketing approvals. ALA in the chemical form
has been commercially supplied for decades, and is not itself subject to patent
protection. There are reports of third-parties conducting clinical studies with
ALA in countries outside the United States where PARTEQ, the licensor of our ALA
patents, does not have patent protection. In addition, a number of third-parties
are seeking patents for uses of ALA not covered by our patents. These other
uses, whether patented or not, and the commercial availability of ALA, could
limit the scope of our future operations because ALA products could come on the
market which would not infringe our patents but would compete with our
Levulan(R) products even though they are marketed for different uses.

Nicomide(R) is covered by a United States patent which issued in December 2005.
River's Edge Pharmaceuticals, LLC has filed an application with the U.S. Patent
and Trademark Office, or USPTO, for the reexamination of the patent. The USPTO
accepted the application for reexamination of the patent and the parties have
submitted their responses to the first office action. If the USPTO finds that
the patent is invalid, generic products will be able to lawfully compete with
Nicomide(R). Although the court, in the patent infringement litigation described
above, issued a preliminary injunction against sales of River's Edge's product
in May 2006, the injunction was lifted on March 7, 2007, due, in part, to the
court's determination that the reexamination process presented sufficient
changed circumstances to warrant the dissolution of the injunction. River's Edge
has reentered the market with its product in competition with Nicomide(R). Also,
recently two new products have been launched that could compete with
Nicomide(R). These events


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<PAGE>

could cause us to lose significant revenues and put our ability to be profitable
at risk. If we have to change the Nicomide(R) formulation to meet regulatory
requirements, we may not have patent protection.

Furthermore, PhotoCure received FDA approval to market Metvixia(R) for treatment
of AKs in July 2004 and this product, which would be directly competitive with
our Levulan(R) Kerastick(R) product, could be launched at any time. While we are
entitled to royalties from PhotoCure on its net sales of Metvixia(R), this
product may adversely affect our ability to maintain or increase our Levulan(R)
market.

While we attempt to protect our proprietary information as trade secrets through
agreements with each employee, licensing partner, consultant, university,
pharmaceutical company and agent, we cannot guarantee that these agreements will
provide effective protection for our proprietary information. It is possible
that:

-    these persons or entities might breach the agreements,

-    we might not have adequate remedies for a breach, and/or

-    our competitors will independently develop or otherwise discover our trade
     secrets;

all of which could negatively impact our ability to be profitable.

WE HAVE ONLY 3 THERAPIES THAT HAVE RECEIVED REGULATORY APPROVAL OR CLEARANCE AND
WE CANNOT PREDICT WHETHER WE WILL EVER DEVELOP OR COMMERCIALIZE ANY OTHER
LEVULAN(R) PRODUCTS.

     OUR POTENTIAL PRODUCTS ARE IN EARLY STAGES OF DEVELOPMENT AND MAY NEVER
                 RESULT IN ANY COMMERCIALLY SUCCESSFUL PRODUCTS.

To be profitable, we must successfully research, develop, obtain regulatory
approval for, manufacture, introduce, market and distribute our products. Except
for Levulan(R) PDT for AKs, the BLU-U(R) for acne, the ClindaReach(TM) pledget
and the currently marketed products we acquired in our merger with Sirius, all
of our other potential Levulan(R) and other potential product candidates are at
an early stage of development and subject to the risks of failure inherent in
the development of new pharmaceutical products and products based on new
technologies. These risks include:

-    delays in product development, clinical testing or manufacturing,

-    unplanned expenditures in product development, clinical testing or
     manufacturing,

-    failure in clinical trials or failure to receive regulatory approvals,

-    emergence of superior or equivalent products,

-    inability to market products due to third-party proprietary rights, and

-    failure to achieve market acceptance.

We cannot predict how long the development of our investigational stage products
will take or whether they will be medically effective. We cannot be sure that a
successful market will continue to develop for our Levulan(R) drug technology.

WE MUST RECEIVE SEPARATE APPROVAL FOR EACH OF OUR POTENTIAL PRODUCTS BEFORE WE
CAN SELL THEM COMMERCIALLY IN THE UNITED STATES OR ABROAD.

All of our potential Levulan(R) products will require the approval of the FDA
before they can be marketed in the United States. If we fail to obtain the
required approvals for these products our revenues will be limited. Before an
application to the FDA seeking approval to market a new drug, called an NDA, can
be filed, a product must undergo, among other things, extensive animal testing
and human clinical trials. The process of obtaining FDA approvals can be
lengthy, costly, and time-consuming. Following the acceptance of an NDA, the
time required for regulatory approval can vary and is usually 1 to 3 years or
more. The FDA may require additional animal studies and/or human clinical trials
before granting approval. Our Levulan(R) PDT products are based on relatively
new technology. To the best of our knowledge, the FDA has approved only 3 drugs
for use in photodynamic therapy, including Levulan(R)). This factor may lengthen
the approval process. We face much trial and error and we may fail at numerous
stages along the way.

We cannot predict whether we will obtain approval for any of our potential
products. Data obtained from preclinical testing and clinical trials can be
susceptible to varying interpretations which could delay, limit or prevent
regulatory approvals. Future clinical trials may not show that Levulan(R) PDT or
photodetection, known as PD, is safe and effective for any new use we are
studying. In


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<PAGE>

addition, delays or disapprovals may be encountered based upon additional
governmental regulation resulting from future legislation or administrative
action or changes in FDA policy. During September 2005, the FDA issued guidance
for the pharmaceutical industry regarding the development of new drugs for acne
vulgaris treatment. We are developing Levulan(R) PDT for acne. The FDA may issue
additional guidance in the future, which may result on additional costs and
delays. We must also obtain foreign regulatory clearances before we can market
any potential products in foreign markets. The foreign regulatory approval
process includes all of the risks associated with obtaining FDA marketing
approval and may impose substantial additional costs.

Certain of the products acquired in connection with the Sirius merger must meet
certain minimum manufacturing and labeling standards established by the FDA and
applicable to products marketed without approved marketing applications
including Nicomide(R). FDA regulates such products under its marketed unapproved
drugs compliance policy guide entitled, "Marketed New Drugs without Approved
NDAs or ANDAs." Under this policy, FDA recognizes that certain unapproved
products, based on the introduction date of their active ingredients and the
lack of safety concerns, have been marketed for many years and, at this time,
will not be the subject of any enforcement action. The FDA has recently taken a
more proactive role and is strongly encouraging manufacturers of such products
to submit applications to obtain marketing approval and we have begun
discussions with FDA to begin that process. FDA's enforcement discretion policy
does not apply to drugs or firms that may be in violation of regulatory
requirements other than preapproval submission requirements and FDA may bring an
action against a drug or a firm when FDA concludes that such other violations
exist. The contract manufacturer of Nicomide(R) has received a request from the
FDA for labeling information and justification for the belief that the product
is exempt from drug approval requirements, has received a warning letter to
cease manufacturing a different marketed unapproved drug, and has been cited for
cGMP violations. We believe that the cGMP issues do not directly involve our
products. There can be no assurance that the FDA will continue this policy or
not take a contrary position with any individual products. If the FDA were to do
so, we may be required to make certain labeling changes and market these
products as over-the-counter products or as dietary supplements under applicable
legislation, or withdraw such products from the market, unless and until we
submit a marketing application and obtain FDA marketing approval.

BECAUSE OF THE NATURE OF OUR BUSINESS, THE LOSS OF KEY MEMBERS OF OUR MANAGEMENT
TEAM COULD DELAY ACHIEVEMENT OF OUR GOALS.

We are a small company with only 87 employees, including 4 part-time employees
as of June 30, 2007. We are highly dependent on several key officer/employees
with specialized scientific and technical skills without whom our business,
financial condition and results of operations would suffer, especially in the
photodynamic therapy portion of our business. The photodynamic therapy industry
is still quite small and the number of experts is limited. The loss of these key
employees could cause significant delays in achievement of our business and
research goals since very few people with their expertise could be hired. Our
growth and future success will depend, in large part, on the continued
contributions of these key individuals as well as our ability to motivate and
retain other qualified personnel in our specialty drug and light device areas.

    OUR COLLABORATIONS WITH OUTSIDE SCIENTISTS MAY BE SUBJECT TO RESTRICTION
                                   AND CHANGE.

We work with scientific and clinical advisors and collaborators at academic and
other institutions that assist us in our research and development efforts. These
scientists and advisors are not our employees and may have other commitments
that limit their availability to us. Although our advisors and collaborators
generally agree not to do competing work, if a conflict of interest between
their work for us and their work for another entity arises, we may lose their
services. In addition, although our advisors and collaborators sign agreements
not to disclose our confidential information, it is possible that valuable
proprietary knowledge may become publicly known through them.

                          RISKS RELATED TO OUR INDUSTRY

PRODUCT LIABILITY AND OTHER CLAIMS AGAINST US MAY REDUCE DEMAND FOR OUR PRODUCTS
OR RESULT IN DAMAGES.

     WE ARE SUBJECT TO RISK FROM POTENTIAL PRODUCT LIABILITY LAWSUITS WHICH
                      COULD NEGATIVELY AFFECT OUR BUSINESS.

The development, manufacture and sale of medical products exposes us to product
liability claims related to the use or misuse of our products. Product liability
claims can be expensive to defend and may result in significant judgments
against us. A successful claim in excess of our insurance coverage could
materially harm our business, financial condition and results of operations.
Additionally, we cannot guarantee that continued product liability insurance
coverage will be available in the future at acceptable costs. If the cost is too
high, we may have to self-insure.

     OUR BUSINESS INVOLVES ENVIRONMENTAL RISKS AND WE MAY INCUR SIGNIFICANT
            COSTS COMPLYING WITH ENVIRONMENTAL LAWS AND REGULATIONS.

We have used various hazardous materials, such as mercury in fluorescent tubes
in our research and development activities. We are


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<PAGE>

subject to federal, state and local laws and regulations which govern the use,
manufacture, storage, handling and disposal of hazardous materials and specific
waste products. Now that we have established our own production line for the
manufacture of the Kerastick(R), we are subject to additional environmental laws
and regulations. we believe that we are in compliance in all material respects
with currently applicable environmental laws and regulations. However, we cannot
guarantee that we will not incur significant costs to comply with environmental
laws and regulations in the future. We also cannot guarantee that current or
future environmental laws or regulations will not materially adversely affect
our operations, business or assets. In addition, although we believe our safety
procedures for handling and disposing of these materials comply with federal,
state and local laws and regulations, we cannot completely eliminate the risk of
accidental contamination or injury from these materials. In the event of such an
accident, we could be held liable for any resulting damages, and this liability
could exceed our resources.

WE MAY NOT BE ABLE TO COMPETE AGAINST TRADITIONAL TREATMENT METHODS OR KEEP UP
WITH RAPID CHANGES IN THE BIOTECHNOLOGY AND PHARMACEUTICAL INDUSTRIES THAT COULD
MAKE SOME OR ALL OF OUR PRODUCTS NON-COMPETITIVE OR OBSOLETE.

COMPETING PRODUCTS AND TECHNOLOGIES BASED ON TRADITIONAL TREATMENT METHODS MAY
MAKE SOME OR ALL OF OUR PROGRAMS OR POTENTIAL PRODUCTS NONCOMPETITIVE OR
OBSOLETE.

Well-known pharmaceutical, biotechnology and medical device companies are
marketing well-established therapies for the treatment of many of the same
conditions that we are seeking to treat, including AKs, acne, rosacea, and
Barrett's Esophagus. Doctors may prefer to use familiar methods, rather than
trying our products. Reimbursement issues affect the economic competitiveness of
our products as compared to other more traditional therapies.

Many companies are also seeking to develop new products and technologies, and
receiving approval for medical conditions for which we are developing
treatments. Our industry is subject to rapid, unpredictable and significant
technological change. Competition is intense. Our competitors may succeed in
developing products that are safer or more effective than ours. Many of our
competitors have substantially greater financial, technical and marketing
resources than we have. In addition, several of these companies have
significantly greater experience than we do in developing products, conducting
preclinical and clinical testing and obtaining regulatory approvals to market
products for health care.

We cannot guarantee that new drugs or future developments in drug technologies
will not have a material adverse effect on our business. Increased competition
could result in:

-    price reductions,

-    lower levels of third-party reimbursements,

-    failure to achieve market acceptance, and

-    loss of market share, any of which could adversely affect our business.
     Further, we cannot give any assurance that developments by our competitors
     or future competitors will not render our technology obsolete.

On May 30, 2006, we entered into a patent license agreement with PhotoCure ASA
whereby DUSA granted a non-exclusive license to PhotoCure under the patents DUSA
licenses from PARTEQ, the licensing arm of Queens University, Kingston, Ontario
Canada for esters of aminolevulinic acid ("ALA"). ALA is the active ingredient
in DUSA's Levulan(R) products. Furthermore, DUSA granted a non-exclusive license
to PhotoCure for its existing formulations of its Hexvix(R) and Metvix(R) (known
in the United States as Metvixia(R)) products for any DUSA patents that may
issue or be licensed by DUSA in the future. PhotoCure received FDA approval to
market Metvixia for treatment of AKs in July 2004 and it would be directly
competitive with our Levulan(R) Kerastick(R) product should PhotoCure decide to
begin marketing this product. While we are entitled to royalties from PhotoCure
on its net sales of Metvixia, this product may adversely affect our ability to
maintain or increase our market.

OUR PRODUCTS MAY LOSE MARKET SHARE IF NEW MANUFACTURERS BEGIN PRODUCING
COMPETING PRODUCTS THAT ARE ABLE TO PENETRATE OUR MARKET.

    WE HAVE LEARNED THAT SOME COMPOUNDING PHARMACIES ARE PRODUCING A FORM OF
     AMINOLEVULINIC ACID HCL AND ARE MARKETING IT TO THE MEDICAL COMMUNITY.

We are aware that there are compounding pharmacies that market compounded
versions of aminolevulinic acid HCl as an alternative to our Levulan(R) product.
Since December 2004, we filed lawsuits against some compounding pharmacies and
physicians alleging violations of the Lanham Act for false advertising and
trademark infringement, and of United States patent law. All of the lawsuits
that have been concluded settled favorably to us. More recently, we have sued
chemical suppliers, and a light device company, its distributor and a sales
representative, alleging that they induce physicians to infringe patents
licensed to us, among other things. While we believe that certain actions of
compounding pharmacies and others go beyond the activities which are permitted
under the Food, Drug and Cosmetic Act and have advised the FDA and local health
authorities of our concerns, we cannot be certain that our lawsuits


                                       39

<PAGE>

will be successful in curbing the practices of these companies or that
regulatory authorities will intervene to stop their activities. In addition,
there may be other compounding pharmacies which are following FDA guidelines, or
others conducting illegal activities of which we are not aware, which may be
negatively impacting our sales revenues.

If generic manufacturers, like River's Edge, launch products to compete with
Nicomide(R) in spite of our patent position, or if a court or the United States
Patent and Trademark Office determine that our patent is invalid, these
manufacturers may erode our market and negatively impact our sales revenues,
liquidity and operations.

   OUR COMPETITORS IN THE BIOTECHNOLOGY AND PHARMACEUTICAL INDUSTRIES MAY HAVE
       BETTER PRODUCTS, MANUFACTURING CAPABILITIES OR MARKETING EXPERTISE.

We are aware of several companies commercializing and/or conducting research
with ALA or ALA-related compounds, including: medac GmbH and photonamic GmbH &
Co. KG (Germany); Biofrontera, PhotoTherapeutics, Inc. (U.K.) and PhotoCure ASA
(Norway) which entered into a marketing agreement with Galderma S.A. for
countries outside of Nordic countries for certain dermatology indications. We
also anticipate that we will face increased competition as the scientific
development of PDT and PD advances and new companies enter our markets. Several
companies are developing PDT agents other than Levulan(R). These include: QLT
Inc. (Canada); Axcan Pharma Inc. (U.S.); Miravant, Inc. (U.S.); and
Pharmacyclics, Inc. (U.S.). There are many pharmaceutical companies that compete
with us in the field of dermatology, particularly in the acne and rosacea
markets.

PhotoCure has received marketing approval of its ALA precursor (ALA
methyl-ester) compound for PDT treatment of AKs and basal cell carcinoma in the
European Union, New Zealand, Australia and countries in Scandinavia. PhotoCure's
marketing partner could begin to market its product in direct competition with
Levulan(R) in the U.S. under the terms of our patent license agreement and we
may lose market share.

Axcan Pharma Inc. has received FDA approval for the use of its product,
PHOTOFRIN(R), for PDT in the treatment of high grade dysplasia associated with
Barrett's Esophagus. Axcan is the first company to market a PDT therapy for this
indication for which we designed our proprietary sheath device and have
conducted pilot clinical trials.

We expect that our principal methods of competition with other PDT products will
be based upon such factors as:

-    the ease of administration of our method of PDT,

-    the degree of generalized skin sensitivity to light,

-    the number of required doses,

-    the selectivity of our drug for the target lesion or tissue of interest,
     and

-    the type and cost of our light systems.

Our primary competition in the acne and rosacea markets include oral and topical
antibiotics, other topical prescription and over-the-counter products, as well
as various laser and non-laser light treatments. The market is highly
competitive and other large and small companies have more experience than we do
which could make it difficult for us to penetrate the market. We are also aware
of new products that were launched recently which will compete with Nicomide(R)
and the AVAR(R) line of products which could negatively impact our market share.
In addition, River's Edge's niacinamide-based product which competes with our
Nicomide(R) product has reentered the market, and other generic companies may
also decide to enter the market while our patent litigation and reexamination
process are proceeding, or thereafter if the court or if the USPTO finds that
our Nicomide patent is invalid. The entry of new products from time to time
would likely cause us to lose market share.

                           RISKS RELATED TO OUR STOCK

   IF THE SHARES OF COMMON STOCK HELD BY FORMER SIRIUS SHAREHOLDERS ARE SOLD,
                 THE PRICE OF THE SHARES COULD BECOME DEPRESSED

All of the shares of DUSA's common stock which were issued to the former Sirius
shareholders were subject to a lock-up provision under the terms of the merger
agreement. On March 10, 2007, the lock-up provision on 1,380,151 shares was
lifted. These shares have been registered and are freely tradable. If these
shareholders decide to sell their shares, the price of the shares on NASDAQ
could be depressed.

IF OUTSTANDING OPTIONS, WARRANTS AND RIGHTS ARE CONVERTED, THE VALUE OF THOSE
SHARES OF COMMON STOCK OUTSTANDING JUST PRIOR TO THE CONVERSION WILL BE DILUTED.

As of June 30, 2007 there were outstanding options and warrants to purchase
3,276,000 Shares of Common Stock, with exercise prices


                                       40

<PAGE>

ranging from U.S. $1.60 to $31.00 per share, and of CDN $6.79 per share,
respectively. The holders of the options and warrants have the opportunity to
profit if the market price for the common stock exceeds the exercise price of
their respective securities, without assuming the risk of ownership. The holders
are likely to exercise their securities when we would probably be able to raise
capital from the public on terms more favorable than those provided in these
securities.

RESULTS OF OUR OPERATIONS AND GENERAL MARKET CONDITIONS FOR SPECIALTY
PHARMACEUTICAL AND BIOTECHNOLOGY STOCKS COULD RESULT IN SUDDEN CHANGES IN THE
MARKET VALUE OF OUR STOCK.

The price of our common stock has been highly volatile. These fluctuations
create a greater risk of capital losses for our shareholders as compared to less
volatile stocks. From January 1, 2006 to June 30, 2007, the price of our stock
has ranged from a low of $2.75 to a high of $11.12. Factors that contributed to
the volatility of our stock during this period included:

-    quarterly levels of product sales;

-    clinical trial results;

-    general market conditions;

-    patent litigation;

-    increased marketing activities or press releases; and

-    changes in third-party payor reimbursement for our therapy.

The significant general market volatility in similar stage pharmaceutical and
biotechnology companies made the market price of our common stock even more
volatile.

SIGNIFICANT FLUCTUATIONS IN ORDERS FOR OUR PRODUCTS, ON A MONTHLY AND QUARTERLY
BASIS, ARE COMMON BASED ON EXTERNAL FACTORS AND SALES PROMOTION ACTIVITIES.
THESE FLUCTUATIONS COULD INCREASE THE VOLATILITY OF OUR STOCK PRICE.

The price of our common stock may be affected by the amount of quarterly
shipments of our products to end-users. Since our PDT products are still in the
early stages of adoption, and sales volumes are still low, a number of factors
could affect product sales levels and growth rates in any period. These could
include the timing of medical conferences, sales promotion activities, and large
volume purchases by our higher usage customers. In addition, seasonal
fluctuations in the number of patients seeking treatment at various times during
the year could impact sales volumes. These factors could, in turn, affect the
volatility of our stock price.

       EFFECTING A CHANGE OF CONTROL OF DUSA WOULD BE DIFFICULT, WHICH MAY
                DISCOURAGE OFFERS FOR SHARES OF OUR COMMON STOCK.

Our certificate of incorporation authorizes the board of directors to issue up
to 100,000,000 shares of stock, 40,000,000 of which are common stock. The board
of directors has the authority to determine the price, rights, preferences and
privileges, including voting rights, of the remaining 60,000,000 shares without
any further vote or action by the shareholders. The rights of the holders of our
common stock will be subject to, and may be adversely affected by, the rights of
the holders of any preferred stock that may be issued in the future.

On September 27, 2002, we adopted a shareholder rights plan at a special meeting
of DUSA's board of directors. The rights plan could discourage, delay or prevent
a person or group from acquiring 15% or more (or 20% or more in the case of
certain parties) of our common stock, thereby limiting, perhaps, the ability of
our shareholders to benefit from such a transaction.

The rights plan provides for the distribution of one right as a dividend for
each outstanding share of our common stock to holders of record as of October
10, 2002. Each right entitles the registered holder to purchase one
one-thousandths of a share of preferred stock at an exercise price of $37.00 per
right. The rights will be exercisable subsequent to the date that a person or
group either has acquired, obtained the right to acquire, or commences or
discloses an intention to commence a tender offer to acquire, 15% or more of our
outstanding common stock (or 20% of the outstanding common stock in the case of
a shareholder or group who beneficially held in excess of 15% at the record
date), or if a person or group is declared an "Adverse Person", as such term is
defined in the rights plan. The rights may be redeemed by DUSA at a redemption
price of one one-hundredth of a cent per right until ten days following the date
the person or group acquires, or discloses an intention to acquire, 15% or 20%
or more, as the case may be, of DUSA, or until such later date as may be
determined by the our board of directors.

Under the rights plan, if a person or group acquires the threshold amount of
common stock, all holders of rights (other than the


                                       41

<PAGE>

acquiring person or group) may, upon payment of the purchase price then in
effect, purchase shares of common stock of DUSA having a value of twice the
purchase price. In the event that we are involved in a merger or other similar
transaction where DUSA is not the surviving corporation, all holders of rights
(other than the acquiring person or group) shall be entitled, upon payment of
the purchase price then in effect, to purchase common stock of the surviving
corporation having a value of twice the purchase price. The rights will expire
on October 10, 2012, unless previously redeemed. Our board of directors has also
adopted certain amendments to DUSA's certificate of incorporation consistent
with the terms of the rights plan.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

Matters submitted to a vote of security holders of the Company at the Annual
Meeting of Shareholders held June 14, 2007 included the election of seven (7)
directors, and the ratification of the selection of Deloitte & Touche LLP as the
independent registered public accounting firm for the Company for 2007.

a) The following persons were elected to serve as directors of the Corporation:

<TABLE>
<CAPTION>
                                         Votes Cast                 Broker
                        Votes Cast For     Against    Abstained   Non-votes
                        --------------   ----------   ---------   ---------
<S>                     <C>              <C>          <C>         <C>
D. Geoffrey Shulman       15,746,945      2,111,805      -0-         -0-
John H. Abeles            15,747,145      2,111,605      -0-         -0-
David Bartash             15,755,100      2,103,650      -0-         -0-
Jay Haft                  15,747,077      2,111,673      -0-         -0-
Richard C. Lufkin         15,746,089      2,112,661      -0-         -0-
Magnus Moliteus           15,755,631      2,103,119      -0-         -0-
Robert Doman              15,747,127      2,111,623      -0-         -0-
</TABLE>

b) Shareholders ratified the selection of Deloitte & Touche LLP as the
independent registered public accounting firm for the Company for 2007 as
follows:

<TABLE>
<CAPTION>
                                         Votes Cast                 Broker
                        Votes Cast For     Against    Abstained   Non-votes
                        --------------   ----------   ---------   ---------
<S>                     <C>              <C>          <C>         <C>
Deloitte & Touche LLP     17,748,276       32,760       77,711       -0-
</TABLE>

ITEM 5. OTHER INFORMATION.

None.

ITEM 6. EXHIBITS

<TABLE>
<CAPTION>
Exhibit No.   Description of Exhibit
-----------   ----------------------
<S>           <C>
10            License and Supply Agreement dated August 7, 2007 among DUSA,
              photonamic GmbH & Co. KG and medac, GmbH, portions of which have
              been omitted pursuant to a request for confidential treatment
              pursuant to rule 24b-2 of the Securities Exchange Act of 1934, as
              amended, and is incorporated herein by reference

31(a)         Certification pursuant to Rule 13a-14(a)/15d-14(a) of the
              Securities Exchange Act of 1934.

31(b)         Certification pursuant to Rule 13a-14(a)/15d-14(a) of the
              Securities Exchange Act of 1934.
</TABLE>


                                       42

<PAGE>

<TABLE>
<S>           <C>
32(a)         Certification pursuant to 18 U.S.C. Section 1350, as adopted
              pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32(b)         Certification pursuant to 18 U.S.C. Section 1350, as adopted
              pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

99            Press Release by the registrant dated August 7, 2007 regarding
              quarterly earnings
</TABLE>

                                   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: August 7, 2007                    By: /s/ Robert F. Doman
                                            ------------------------------------
                                            Robert F. Doman
                                            President and Chief Executive
                                            Officer
                                            (principal executive officer)


Date: August 7, 2007                    By: /s/ Richard C. Christopher
                                            ------------------------------------
                                            Richard C. Christopher
                                            Vice President, Finance and Chief
                                            Financial Officer
                                            (principal financial officer)


                                       43

<PAGE>

                                  EXHIBIT INDEX

10      License and Supply Agreement dated August 7, 2007 among DUSA, photonamic
        GmbH & Co. KG and medac, GmbH, portions of which have been omitted
        pursuant to a request for confidential treatment pursuant to rule 24b-2
        of the Securities Exchange Act of 1934, as amended, and is incorporated
        herein by reference

31(a)   Certification pursuant to Rule 13a-14(a)/15d-14(a) of the Securities
        Exchange Act of 1934.

31(b)   Certification pursuant to Rule 13a-14(a)/15d-14(a) of the Securities
        Exchange Act of 1934.

32(a)   Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
        Section 906 of the Sarbanes-Oxley Act of 2002.

32(b)   Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
        Section 906 of the Sarbanes-Oxley Act of 2002.

99      Press Release by the registrant dated August 7, 2007 regarding quarterly
        earnings



                                       44