<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:  March 31, 2006
                                      --------------

[  ] 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 of Other Jurisdiction of Incorporation   (I.R.S. Employer Identification No.)
             or Organization)

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):

<TABLE>
<S>                               <C>                       <C>
Large Accelerated Filer [   ]     Accelerated Filer [X]     Non-accelerated Filer [   ]

</TABLE>



     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 May 8, 2006, the registrant had 19,025,300 shares of Common Stock, no
par value per share, outstanding.
<PAGE>


PART I.
ITEM 1.  FINANCIAL STATEMENTS

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

<TABLE>
<CAPTION>
                                                                                  MARCH 31,       DECEMBER 31,
                                                                                    2006             2005
                                                                                -------------    -------------
<S>                                                                             <C>              <C>
ASSETS

CURRENT ASSETS

  Cash and cash equivalents                                                     $   4,282,713    $   4,210,675
   Marketable securities                                                           18,976,838       30,579,486
   Accrued interest receivable                                                        233,651          353,449
   Accounts receivable, net                                                         2,126,853          373,130
   Inventory                                                                        3,538,794        1,860,793
   Deferred acquisition costs                                                              --          831,875
   Prepaids and other current assets                                                1,159,297          776,293
                                                                                -------------    -------------
      TOTAL CURRENT ASSETS                                                         30,318,146       38,985,701
   Restricted cash                                                                    145,983          144,541
   Property, plant and equipment, net                                               3,002,981        2,971,869
   Intangible assets                                                               17,057,961               --
   Goodwill                                                                         5,772,505               --
   Deferred charges and other assets                                                  230,522          228,520
                                                                                -------------    -------------
TOTAL ASSETS                                                                    $  56,528,098    $  42,330,631
                                                                                =============    =============


LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES
   Accounts payable                                                             $   1,221,374    $     934,694
   Accrued compensation                                                               717,616        1,071,677
   Other accrued expenses                                                           3,392,076        1,995,679
   Deferred revenue                                                                    72,111           94,283
                                                                                -------------    -------------
     TOTAL CURRENT LIABILITIES                                                      5,403,177        4,096,333
   Other liabilities                                                                  205,677          205,570
                                                                                -------------    -------------
TOTAL LIABILITIES                                                                   5,608,854        4,301,903
                                                                                -------------    -------------

COMMITMENTS AND CONTINGENCIES (NOTE 13)
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:
      19,448,192 and 17,041,197 shares of common stock, no par, at March 31,
      2006 and December 31, 2005, respectively                                    142,868,571      125,626,163
   Additional paid-in capital                                                       2,353,981        2,035,783
   Accumulated deficit                                                            (94,177,779)     (89,537,470)
   Accumulated other comprehensive loss                                              (125,529)         (95,748)
                                                                                -------------    -------------
TOTAL SHAREHOLDERS' EQUITY                                                         50,919,244       38,028,728
                                                                                -------------    -------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                                      $  56,528,098    $  42,330,631
                                                                                =============    =============
</TABLE>



 See the accompanying Notes to the Condensed Consolidated Financial Statements.

                                       2
<PAGE>

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



<TABLE>
<CAPTION>
                                                                           THREE MONTHS ENDED MARCH 31,
                                                                               2006            2005
                                                                          ------------    ------------

<S>                                                                       <C>             <C>
Product Revenues                                                          $  4,750,520    $  3,368,614

Cost of Product Revenues and Royalties                                       1,790,759       2,003,628
                                                                          ------------    ------------
   Gross Margin                                                              2,959,761       1,364,986

Operating Costs
   Research and Development                                                  1,510,731       1,595,717
   In-process Research and Development                                       1,600,000              --
   Marketing and Sales                                                       2,690,684       2,785,402
   General and Administrative                                                2,070,291       1,682,479
                                                                          ------------    ------------
Total Operating Costs                                                        7,871,706       6,063,598
                                                                          ------------    ------------
Loss from Operations                                                        (4,911,945)     (4,698,612)
                                                                          ------------    ------------
Other Income
   Other Income, net                                                           271,636         366,997
                                                                          ------------    ------------
Net Loss                                                                  $ (4,640,309)   $ (4,331,615)
                                                                          ============    ============

Basic and Diluted Net Loss per Common Share                               $      (0.26)   $      (0.26)
                                                                          ============    ============

Weighted Average Number of Common Shares Outstanding, Basic and Diluted     17,629,292      16,908,351
                                                                          ============    ============
</TABLE>



 See the accompanying Notes to the Condensed Consolidated Financial Statements.



                                       3
<PAGE>


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


<TABLE>
<CAPTION>

                                                                                   THREE MONTHS ENDED MARCH 31,
                                                                                     2006                2005

<S>                                                                               <C>             <C>
CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES
   Net loss                                                                       $ (4,640,309)   $ (4,331,615)
   Adjustments to reconcile net loss to net cash used in operating activities:
     Amortization of premiums and accretion of discounts marketable
       securities available for sale                                                    27,214         157,611
     Depreciation and amortization                                                     488,253         271,089
     In-process research and development charge                                      1,600,000              --
     Stock-based compensation                                                          318,195          19,444
     Gain on sale of marketable securities                                             (14,015)             --
   Changes in other assets and liabilities impacting cash flows from operations
     (net of impact of acquisition):
     Accrued interest receivable                                                       119,798          13,906
     Accounts receivable                                                               (41,555)       (104,926)
     Inventory                                                                         109,294        (573,091)
     Prepaid and other current assets                                                 (469,831)         (3,468)
     Deferred charges and other assets                                                  11,934          11,934
     Accounts payable                                                                 (316,150)       (386,982)
     Accrued compensation and other accrued expenses                                  (816,343)       (222,208)
     Deferred revenue                                                                  (22,172)         84,923
     Other liabilities                                                                     107           4,089
                                                                                  ------------    ------------
NET CASH USED IN OPERATING ACTIVITIES                                               (3,645,580)     (5,059,294)
                                                                                  ------------    ------------

CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES
   Cash paid for acquisition, net of cash received                                  (7,767,006)             --
   Purchases of marketable securities                                               (1,059,725)    (11,578,287)
   Proceeds from maturing and sales of marketable securities                        12,619,393      14,452,149
   Restricted cash                                                                      (1,442)           (225)
   Purchases of property, plant  and equipment                                        (112,558)       (202,309)
                                                                                  ------------    ------------
NET CASH PROVIDED BY INVESTING ACTIVITIES                                            3,678,662       2,671,328
                                                                                  ------------    ------------

CASH FLOWS PROVIDED BY FINANCING ACTIVITIES
     Proceeds from exercise of options                                                  38,956         172,660
                                                                                  ------------    ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                    72,038      (2,215,306)
                                                                                  ------------    ------------
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                                     4,210,675       2,928,143
                                                                                  ------------    ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD                                        $  4,282,713    $    712,837
                                                                                  ============    ============

</TABLE>

 See the accompanying Notes to the Condensed Consolidated Financial Statements.


                                       4
<PAGE>


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

1)   BASIS OF PRESENTATION

     The Condensed Consolidated Balance Sheet as of March 31, 2006, and the
Condensed Consolidated Statements of Operations and Cash Flows for the three
months ended March 31, 2006 and 2005 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.
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, 2005 filed with the Securities and Exchange Commission. The
balance sheet as of December 31, 2005 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. Certain
amounts for 2005 have been reclassified to conform to the current year
presentation. Such reclassifications had no impact on the net loss or
shareholders' equity for any period presented.

2)   SIGNIFICANT ACCOUNTING POLICIES

Accounting policies newly adopted or updated since the filing of the Company's
Annual Report on Form 10-K

Revenue Recognition

     PDT Drug and Device Products. Revenues on the 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 as of January 1, 2006. The effect of this change in estimate was to
recognize additional revenue of approximately $34,000 during the three months
ended March 31, 2006. Certain device units are held by physicians 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 these products in
accordance with SAB No. 101, "Revenue Recognition in Financial Statements", as
amended by SAB No. 104, "Revenue Recognition." Our 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. We recognize revenue for sales when


                                       5
<PAGE>

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

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 consists 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 FIFO basis.

Sales Return Accrual

     We account for sales returns in accordance with SFAS No, 48 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 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 actual experience.

Goodwill and Other Intangible Assets

     Goodwill and intangible assets with indefinite lives are no longer
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.

Stock-Based Compensation

     Prior to January 1, 2006, we used the intrinsic value-based method to
account for employee stock option awards under the provisions of Accounting
Principles Board Opinion ("APB") No. 25, and to provide disclosures based on the
fair value method in the Notes to the Consolidated Financial Statements as
permitted by Statement of Financial Accounting Standards ("SFAS") No. 123, as
amended. Stock or other equity-based compensation for non-employees is accounted
for under the fair value-based method as required by SFAS No. 123 and Emerging
Issues Task Force ("EITF") No. 96-18, "Accounting for Equity Instruments That
Are Issued to Other Than Employees for Acquiring, or in Conjunction with
Selling, Goods or Services" and other related interpretations. Under this
method, the equity-based instrument is valued at either the fair value of the
consideration received or the equity instrument issued on the date of grant. The
resulting compensation cost is recognized and charged to operations over the
service period which, in the case of stock options, is generally the vesting
period.


                                       6
<PAGE>

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



     In December 2004, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 123(R), "Share-Based Payment," a revision of SFAS Statement No. 123. We
adopted SFAS 123(R) 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.


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 close, 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 5 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.
Sirius is a dermatology specialty pharmaceuticals company founded in 2000 with a
primary focus on the treatment of acne vulgaris and acne rosacea. The purchase
of Sirius is intended to enable DUSA to expand its product portfolio, capitalize
on cross-selling and marketing opportunities, increase its sales force size; as
well as, provide 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 close. 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:
    ---------------------------                   ---------------

<S>                                                <C>
         $25.0 million                             $1.5 million
          35.0 million                             $1.0 million
          45.0 million                             $1.0 million
                                                   ------------
             Total                                 $3.5 million
                                                   ============
</TABLE>



                                       7
<PAGE>

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


     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. At March 31, 2006, the maximum potential
future consideration pursuant to such arrangements, to be resolved over the
period ending 42 months from the date of close, is $5.0 million. If attained, a
portion of the contingent consideration is payable in cash and a 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 purchase
price allocation is preliminary and a final determination of required purchase
accounting adjustments will be made upon the completion of the integration. The
Company may incur costs in the future related to manufacturing concerns that
were identified with the manufacturing of one of Sirius' product lines. There is
also a risk that inventory of some of these products could become in short
supply while such concerns are being addressed. The Company may seek
indemnification for these potential costs and lost revenues through the
liability escrow agreement, and may also seek indemnification from the
manufacturer under the terms of the supply and development agreement. 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
goodwill is not deductible for tax purposes. 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.



                                       8
<PAGE>

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


     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, net of estimated registration costs of $295,000      $ 17,203
Cash paid to stockholders                                                    8,000
Balance on line-of-credit                                                      251
Transaction costs accrued                                                      412
Transaction costs paid                                                       1,459
                                                                          --------

Total purchase consideration                                                27,325
                                                                          ========

Allocation of the purchase consideration
Current assets (including cash of $485), exclusive of inventory              2,513
Inventory                                                                    1,983
Fixed assets                                                                   109
Long-term assets                                                                14
Identifiable intangible assets                                              17,160
In-process research and development                                          1,600
Goodwill                                                                     5,772
                                                                          --------
Total assets acquired                                                       29,151

Fair value of liabilities assumed                                           (1,826)
                                                                          --------

Fair value of assets acquired and liabilities assumed                     $ 27,325
                                                                          ========
</TABLE>



     The following are identified intangible assets acquired and the respective
estimated periods over which the assets will be amortized:


<TABLE>
<CAPTION>
                                                           WEIGHTED AVERAGE
                                        AMOUNT            AMORTIZATION PERIOD
                                    (IN THOUSANDS)            (IN YEARS)
                                    --------------        -------------------


<S>                                 <C>                   <C>
Core/Developed Technology              $17,160                    3.78
In-process Research &
     Development                        $1,600                      --
</TABLE>



     The core/developed technology, comprised of the combined value of Sirius'
product lines and related patents, trademarks/trade names, as applicable, is
being amortized over its useful life, based upon the pattern in which the
expected benefits will be realized, or on a straight-line basis, whichever is
greater. The values of the intangible assets acquired were determined using
projections of revenues and expenses specifically attributed to the intangible
assets. The income streams were then discounted to present value using estimated
risk adjusted discount rates. The intangible assets were valued using the income
approach, specifically the excess earnings method. The key assumptions used in
valuing the intangible assets are discount rates of 17% for core/developed
technology and 18% for in-process research and development and an assumed tax
rate of 40%. The in-process research and development represents the estimated
fair value based on risk-adjusted cash flows related to product development
projects. At the date of


                                       9
<PAGE>

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

acquisition, the development of these projects had not yet reached technological
feasibility and the research and development in progress had no alternative
future uses. Accordingly, these costs were expensed as of the acquisition date.

     The results of operations of Sirius have been included in the financial
statements of the Company since March 10, 2006, the date of acquisition. The
following table reflects unaudited pro forma results of operations of the
Company for the three months ended March 31, 2006 and 2005 assuming that the
Sirius acquisition had occurred on January 1, 2006 and January 1, 2005,
respectively (in thousands, expect per share data):

<TABLE>
<CAPTION>
                               FOR THE
                          THREE MONTHS ENDED
                               MARCH 31
                     --------------------------
                         2006           2005
                     -----------    -----------
<S>                  <C>            <C>
Revenues             $ 7,668,180    $ 5,204,672

Net loss              (3,195,324)    (6,045,762)

Net loss per share   $     (0.16)   $     (0.31)
</TABLE>



     The pro-forma net loss and net loss per share for the three months ended
March 31, 2006 and 2005 excludes the impact of a of $1.6 million charge related
to purchased in-process research and development from the Sirius acquisition due
to its non-recurring nature.


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 no longer 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.

     The following is a summary of goodwill and intangible assets as March 31,
2006 (in thousands):


<TABLE>
<CAPTION>
                                  GROSS
                                 CARRYING       ACCUMULATED       NET BOOK
                                  VALUE         AMORTIZATION       VALUE

<S>                              <C>            <C>               <C>
Goodwill                         $ 5,773              --          $ 5,773

Amortizable intangible assets:

Core/Developed Technology         17,160            (102)          17,058
                                 -------         -------          -------
Total                            $22,933         $  (102)         $22,831


</TABLE>


                                       10
<PAGE>

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


     All goodwill is associated with the Non-Photodynamic Therapy (Non-PDT) Drug
Products operating segment (see Note 11). Amortization expense, included in
marketing and sales in the accompanying Condensed Consolidated Statements of
Operations, related to intangible assets was $102,000 for the first quarter of
2006. Amortization expense related to intangible assets is expected to be
approximately $1.3 million for the remainder of 2006 and approximately $2.8
million, $3.3 million, $3.4 million, $3.2 million and $1.3 million for the years
ending December 31, 2007, 2008, 2009, 2010 and 2011, respectively.

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 March 31, 2006, current yields range
from 2.35% to 7.43% and maturity dates range from April 1, 2006 to June 15,
2008. The estimated fair value and cost of marketable securities at March 31,
2006 and December 31, 2005 are as follows:


<TABLE>
<CAPTION>
                                                                MARCH 31, 2006
                                           ------------------------------------------------------
                                                            GROSS         GROSS
                                            AMORTIZED     UNREALIZED    UNREALIZED       FAIR
                                              COST          GAINS         LOSSES        VALUE
                                           -----------   -----------   -----------    -----------

<S>                                        <C>           <C>           <C>            <C>
United States government securities        $ 9,874,071   $       158   ($   82,774)   $ 9,791,455
Corporate securities                         9,228,296           213       (43,126)     9,185,383
                                           -----------   -----------   -----------    -----------
   Total marketable securities available
   for sale                                $19,102,367   $       371   $  (125,900)   $18,976,838
                                           ===========   ===========   ===========    ===========
</TABLE>



<TABLE>
<CAPTION>
                                                                DECEMBER 31, 2005
                                             ------------------------------------------------------
                                                              GROSS         GROSS
                                              AMORTIZED     UNREALIZED    UNREALIZED       FAIR
                                                COST          GAINS         LOSSES        VALUE
                                             -----------   -----------   -----------    -----------
<S>                                          <C>           <C>           <C>            <C>
United States government debt securities     $19,857,171   $     3,732   ($   72,243)   $19,788,660
Investment grade corporate debt securities    10,818,063        15,136       (42,373)    10,790,826
                                             -----------   -----------   -----------    -----------
   Total marketable securities available
   for sale                                  $30,675,234   $    18,868   ($  114,616)   $30,579,486
                                             ===========   ===========   ===========    ===========
</TABLE>


     Net unrealized gains and losses on such securities as of March 31, 2006 and
December 31, 2005 was ($125,529) and ($95,748), respectively, and has been
recorded in accumulated other comprehensive income, which is reported as part of
shareholder's equity in the Condensed Consolidated Balance Sheets.

     Realized gains on sales of marketable securities were $14,000 and $5,000
for the three months ended March 31, 2006 and 2005, respectively.

     Because the Company has the ability and intent to hold its investments
until a recovery of fair value, which may be maturity, the Company does not
consider investments with unrealized losses to be other-than-temporarily
impaired at March 31, 2006.



                                       11
<PAGE>

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

6)   CONCENTRATION OF CREDIT RISK

     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 of credit risk in the Company's total revenues for the
three-months ended March 31, 2006 and 2005, and accounts receivable as of March
31, 2006 and December 31, 2005 are as follows:

<TABLE>
<CAPTION>

                                         % OF REVENUE
                                 ----------------------------
                                      THREE-MONTHS ENDED            % OF ACCOUNTS RECEIVABLE
                                 ----------------------------   -------------------------------
                                   MARCH 31,       MARCH 31,      MARCH 31,       DECEMBER 31,
                                    2006            2005           2006              2005
                                 ------------    ------------   ------------    ---------------
<S>                              <C>             <C>            <C>             <C>
Third-party distributor A                12%               -            49%                  -
Third-party distributor B                 8%             13%             6%                 6%
Third-party distributor C                 3%               -             9%                  -
Third-party distributor D                  -             15%              -                  -
Third-party other distributors            4%               -             8%                  -
Direct customers                         73%             72%            28%                94%
                                 ------------    ------------   ------------    ---------------
   Total                                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 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>

                             MARCH 31,   DECEMBER 31,
                               2006         2005
                            ----------   ------------
<S>                         <C>           <C>
Finished goods              $2,540,918    $1,004,772
BLU-U(R) evaluation units      329,160       292,129
Work in process                197,795        60,805
Raw materials                  470,921       503,087
                            ----------    ----------
                            $3,538,794    $1,860,793
                            ==========    ==========
</TABLE>



                                       12
<PAGE>

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

     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 Company amortizes the cost of the evaluation
units during the evaluation period to cost of goods sold using an estimated
useful life for the equipment of 3 years.

8)   OTHER ACCRUED EXPENSES

     Other accrued expenses consisted of the following:

<TABLE>
<CAPTION>
                                     MARCH 31,   DECEMBER 31,
                                       2006         2005
                                    ----------   -----------
<S>                                 <C>          <C>
Research and development costs      $  360,439   $  347,220
Marketing and sales costs              358,907      173,092
Product related costs                  930,408      667,388
Legal and other professional fees    1,319,795      488,401
Employee benefits                      265,331      225,628
Other expenses                         157,196       93,950
                                    ----------   ----------
                                    $3,392,076   $1,995,679
                                    ==========   ==========
</TABLE>

9)   STOCK-BASED COMPENSATION

     Under the Company's 1996 Omnibus Plan ("Omnibus Plan"), as amended, the
Company may grant stock-based awards to purchase up to a maximum of 20% of the
Company's common stock outstanding or a maximum of 3,343,874 shares. The Omnibus
Plan is administered by a committee ("Committee") established by the Board of
Directors. The Omnibus Plan enables the Committee to grant non-qualified stock
options ("NQSO"), incentive stock options ("ISO"), stock appreciation rights,
restricted stock, or other securities determined by the Company, to directors,
employees and consultants.

     Non-Qualified Stock Options - All the NQSOs granted under the Omnibus Plan
have an expiration period not exceeding ten years and are issued at a price not
less than the market value of the common stock on the grant date. NQSO grants to
employees become exercisable at a rate of one quarter of the total granted on
each of the first, second, third and fourth anniversaries of the grant date,
subject to satisfaction of certain conditions involving continuous periods of
service. In addition, the Company initially grants each individual who agrees to
become a director 15,000 NQSO to purchase common stock of the Company.
Thereafter, each director reelected at an Annual Meeting of Shareholders will
automatically receive an additional 10,000 NQSO on June 30 of each year. Grants
to directors immediately vest on the date of the grant.

     Incentive Stock Options - ISOs granted under the Omnibus Plan have an
expiration period not exceeding ten 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. These options
become exercisable at a rate of one quarter of the total granted on each of the
first, second, third and fourth anniversaries of the grant date, subject to
satisfaction of certain conditions involving continuous periods of service.



                                       13
<PAGE>

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

     A summary of stock option transactions for the Omnibus Plan follows:


<TABLE>
<CAPTION>
                                                                 WEIGHTED
                                                  NUMBER         AVERAGE
                                                 OF SHARES       EXERCISE
                                               (IN THOUSANDS)     PRICE
                                               --------------    --------

<S>                                            <C>               <C>
OUTSTANDING AT DECEMBER 31, 2005                 2,850,250        $11.85
   Options granted                                 255,500          6.82
   Options cancelled/forfeited/expired            (315,125)         8.18
   Options exercised                               (10,750)         3.62

OUTSTANDING AT MARCH 31, 2006                    2,779,875         11.81

EXERCISABLE AT MARCH 31, 2006                    1,930,381        $13.19
</TABLE>


     The weighted average remaining contractual term was approximately 6.1 years
for stock options outstanding and approximately 4.8 years for stock options
exercisable as of March 31, 2006.

     The total intrinsic value (the excess of the market price over the exercise
price) was approximately $2,030,000 and $1,554,000 for stock options outstanding
and exercisable, respectively, as of March 31, 2006. The total intrinsic value
for stock options exercised in 2006 was approximately $39,000. At March 31,
2006, total unrecognized estimated compensation cost related to non-vested stock
options granted prior to that date was $4,024,479, which was expected to be
recognized over a weighted average period of 2.4 years.

     The amount of cash received from the exercise of stock options in 2006 was
approximately $39,000 and the related tax deduction was approximately $12,000 in
2006.

     Share-Based Compensation Information under FAS 123R

     The fair value of stock options granted was estimated on the date of grant
using a Black-Scholes option valuation model that uses the assumptions in the
following table. The Company's employee stock options have various restrictions
that reduce option value, including vesting provisions and restrictions on
transfer and hedging, among others, and are often exercised prior to their
contractual maturity.


                                       14
<PAGE>

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


         The weighted-average estimated fair value of employee stock options
granted during the three months ended March 31, 2006 was $4.71 per share using
the Black-Scholes option valuation model with the following weighted-average
assumptions (annualized percentages):

<TABLE>
<CAPTION>
                                                     THREE MONTHS
                                                        ENDED
                                                    MARCH 31, 2006
                                                    --------------

        <S>                                         <C>
        Volatility                                     63.7 %
        Risk-free interest rate                        4.69 %
        Expected dividend yield                           0 %
        Expected life-directors and officers            8.5 years
        Expected life-non-officer employees             6.3 years
</TABLE>


     The Company used a combination of historical and implied volatility of
market-traded options in the Company's stock for the expected volatility
assumption input to Black-Scholes model, consistent with the guidance in FAS
123R and the Securities and Exchange Commission's Staff Accounting Bulletin No.
107. Prior to the first quarter of fiscal 2006, the Company had used its
historical stock price for purposes of its pro forma information. The decision
to use a combination of historical and implied volatility data to estimate
expected volatility was based upon the availability of actively traded options
on the Company's stock and the Company's assessment that this is more
representative of future stock price trends than historical volatility alone.

     The risk-free interest rate assumption is based upon observed interest
rates appropriate for the term of the Company's employee stock options. The
expected life is based on the Company's historical option cancellation and
employee exercise information. The expected life of employee stock options
represents the weighted-average period the stock options are expected to remain
outstanding post-vesting. In calculating the expected life of the options for
2006, the Company classified its grantee population into two groups, directors
and officers and non-officer employees. As share-based compensation expense
recognized in the Consolidated Statements of Operations for the first quarter of
fiscal 2006 is based on awards ultimately expected to vest, it is reduced for
estimated forfeitures. FAS 123R requires forfeitures to be estimated at the time
of grant and revised, if necessary, in subsequent periods if actual forfeitures
differ from those estimates. In the first quarter of 2006, departure rates,
defined as the annual percentage of options forfeited or exercised early due to
departure, were estimated to be approximately 2.96% for officers and directors
and 10.53% for non-officer employees based on historical experience. Prior to
the first quarter of 2006, the Company had used a company-wide weighted average
expected life of five years for grants in 2005, 2004 and 2003 and seven years
for grants in 2002.



                                       15
<PAGE>

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


     Total estimated share-based compensation expense, related to all of the
Company's share-based awards, recognized for the three months ended March 31,
2006 was comprised as follows:


<TABLE>
<CAPTION>
                                                        THREE MONTHS ENDED
                                                          MARCH 31, 2005
                                                        ------------------

<S>                                                           <C>
Cost of product revenues                                      $ 19,000
Research and development                                        81,000
Selling and Marketing                                           69,000
General & Administrative                                       149,000
                                                              --------

   Share-based compensation expense                           $318,000
                                                              --------

Net share-based compensation expense, per common share:
   Basic and diluted                                          $   0.02
                                                              ========
</TABLE>


Pro Forma Information under FAS 123 for Periods Prior to Fiscal 2006

     Prior to adopting the provisions of FAS 123R, the Company recorded
estimated compensation expense for employee stock options based upon their
intrinsic value on the date of grant pursuant to Accounting Principles Board
Opinion 25 (APB 25), "Accounting for Stock Issued to Employees" and provided the
required pro forma disclosures of FAS 123. Because the Company established the
exercise price based on the fair market value of the Company's stock at the date
of grant, the stock options had no intrinsic value upon grant, and therefore no
estimated expense was recorded prior to adopting FAS 123R.

     For purposes of pro forma disclosures under FAS 123 for the three months
ended March 31, 2005, the estimated fair value of the stock options was
amortized to expense over the stock options' vesting periods. The pro forma
effects of recognizing estimated compensation expense under the fair value
method on net loss and loss per common share for the three months ended March
31, 2005 were as follows:




                                       16
<PAGE>

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

<TABLE>
<CAPTION>
                                                                          THREE
                                                                       MONTHS ENDED
                                                                         MARCH 31,
                                                                          2005
                                                                      -------------

<S>                                                                   <C>
Net loss, as reported                                                 $ (4,331,615)
Deduct: Share-based employee compensation expense
        determined under the fair value based method for all awards       (322,173)
                                                                      -------------
Pro forma net loss                                                    $ (4,653,788)
                                                                      =============
Loss per common share:

   Basic and diluted loss per share-- as reported                     $      (0.26)
   Basic and diluted loss per share -- pro forma                      $      (0.28)
</TABLE>


     The pro forma effects of estimated share-based compensation expense on net
loss and loss per common share for the three months ended March 31, 2005 were
estimated at the date of grant using the Black-Scholes option-pricing model
based on the following assumptions (annualized percentages):


<TABLE>

<S>                                               <C>
Volatility                                        72.4 %
Risk-free interest rate                           4.14 %
Dividend yield                                     0.0 %
Expected life (years)                              5.0
</TABLE>




     The Black-Scholes weighted average estimated fair value of stock options
granted during the three months ended March 31, 2005 was $6.95 per share.

10)  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 three months ended March 31,
2006, and 2005, stock options, warrants and rights totaling approximately
3,080,000 and 3,386,000 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 the liability escrow account, are included in the weighted
average number of shares outstanding from the date of issuance, March 10, 2006.



                                       17
<PAGE>


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


11)  SEGMENT REPORTING


     Beginning in the first quarter of 2006 with the acquisition of Sirius
Laboratories, 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>
                                                            QUARTER ENDED
                                                      -----------------------
                                                       MARCH 31,    MARCH 31,
                                                          2006        2005
                                                      ----------   ----------
<S>                                                   <C>          <C>
REVENUES
     PDT Drug & Device Product Revenues               $3,853,000   $3,369,000

     Non-PDT Drug Product Revenues                       898,000           --
                                                      ----------   ----------

Total Revenues                                         4,751,000    3,369,000
                                                      ==========   ==========


COSTS OF REVENUES
     PDT Drug & Device Cost of Product Revenues and
          Royalties                                    1,508,000    2,004,000
     Non-PDT Drug Cost of Product Revenues
           and Royalties                                 283,000           --
                                                      ----------   ----------

Total Costs of Product Revenues and Royalties
                                                       1,791,000    2,004,000
                                                      ==========   ==========
GROSS MARGINS

     PDT Drug and Device Product Gross Margin          2,344,000    1,365,000
     Non-PDT Drug Product Gross Margin                   616,000           --
                                                      ----------   ----------

Total Gross Margins                                   $2,960,000   $1,365,000
                                                      ==========   ==========
</TABLE>


     During the quarters ended March 31, 2006 and 2005, the Company derived
revenues from the following geographies (as a percentage of product revenues):



<TABLE>
<CAPTION>
                                   2006                 2005
                                   ----                 ----
<S>                                <C>                   <C>
United States                      92%                   87%
Canada                              8%                   13%
                                   ---                  ---
       Total                       100%                 100%
</TABLE>



                                       18
<PAGE>

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

     Asset information by operating segment is not reported to or reviewed by
the chief operating decision makers and, therefore, we have not disclosed asset
information for each operating segment.

12)  COMPREHENSIVE LOSS

     For the three months ended March 31, 2006 and 2005, comprehensive loss
consisted of the following:


<TABLE>
<CAPTION>
                                                    MARCH 31,     MARCH 31,
                                                      2006          2005
                                                   (UNAUDITED)   (UNAUDITED)
                                                  -----------    -----------

<S>                                               <C>            <C>
NET LOSS                                          $(4,640,309)   $(4,331,615)
   Change in net unrealized gains and losses on
      marketable securities available for sale        (29,781)      (227,816)
                                                  -----------    -----------
COMPREHENSIVE LOSS                                $(4,670,090)   $(4,559,431)
                                                  ===========    ===========
</TABLE>


     Accumulated other comprehensive income 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.

13)  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. Nicomide 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 patent. On
April 20, 2006, we filed a patent infringement suit in the United States
District Court in Trenton, New Jersey alleging that a River's Edge niacinamide
product infringes U.S. patent 6,979,468. In response to a motion put forward
with the filing by us, the Court granted an expedited hearing date of May 5,
2006 in order to hear arguments on a motion for preliminary injunction to enjoin
River's Edge from selling its alternative product to Nicomide(R). The court has
not yet ruled on this motion. An unfavorable ruling in the preliminary
injunction hearing, allowing River's Edge niacinamide product to remain on the
market for any significant length of time, 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
March 31, 2006, as these amounts are neither probable nor estimable.


                                       19
<PAGE>

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

14)  SUBSEQUENT EVENT

     In March 2006 the Board of Directors approved the 2006 Equity Compensation
Plan (the "2006 Plan") and it has been submitted to shareholders for approval.
If approved by the shareholders, the 2006 Plan will provide for the grant of
incentive stock options, nonqualified stock options, stock awards, stock
appreciation rights and other types of incentives to (i) our employees,
consultants, and advisors; (ii) the employees, consultants, and advisors of the
Company's parents, subsidiaries, and affiliates; and (iii) and the Company's
non-employee directors. The maximum aggregate number of shares of the Company's
common stock that may be issued under the 2006 Plan under any form of award may
not 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.



                                       20
<PAGE>



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

OVERVIEW

     DUSA is an integrated dermatology specialty pharmaceutical company focused
primarily on the development and marketing of our Levulan(R) Photodynamic
Therapy (PDT) technology platform, and complementary dermatology products. Our
current marketed products include Levulan(R) Kerastick(R) 20% Topical Solution
with PDT, the BLU-U(R) light source, Nicomide(R), Nicomide-T(R) and the AVAR(R)
line of products. We acquired Nicomide(R), Nicomide-T(R), the AVAR(R) line of
products, among others, and certain product candidates in early stages of
development, which target the treatment of acne vulgaris and acne rosacea, as
well as psoriasis, in connection with our recent merger with Sirius
Laboratories, Inc., or Sirius, which was completed on March 10, 2006.

     Our drug, Levulan(R) brand of aminolevulinic acid HCl, or ALA, is being
used with light, for use in a broad range of medical conditions. When we use
Levulan(R) and follow it with exposure to light to treat a medical condition, it
is known as Levulan(R) photodynamic therapy, or Levulan(R) PDT. When we use
Levulan(R) and follow it with exposure to light to detect medical conditions it
is known as Levulan(R) photodetection, or Levulan(R) PD.

     Two of our products, 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 actinic keratoses, or AKs, of the face or
scalp. 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 U.S. 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. We
believe this acquisition will allow 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 new products.

     Nicomide(R) is an oral prescription vitamin supplement, and Nicomide-T(R)
is a topical cosmetic product. Both products target the acne and acne rosacea
markets. 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. The AVAR line of products include 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.




                                       21
<PAGE>


     We are a vertically integrated company, primarily responsible for
regulatory, sales, marketing, customer service, manufacturing of our
Kerastick(R), and other related product activities. Our current objectives
include increasing the sales of our non-PDT products in the United States and
our PDT products in the United States, Canada and Latin America, integrating the
operations of Sirius, continuing our efforts of exploring partnership
opportunities for Levulan(R) PDT for non-dermatology indications, and for
dermatology in Europe and elsewhere, and continuing our clinical development
programs for our Levulan(R) PDT facial photodamage and moderate to severe acne
indications. 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. During 2004 we signed clinical trial agreements with
the National Cancer Institute, or NCI, Division of Cancer Prevention, or DCP,
for the clinical development of Levulan(R) PDT for the treatment of high-grade
dysplasia, or HGD, within Barrett's Esophagus, or BE, and oral cavity dysplasia
treatment, and are working with the NCI DCP to advance the development of these
programs. In addition, we continue to support independent investigator trials to
advance research in the use and applicability of Levulan(R) PDT for other
indications in dermatology, and selected internal indications.

     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 Levulan(R) and related processes and
improvements.

     In the United States, AVAR(R), AVAR Green(R), AVAR-e(R), AVAR-e Green(R),
AVAR Cleanser(R), BLU-U(R), DUSA(R), DUSA Pharmaceuticals, Inc.(R), Levulan(R),
Kerastick(R), METED(R), Nicomide(R), Nicomide-T(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.

     Historically, we devoted most of our resources to fund research and
development efforts in order to advance the Levulan(R) PDT/PD technology
platform. In addition, we are continuing to evaluate and develop several
potential products that we acquired in our merger with Sirius which target
patients with acne.

     As of March 31, 2006, we had an accumulated deficit of approximately
$94,178,000. We expect to continue to incur operating losses until sales of our
products increase substantially. Achieving our goal of becoming a profitable
operating company is dependent upon greater acceptance of our PDT therapy by the
medical and consumer constituencies, increase sales of the Sirius 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.


                                       22
<PAGE>

     Marketing and sales activities since the October 2003 launch of our sales
force have resulted in significant additional revenues as well as expenses.
Kerastick(R) unit sales to end-users were 32,934 and 28,704 for the three months
ended March 31, 2006 and 2005, respectively, consisting of 28,080 and 24,900
units sold in the U.S., and 4,854 and 3,804 units sold in Canada, in the three
months ended March 31, 2006 and 2005, respectively.

     The net number of BLU-U(R) units placed in doctors' offices during the
three months ended March 31, 2006 and 2005 was 104 and 131, respectively,
including 6 and 31 placed in Canada in the three months ended March 31, 2006 and
2005, respectively. As of March 31, 2006 and December 31, 2005 there were 1,441
and 1,337 units in doctor's offices, consisting of 1,240 and 1,142 in the U.S.
and 201 and 195 in Canada, respectively. In addition, during 2005 we began a
BLU-U(R) marketing effort to allow prospective customers to evaluate a BLU-U 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. The Company amortizes the cost of the evaluation units during
the evaluation period to cost of goods sold using an estimated useful life for
the equipment of 3 years.

     Net revenues generated by the products acquired as part of our merger with
Sirius totaled $898,000 for the period March 10, 2006 through March 31, 2006.
The substantial majority of these revenues were from sales of Nicomide(R).

     We have continued our efforts to penetrate the market by expanding our
sales coverage in key geographic locations. We are encouraged with the
year-over-year increase in 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. We are currently
exploring opportunities to develop, market, and distribute our Levulan(R) PDT
platform in Europe and/or other countries outside of the United States, Canada
and Latin America following our recently completed agreement with Stiefel
Laboratories, Inc. We also market and sell the products acquired as part of our
merger with Sirius in the United States.

     We cannot predict when product sales may offset the costs associated with
our efforts to penetrate the PDT market but we expect that following integration
of Sirius' operations we will approach positive cash flow from operations more
quickly than we otherwise would have. We are aware that physicians have been
using Levulan(R) with the BLU-U(R) using short incubation, 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 sales
growth. Therefore in December 2004 and in January 2005, we filed lawsuits
against two compounding pharmacies and several physicians. Most of these
lawsuits have been settled favorably to us and we will continue to vigilantly
protect our intellectual property, as we become aware of other infringers. See
section entitled "Part II. Other Information, Item 1. Legal Proceedings".



                                       23
<PAGE>

     In connection with our merger with Sirius, we have assumed a number of key
agreements relating to the manufacture and supply of the Sirius current and
potential products, and relating to the development of certain product
candidates. We intend to continue to use third-party manufacturers for such
products. The Sirius products are distributed through several major wholesalers
in the United States pursuant to customary industry arrangements. The foregoing
key agreements are discussed herein under the caption "Contractual Obligations
and Other Commercial Commitments."

     Certain of the Sirius products acquired in connection with the merger must
meet certain minimum manufacturing and labeling standards established by the FDA
and applicable to products marketed without approved marketing applications. FDA
regulates such products under its 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. We believe
that so long as we comply with applicable manufacturing and labeling standards
we will be consistent with FDA's current enforcement policy. 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
seek FDA approval for these products, market these products as over-the-counter
products or as dietary supplements under applicable legislation, or withdraw
such products from the market. As a result of our due diligence efforts,
including inspection of the third-party manufacturers, we are working with the
supplier of the AVAR(R) line of products to address certain manufacturing
concerns that were identified. There is a risk that inventory of some of these
products could become in short supply while such concerns are being addressed.

     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 to medium term.

     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. Nicomide is one of the key products DUSA
acquired in the merger with Sirius. The declaratory judgment suit was filed in
the United States District Court for the Northern District of Georgia,
Gainesville Division. River's Edge has also filed an application with the U.S.
Patent and Trademark Office requesting reexamination of the Nicomide patent. On
April 20, 2006, we filed a patent infringement suit in the United States
District Court in Trenton, New Jersey alleging that a River's Edge niacinamide
product infringes U.S. patent 6,979,468 and on April 26, 2006 we filed a Motion
to Dismiss the Georgia action. In response to a motion put forward with the
filing by us, the New Jersey court granted an expedited hearing date of May 5,
2006 in order to hear arguments on a motion for preliminary injunction to enjoin
River's Edge from selling its alternative product to Nicomide(R). The court has
not yet ruled on this motion.

     We continue to believe that issues related to reimbursement have negatively
impacted the economic competitiveness of our therapy with other AK therapies and
have hindered its adoption. We support efforts to improve reimbursement levels
to physicians. Such efforts included working with the Centers for Medicare and
Medicaid Services, or CMS, and the


                                       24
<PAGE>

American Academy of Dermatology, or AAD, on matters related to the PDT procedure
fee and the separate drug reimbursement fee. Doctors can also bill for any
applicable visit fees. Effective January 1, 2006, the CMS average national
reimbursement for the use of Levulan(R) PDT for AK's Ambulatory Patient
Classifications code ("APC code") was increased. The APC code is used by many
hospitals. The CMS Current Procedural Terminology code ("CPT code"), which is
used by private physician clinics using Levulan(R) PDT for treating AKs was not
increased for 2006 (i.e. it will be unchanged from 2005 levels). We had expected
reimbursement under the CPT code to increase on January 1, 2006; however, we now
believe that an increase will not be effective until at least January 1, 2007.
We are aware that some physicians believe that reimbursement levels do not fully
reflect the required efforts to routinely execute our therapy in their
practices. 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.

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

     As of March 31, 2006, we had a staff of 80 full-time employees and 2
part-time employees, as compared to 64 full-time employees and 2 part-time
employees at the end of 2005, including marketing and sales, production,
maintenance, customer support, and financial operations personnel, as well as
those who support research and development programs for dermatology and internal
indications. During the first quarter of 2006, with the closing of the Sirius
merger, we expanded our sales capacity to 33 from 26 at the end of 2005. Also,
as previously reported in April 2006, William F. O'Dell joined the Company as
our Executive Vice President of Sales and Marketing. We may add and/or replace
employees during 2006 as business circumstances deem necessary.

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, 2005. 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

     PDT Drug and Device Products. Revenues on the 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


                                       25
<PAGE>

the distributors to the end users because we did not have sufficient history
with our distributor 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 now believe have sufficient history to reliably estimate
returns from distributors. Certain device units are held by physicians 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 these products in
accordance with SAB No. 101, Revenue Recognition in Financial Statements, as
amended by SAB No. 104, Revenue Recognition. Our 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. We recognize revenue for sales 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
consists 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 FIFO basis.

Sales Return Accrual

     We account for sales returns in accordance with SFAS No, 48 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 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 actual experience.

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.



                                       26
<PAGE>


Valuation of Long-Lived and Intangible Assets


     We review our long-lived and intangible assets for impairment whenever
events or changes in circumstances indicate that the carrying amount of a
long-lived or intangible asset may not be recoverable or that the useful lives
of these assets are no longer appropriate. Recoverability of assets to be held
and used is measured by a comparison of the carrying amount of an asset to
future undiscounted net cash flows expected to be generated by the asset. When
it is determined that the carrying value of a long-lived asset is not
recoverable, the asset is written down to its estimated fair value on a
discounted cash flow basis.

     Goodwill is deemed to have an indefinite life and is no longer 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.

Stock-Based Compensation

     In December 2004, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 123(R), "Share-Based Payment," a revision of SFAS Statement No. 123. We
adopted SFAS 123(R) 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 pro forma results and
assumptions used in fiscal years 2005, 2004 and 2003 were based solely on
historical volatility of our common stock over the most recent period
commensurate with the estimated expected life of our stock options. The adoption
of SFAS No. 123(R) will not affect our net cash flow, but it will have a
material negative impact on our results of operations. In accordance with SFAS
123R, we will 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.

     In connection with our adoption of SFAS 123R, we refined our valuation
assumptions and the methodologies used to derive those assumptions; however, we
elected to continue using the Black-Scholes option valuation model. Concurrent
with our adoption of SFAS 123R, we determined that a combination of historical
and implied volatility for traded options on DUSA's stock would be a better
measure of market conditions and expected volatility than historical volatility
of our common stock alone. Previously, we used historical stock price volatility
as it was the most reliable source of volatility data. We estimate the
weighted-average expected life of our stock-option awards based on historical
cancellation and exercise data related to our stock-based awards as well as the
contractual term and vesting terms of the awards. In calculating the expected
life of the options for 2006, we classified our grantee population into two
groups, directors and officers and non-officer employees. Prior to the first
quarter of 2006, we had used a company-wide weighted average expected life of
five years for grants in 2005, 2004 and 2003 and seven years for grants in 2002.
Stock-based compensation expense related to stock options is recognized net of
estimated forfeitures. We estimated forfeitures based on our historical
experience. In the first quarter of 2006, departure rates, defined as the annual
percentage of options forfeited or exercised early due to departure, were
estimated to be approximately 2.96% for officers and directors and 10.53% for
non-officer employees.



                                       27
<PAGE>

RESULTS OF OPERATIONS -- THREE MONTHS ENDING MARCH 31, 2006 VERSUS MARCH 31,
2005


     REVENUES -- Total revenues for the three month period ended March 31, 2006
were $4,751,000 as compared to $3,369,000 in 2005, and were comprised of the
following:


<TABLE>
<CAPTION>
                                                          THREE MONTHS ENDED MARCH 31,
                                                                  (UNAUDITED)
                                                  ---------------------------------------
                                                     2006          2005         INCREASE/
                                                                               (DECREASE)
                                                  -----------   -----------   -----------
<S>                                               <C>           <C>           <C>
PDT DRUG & DEVICE PRODUCT REVENUES

KERASTICK(R) PRODUCT REVENUES
     United States                                $ 2,810,000   $ 2,249,000   $   561,000
     Canada                                           343,000       261,000        82,000
                                                  -----------   -----------   -----------

         Subtotal Kerastick(R) product revenues     3,153,000     2,510,000       643,000

BLU-U(R) PRODUCT REVENUES
     United States                                    669,000       686,000       (17,000)
     Canada                                            31,000       173,000      (142,000)
                                                  -----------   -----------   -----------

         Subtotal BLU-U(R) product revenues           700,000       859,000      (159,000)
                                                  -----------   -----------   -----------

    TOTAL PDT DRUG & DEVICE PRODUCT REVENUES      $ 3,853,000   $ 3,369,000   $   484,000
                                                  -----------   -----------   -----------

    TOTAL NON-PDT DRUG PRODUCT REVENUES           $   898,000          --     $   898,000
                                                  -----------   -----------   -----------

       TOTAL PRODUCT REVENUES                     $ 4,751,000   $ 3,369,000   $ 1,382,000
                                                  ===========   ===========   ===========
</TABLE>

     For the three month period ended March 31, 2006 total PDT Drug and Device
Product Revenues were $3,853,000. This represents an increase of $484,000 or 14%
over the comparable 2005 total of $3,369,000. The incremental revenue was driven
by increased Kerastick(R) revenues which were partially offset by decreased
BLU-U(R) revenues.

     For the three month period ended March 31, 2006, Kerastick(R) revenues were
$3,153,000 representing a $643,000 or 26% increase over the comparable 2005
total of $2,510,000. Overall Kerastick(R) unit sales for the period were 32,934,
including 28,080 sold in the United States and 4,854 sold to Coherent-AMT, our
Canadian marketing and distribution partner. This represents an increase from
28,704 Kerastick(R) units sold in the three months ended March 31, 2005,
including 24,900 sold in the United States and 3,804 sold in Canada by
Coherent-AMT. Our average net selling price for the Kerastick(R) increased to
$95.73 in the first quarter of 2006 from


                                       28
<PAGE>

$87.44 in the first quarter of 2005. Our average net selling price for the
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 2006 Kerastick(R) revenues was driven mainly by increased sales
volumes, an increase in our average unit selling price, a reduction in our
overall sales volume discount programs, and increased levels of direct
distribution to customers. Effective January 1, 2006, DUSA became the sole US
distributor of the Kerastick(R).

     For the three month period ended March 31, 2006, BLU-U(R) revenues were
$700,000 representing a $159,000 or 19% decrease over the comparable 2005 total
of $859,000. The decrease in 2006 BLU-U(R) revenue was driven by lower overall
sales volumes which were partially offset by an increase in our average selling
price. There were 92 units sold for the three months ended March 31, 2006 versus
143 units sold in the comparable 2005 period. The 2006 total consists of 86
units sold in the United States and 6 sold in Canada to Coherent-AMT. The 2005
total consists of 112 units sold in the United States and 31 sold in Canada by
Coherent-AMT. Our average selling price increased to $7,496 for the three months
ended March 31, 2006 from $5,977 in the comparable 2005 period. 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 March 31, 2006,
there were approximately 85 units in the field pursuant to this evaluation
program. The units are classified as inventory in the financial statements and
are being amortized during the evaluation period to cost of goods sold using an
estimated life for the equipment of 3 years.

     Non-PDT Drug Product Revenues reflect the revenues generated by the
products acquired as part of our March 10, 2006 merger with Sirius Laboratories.
Total revenues for the period March 10, 2006 through March 31, 2006 were
$898,000. The substantial majority of the Non-PDT product revenues were from
sales of Nicomide(R).

     The increase in our total revenues results from the acquisition of new
products, as well as, the efforts of our sales force and related marketing and
sales activities. With respect to United States sales, we increased our average
selling prices, increased our direct selling efforts, became the sole US
distributor of the Kerastick(R), and reduced our overall sales volume discount
programs, all of which have had a positive impact on our average selling prices
during 2006. However, we must increase sales significantly from these levels in
order for us to become profitable. We remain confident that sales should
continue to increase through increased consumption of our products by our
existing customers, as well as the addition of new customers. However, should
one or more generic niacinamide products remain on the market for any
significant length of time, our revenues of Nicomide(R) could be significantly
eroded, and our achievement of profitability would be delayed.


                                       29
<PAGE>

         COST OF PRODUCT SALES AND ROYALTIES -- Cost of product sales and
royalties for the three months ended March 31, 2006 were $1,791,000 as compared
to $2,004,000 in 2005. A summary of the components of cost of product sales and
royalties is provided below:

<Table>
<Caption>
                                                                            THREE MONTHS ENDED MARCH 31,
                                                                                     (UNAUDITED)
                                                                     --------------------------------------------
  KERASTICK(R)  COST OF PRODUCT REVENUES AND ROYALTIES                   2006            2005         INCREASE/
                                                                                                      (DECREASE)
                                                                     -------------    ------------    -----------
<S>                                                                  <C>              <C>             <C>

       Direct Kerastick(R) Product Costs                                 $455,000        $580,000     ($125,000)
       Other Kerastick(R) Product costs including internal costs          312,000         272,000         40,000
       assigned to support products
       Royalty and supply fees (1)                                        160,000         128,000         32,000
                                                                     -------------    ------------    -----------
          Subtotal Kerastick(R)  Cost of Product Revenues and
              Royalties                                                  $927,000        $980,000      ($53,000)
                                                                     -------------    ------------    -----------

  BLU-U(R) COST OF PRODUCT REVENUES

       Direct BLU-U(R) Product costs                                     $313,000        $476,000     ($163,000)
       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      268,000         548,000      (280,000)
                                                                      ------------    ------------    -----------
          Total Device cost of  product revenues                         $581,000      $1,024,000     ($443,000)
                                                                      ------------    ------------    -----------

    TOTAL PDT DRUG & DEVICE COST OF PRODUCT REVENUES AND ROYALTIES     $1,508,000      $2,004,000     ($496,000)
                                                                      ------------    ------------    -----------
    TOTAL NON-PDT DRUG COST OF PRODUCT REVENUES AND ROYALTIES (2)        $283,000               -       $283,000
                                                                      ------------    ------------    -----------
        TOTAL COST OF PRODUCT REVENUES AND ROYALTIES                   $1,791,000      $2,004,000     ($213,000)
                                                                      ============    ============    ===========
</TABLE>


     1)   Royalty 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 and Royalties reflect the costs
          associated with the products acquired as part of our March 10, 2006
          merger with Sirius.



                                       30
<PAGE>



         MARGINS -- Total product margins for the three month period ended March
31, 2006 were $2,960,000 as compared to $1,365,000 for the comparable 2005
period, as shown below:

<Table>
<Caption>
                                                            THREE MONTHS ENDED MARCH 31,
                                                                    (UNAUDITED)
                                            -------------------------------------------------------------
                                                    2006                   2005             INCREASE/
                                                                                            (DECREASE)
                                            ---------------------- ---------------------- ---------------
<S>                                         <C>            <C>     <C>            <C>     <C>
Kerastick(R) Gross Margin                    $2,226,000    71%        $1,530,000   61%          $696,000
BLU-U(R) Gross Margin                           119,000    17%         (165,000)  (19%)          284,000
                                            ------------           --------------         ---------------
   Total PDT Drug & Device Gross Margin      $2,345,000    61%        $1,365,000   41%          $980,000
                                            ------------           --------------         ---------------
   Total Non-PDT Drug Gross Margin             $615,000    69%                 -    -           $615,000
                                            ------------           --------------         ---------------
     TOTAL GROSS MARGIN                      $2,960,000    62%        $1,365,000   41%        $1,595,000
                                            ============           ==============         ===============
</TABLE>

         For the three month period ended March 31, 2006 total PDT Drug and
Device Product Margins were 61% versus 41% for the comparable 2005 period. The
incremental margin was driven by positive margin gains on both the Kerastick(R)
and BLU-U(R).

         Kerastick(R) gross margins for the three month period ended March 31,
2006 were 71% versus 61% for the comparable 2005 period. Similar to the increase
in revenues, the increase in margin is mainly attributable to an increase in our
average unit selling price, increased levels of direct distribution to customers
eliminating the cost of distributors; as well as a reduction in our overall
sales volume discount programs. Our long-term goal is to achieve higher gross
margins on Kerastick(R) sales which will be significantly dependent on increased
volume.

          BLU-U(R) margins for the three month period ended March 31, 2006 were
17% versus (19%) for the comparable 2005 period. 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 Kerastick(R)
sales volumes.

         Non-PDT Drug Product Margins reflect the margin generated by the
products acquired as part of our March 10, 2006 merger with Sirius Laboratories.
Total margin for the period March 10, 2006 through March 31, 2006 was 69%.
Non-PDT Drug Product Margins were negatively impacted by fair value accounting
for the inventory acquired as part of the merger. We expect the purchase
accounting adjustment will continue to effect gross margins for the next two
quarters, and beyond that we expect gross margins on Non-PDT Drug Products to be
in the 80% to 90% range.



                                       31
<PAGE>
         RESEARCH AND DEVELOPMENT COSTS -- Research and development costs for
the three month period ended March 31, 2006 were $3,111,000 including $1.6
million related to in-process research and development acquired as part of the
acquisition of Sirius, as compared to $1,596,000 in 2005. The increase was
caused primarily by the recording of the acquired in-process research and
development. During the fourth quarter of 2004, we initiated a DUSA-sponsored
Phase II study of Levulan(R) PDT for the treatment of acne, the results of which
were announced in February 2006. This 72 patient, investigator blinded study was
designed to examine the effects of varying Levulan/vehicle incubation times
prior to light treatment, namely 15, 60 and 120 minutes. Patients were all
pre-treated with an acetone wash, and 18 subjects in each group received
Levulan(R) plus the BLU-U(R) and six received BLU-U(R) alone. There were no
formal placebo arms in this study. Up to four PDT treatments were given at
2-week intervals. The results of the study, determined at 4 weeks
post-treatment, indicate that both Levulan(R) plus BLU-U(R) and BLU-U(R) alone
appear to effectively reduce the number of both inflammatory and
non-inflammatory acne lesions. There was a higher than anticipated `BLU-U alone'
response rate using this protocol, but the study was not sized to discern
differences between the two types of treatment. At the Week 8 time point, the
median percent decrease in total lesion count, for Levulan BLU-U and BLU-U alone
was 61% and 80%, respectively. In the overall Acne Severity Assessment at the
Week 8 time point, the Levulan plus BLU-U group showed 7/18 (39%) of subjects
had at least 2 grades of improvement in their acne, compared with 4/6 (67%) in
the BLU-U alone group.

         In the subset of 28 patients with the most severe (Grade 4) acne, in
general, the total lesion count at Week 8 decreased in the Levulan BLU-U group,
whereas total lesion count at Week 8 increased in the BLU-U alone group.
Treatment was well tolerated in both arms of the study with no unanticipated
adverse events being reported. Side effects were minimal. We believe that the
results of this study suggest that for future development of Levulan(R) PDT for
acne, those patients with the most severe form(s) of acne should receive the
greatest benefit. During September 2005, the FDA issued new draft guidance for
the pharmaceutical industry regarding the development of new drugs for acne
vulgaris treatment. As a result of the issuance of this guidance, in combination
with the results of our Phase II study, we believe that additional Phase II work
will be required before we commence Phase III acne trials.

         In February 2006, we reported the interim analysis results from our 80
patient, multi-center Phase II split-face clinical study of PDT in the treatment
of photodamaged skin using the Company's Levulan(R) (aminolevulinic acid HCl,
ALA) Kerastick(R) in combination with either our BLU-U(R), an Intense Pulsed
Light, or IPL, or a Long Pulsed Dye Laser, or LPDL. The goal of the study was to
guide selection of light source(s) for future PDT development in the treatment
of photodamaged skin. Each patient served as his or her own control, using a
'split-face' design. Following skin cleansing with an acetone solution, and
approximately 60 minutes of drug and/or vehicle incubation, light treatment with
a fixed dose was given using one of the three light sources. Up to 3 treatments
were given, 3 weeks apart. Interim results were assessed at Weeks 9 and 12. The
protocol includes additional follow-up visits scheduled for Weeks 26 and 52.

         At Week 12, Levulan PDT with BLU-U light demonstrated material
improvement in photodamaged skin, in comparison to BLU-U and vehicle.
Statistical significance in net changes from baseline scores was achieved in 2
parameters of photodamage, namely mottled pigmentation (p=0.0348) and tactile
roughness (p=0.0455). In addition, the trend toward


                                       32
<PAGE>

improvement in a number of parameters was notably greater at Week 12 than Week
9, without any additional treatments with Levulan, which suggests that other
parameters may also reach statistical significance over time. Specifically,
Levulan with BLU-U showed greater improvements in mottled pigmentation, tactile
roughness, fine wrinkling, sallowness and Global Photodamage Score (i.e. all the
parameters that were measured except for telangiectasia (small blood vessels in
the skin)), compared with areas treated with BLU-U and vehicle. BLU-U by itself
is not known to have any effects on photodamaged skin.

         We believe that these results support the conclusions of a prior
independent study by Touma et al (2004), using Levulan with BLU-U versus BLU-U
alone, that achieved statistical significance with the addition of Levulan in
all photodamage parameters measured, other than deep wrinkles. In that study,
the investigators treated more severely sun-damaged patients than were treated
in our Phase II study, each with a minimum of 4 actinic keratoses. They also
used twice the dose of blue light compared to the current study (10 vs. 5
Joules/cm2), and drug incubation times ranging from 1-3 hours.

         It is well known that IPL, by itself, improves photodamage,
predominantly by targeting brown discoloration and red blood vessels. As we
expected, at Week 12 in our study, the results show significant improvement in
photodamage with IPL and vehicle, especially with respect to mottled
pigmentation and telangiectasia. With the addition of Levulan, there was a trend
toward greater improvement in all parameters of photodamage except for mottled
pigmentation, although these trends did not achieve statistical significance at
Week 12. However, the trend toward improvement was notably greater at Week 12
than Week 9 without any additional treatments with Levulan, and additional
follow up is scheduled at weeks 26 and 52.

         With LPDL, as would be expected, there was significant improvement in
photodamaged skin with LPDL and vehicle, especially with respect to
telangiectasia, the primary target of this device. However, with LPDL, the
addition of Levulan for the treatment of photodamage did not lead to any
discernable differences in photodamage parameters between the two groups, as
suggested by the results of an earlier study (Smith et al, 2004).

         In general, safety was excellent in all groups, but treatment using
Levulan(R) with BLU-U was better tolerated than treatment with IPL or LPDL (with
or without Levulan(R) i.e. the frequency and severity of stinging and burning
during treatment was greater with IPL and LPDL (with or without Levulan(R))
compared to Levulan(R) with BLU-U(R), and for BLU-U(R) with vehicle. Levulan(R)
with BLU-U(R) was also easy to use and less operator dependent. We are
continuing to evaluate data prior to deciding appropriate next steps.

         As our Phase II clinical trials proceed for acne and photodamage, and
especially at such time as we may commence Phase III trials in these
indications, research and development expenses are expected to increase
significantly.

         On September 27, 2004, DUSA signed a clinical trial agreement with the
National Cancer Institute, Division of Cancer Prevention, or NCI DCP, for the
clinical development of Levulan(R) PDT for the treatment of high-grade dysplasia
within Barrett's Esophagus. In addition, to further our objectives concerning
treatment of internal indications using Levulan(R) PDT, on November 4, 2004, we
signed an additional clinical trial agreement with the NCI DCP for the treatment
of oral cavity dysplasia. DUSA and the NCI DCP are working together to prepare


                                       33
<PAGE>

overall clinical development plans for Levulan(R) PDT in these indications,
starting with Phase I/II trials, and continuing through Phase III studies, if
appropriate. DUSA and the NCI DCP have prepared protocols for the initial Phase
I/II clinical studies in both indications. The NCI DCP is currently working with
DUSA and investigators to finalize the clinical trial designs. The NCI DCP will
use its resources to file its own Investigational New Drug applications with the
FDA. Our costs related to these studies will be limited to providing Levulan(R),
laser devices and our proprietary light device sheath and the necessary training
for the investigators involved. All other costs of these studies will be the
responsibility of the NCI DCP. We have options on new intellectual property and,
subject to successful clinical trial results, intend to seek FDA approvals in
due course. In preparation for new Phase II clinical trials for the treatment of
high-grade dysplasia associated with Barrett's esophagus, our small
single-center pilot Phase II clinical trial using our proprietary endoscopic
light delivery device is continuing.

         We have entered into a series of agreements for our research projects
and clinical studies. We expect research and development costs to increase in
2006 as compared to 2005 as we continue to invest in our clinical programs. 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.

         MARKETING AND SALES COSTS -- Marketing and sales costs for the three
months ended March 31, 2006 were $2,691,000 as compared to $2,785,000 for 2005.
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 $1, 596,000 for the three month period ended
March 31, 2006, compared to $1,837,000 in 2005. The decrease in this category is
due to a lower average headcount in 2006 in comparison to 2005. The remaining
expenses consist of tradeshows, miscellaneous marketing and outside consultants
totaling $1,097,000, including $102,000 related to amortization of
developed/core technology resulting from the acquisition of Sirius, for the
three month period ended March 31, 2006, compared to $948,000 in 2005. We expect
that our overhead expenses will remain elevated reflecting the expansion of our
sales capacity and the addition of executive sales management in the second
quarter of 2006; however, these expenses should be somewhat offset by lower
tradeshow spending for the remainder of the year, as the major conferences took
place during the first quarter of 2006. The expected amortization expense
related to the core/developed technology for the remainder of 2006 is $1.3
million. We anticipate that the level of marketing and sales expenses and
related support functions will continue to increase in 2006 as we integrate the
members of the Sirius sales force and seek to expand our sales coverage as a
result of the initial success of our sales initiatives.

         GENERAL AND ADMINISTRATIVE COSTS -- General and administrative costs
for the three months ended March 31, 2006 increased to $2,070,000 as compared to
$1,682,000 for 2005. This increase is mainly attributable to $149,000 resulting
from the adoption of FAS 123R, and incremental costs associated with the
acquisition of Sirius, and increased professional fees.


                                       34
<PAGE>

General and administrative expenses are highly dependent on our legal and other
professional fees, which can vary significantly from period to period.

         OTHER INCOME, NET -- Other income for the three months ended March 31,
2006 decreased to $272,000 as compared to $367,000 during the same period in
2005. This decrease is primarily attributable to a decrease in of the balance of
marketable securities as we use these resources to fund operations.

         NET LOSSES - We incurred a net loss of $4,640,000, or $0.26 per share,
for the three months ended March 31, 2006, as compared to a net loss of
$4,332,000 or $0.26 per share for the comparable period in 2005. Net losses are
expected to continue until end-user sales offset the cost of launching our sales
force and marketing initiatives, and the costs for other business support
functions.

LIQUIDITY AND CAPITAL RESOURCES

         We believe that we have sufficient cash to continue to fund Levulan(R)
PDT sales and marketing expenses at current levels, planned research and
development activities for our Levulan(R) PDT/PD platform, and to fund
operations and capital expenditures for the foreseeable future. However, should
one or more generic niacinamide products remain on the market for any
significant length of time our liquidity could be significantly impacted. We
have invested our funds in liquid investments, so that we will have ready access
to these cash reserves, as needed, for the funding of development plans on a
short-term and long-term basis.

         At March 31, 2006, we had approximately $23,406,000 of total cash
resources, comprised of $4,283,000 of cash and cash equivalents, marketable
securities available for sale totaling $18,977,000, and restricted cash of
$146,000. As of March 31, 2006, these securities had yields ranging from 2.35%
to 7.43% and maturity dates ranging from April 1, 2006 to June 15, 2008.

         As of March 31, 2006, working capital (total current assets minus total
current liabilities) was $24,915,000, as compared to $34,889,000 as of December
31, 2005. Total current assets decreased by $8.7 million during the three months
ended March 31, 2006, due primarily to a decrease in our marketable securities,
and total current liabilities increased by $1.3 million during the same period
due primarily to an increase in accrued expenses resulting from the acquisition
of Sirius.

         As stated above, we acquired all of the outstanding common stock of
Sirius in March 2006 in exchange for 2,396,245 shares of DUSA common stock and
cash. At closing, we paid $8.0 million less certain expenses, in cash, and
1,973,353 unregistered shares of DUSA's common stock, no par value per share
(the "Common Stock") to the shareholders of Sirius and issued an additional
422,892 unregistered shares to an escrow agent to be held for up to two



                                       35
<PAGE>

years subject to certain indemnification provisions of the Merger Agreement. We
have an obligation to file a registration statement covering these shares. See
Note 3 to the Notes to the Condensed Consolidated Financial Statements for the
effect of purchase method accounting on the value of the acquisition. We have
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 earned are, as follows:

    CUMULATIVE SALES MILESTONE:                        PAYMENT EARNED:
    ---------------------------                        ---------------
           $25.0 million                                 $1.5 million
            35.0 million                                 $1.0 million
            45.0 million                                 $1.0 million
                                                         ------------
               Total                                     $3.5 million
                                                         ============


         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.

         We are still 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 2006, we are focusing primarily on increasing the sales of the
Levulan(R) Kerastick(R) and the BLU-U(R), as well as the Non Photodynamic
Therapy Drug Products, advancing our Phase II studies for use of Levulan(R) PDT
in photodamaged skin and 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 June 2005, Sirius entered into a development and product license
agreement with Altana, Inc. relating to a reformulated dermatology product.
According to the agreement, Sirius pays for all development costs. The agreement
was assigned to us by virtue of the Sirius merger. 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.


                                       36
<PAGE>


Amide Pharmaceuticals, Inc.

         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. Currently, Amide 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. The
agreement was assigned to us as part of the Sirius merger.

Harmony Labs, Inc.

         Under an agreement dated September 18, 2001, and amended on February
16, 2006 and March 10, 2006, Sirius entered unto 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. Currently, Harmony supplies all of our requirements; however, we have
the right to use a second source for a significant portion of its 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 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. Sirius
is responsible for all development costs and for obtaining all necessary
regulatory approvals. Perrigo is entitled to royalties on net sales of the
product, including certain minimum royalties commencing May 1, 2006. 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. Minimum royalties to
Perrigo are $250,000 per year.

Winston Laboratories, Inc.

         On or about January 30, 2006 Winston Laboratories, Inc. 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 Sirius. The
2006 agreement grants to Sirius 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. Royalties are paid on net
sales of the product by Sirius, and certain minimum royalties are due each year
to maintain the license. Sirius has an option to purchase the product from
Winston at certain times during the two-year term of the agreement. The
agreement is due to expire on January 31, 2008, subject to rights to extend or


                                       37
<PAGE>

terminate the agreement earlier. This agreement was assigned to us as part of
the Sirius Merger. Minimum royalties to Winston Laboratories are $300,000 per
year ending January 31, 2008.

            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 March 31, 2006:

<Table>
<Caption>
                                       TOTAL         1 YEAR OR LESS       2-3 YEARS       4-5 YEARS       AFTER 5
                                       -----         --------------       ---------       ---------       -------
<S>                                 <C>              <C>                  <C>             <C>             <C>
Operating lease obligations         $ 3,170,000        $ 683,758          $ 992,466       $ 887,833       $ 606,416

Purchase obligations (1, 2)         $ 1,966,660        1,966,660                  -               -               -
Minimum royalty obligations         $ 2,486,000        $ 615,167          $ 922,000       $ 672,000       $ 276,833
</Table>


     ----------
     1)      Research and development projects include various commitments
     including obligations for our Phase II clinical studies for photodamaged
     skin and 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 additional stock grants, bonuses, and
     other incentives for each product indication ranging from $250,000 to
     $1,250,000, depending on the regulatory phase of development of products
     under Therapeutics' management.

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, the overall net
effect of inflation on our operations is expected 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.

         As of March 31, 2006, the weighted average rate of return on our
investments was 4.48%. If market interest rates were to increase immediately and
uniformly by 100 basis points from levels as of March 31, 2006, the fair market
value of the portfolio would decline by $122,000. Declines in interest rates
could, over time, reduce our interest income.


                                       38

<PAGE>
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
Exchange Act 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 March 31, 2006.

         There have been no changes in our internal control over financial
reporting that occurred during the quarter ended March 31, 2006 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, without limitation statements regarding our use of
estimates and assumptions in the preparation of our financial statements and
policies, including certain pro forma financial statements and the impact on us
of the adoption of certain accounting standards, our obligation to make certain
milestone payments to third parties, our beliefs and intent regarding the
manufacture of our products and the availability of inventory of our products,
the outcome and costs of litigation to which we are a party, the terms and
conditions of our equity compensation plans, our beliefs regarding our recent
merger with Sirius Laboratories, Inc. and the benefits, effects, impact and
risks thereof, our goal of achieving profitability, our beliefs regarding our
sales and marketing efforts, competition with other companies, the adoption of
our products, and the outcome of such efforts, our beliefs regarding the use of
our products and technologies by third parties, our beliefs regarding our
compliance with applicable laws, rules and regulations, our beliefs regarding
available reimbursement for our products and changes to applicable CPT codes,
our expectation regarding the margins on our products, our beliefs regarding the
current and future clinical development and testing of our potential products
and technologies and the costs thereof, our expectations and beliefs regarding
our future expenses and losses, the sufficiency of our capital resources and our
needs for additional capital, our plans for obtaining financing in the future
and for pursuing certain goals and objectives, and the possibility of the
holders of options and warrants to purchase our common stock exercising these
securities. 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

                                       39

<PAGE>

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 recent 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 42
through 57, 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.

Photocure ASA

         In April 2002, we received a copy of a notice issued by PhotoCure ASA
to Queen's University at Kingston, Ontario, alleging that Australian Patent No.
624985 was invalid. Australian Patent No. 624985 is one of the patents covered
by our agreement with PARTEQ Research & Development Innovations, the technology
transfer arm of Queen's University, relating to 5-aminolevulinic acid
technology. PhotoCure instituted this proceeding on April 12, 2002 in the
Federal Court of Australia, Victoria District Registry. As a consequence of this
action, Queen's University assigned the Australian patent to us so that we could
participate directly in this litigation. On April 6, 2005, the Federal Court of
Australia ruled that the patent is valid and remains in full force and effect.
However, the Court also ruled that PhotoCure's product does not infringe the
claims in the Australian patent. Since these claims are unique to the Australian
patent and Australian law differs from patent law in other jurisdictions, we do
not expect that this decision is determinative of the validity of any other
patents licensed by us from Queen's University or of whether PhotoCure's product
infringes claims in such other patents, including the United States patent. None
of the parties appealed the decision. The parties, including PhotoCure's
marketing partner, Galderma S.A., signed a Mediation Agreement in August 2004 to
attempt to settle their disputes. We are making progress in the negotiations.

NECC

         In December 2004, we filed a lawsuit against New England Compounding
Center of Framingham, Massachusetts alleging violations of U.S. patent law in
the U.S. District Court in



                                       40
<PAGE>

Boston, Massachusetts. On March 17, 2005, New England Compounding Pharmacy filed
an answer against us, including a defense that our patents are invalid and
several counterclaims against us, and we filed our response on April 5, 2005. On
April 10, 2006, we announced that we and NECC had settled our respective claims
against each other. Under the terms of the settlement agreement, NECC does not
admit any wrongdoing but has agreed that it will not infringe or induce others
to infringe the two patents that were the subject of the lawsuit, and all claims
against us were released.

Levulan(R) Suits

         In November, 2005 and January, 2006 we filed lawsuits against
physicians in several states to prevent their continued use of versions of our
Levulan (R) brand of aminolevulinic acid HCl (ALA) produced, by third-parties
for use in our patented photodynamic therapy (PDT) treatment for actinic
keratosis, basal cell carcinoma, acne and other dermatological conditions. The
suits allege that ALA obtained from sources other than DUSA is being used by
these physicians for patient treatments that are covered under patents
exclusively licensed by DUSA, resulting in direct infringement of these
patent(s). Additionally, some doctors are also being sued for misuse of DUSA's
trademarks and for violations of the Lanham Act for using the Levulan (R) brand
name on their web sites and promotional materials, but performing patient
treatments with ALA obtained from other sources. Most of the physicians have
entered Consent Judgments in which they admit the infringement and provide DUSA
with the right to review their books and records. Two lawsuits are currently
on-going.

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. Nicomide(R) is one of the key products DUSA
acquired from Sirius in our merger. The declaratory judgment suit was filed in
the United States District Court for the Northern District of Georgia,
Gainesville Division. River's Edge has also filed an application with the U.S.
Patent and Trademark Office requesting reexamination of the Nicomide patent. On
April 20, 2006, we filed a patent infringement suit in the United States
District Court in Trenton, New Jersey alleging that a River's Edge niacinamide
product infringes U.S. patent 6,979,468, and on April 26, 2006 we filed a Motion
to Dismiss the Georgia action. In response to a motion put forward with the
filing by us, the New Jersey court granted an expedited hearing date of May 5,
2006 in order to hear arguments on a motion for preliminary injunction to enjoin
River's Edge from selling its alternative product to Nicomide(R). The court has
not yet ruled on this motion.



                                       41
<PAGE>


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 1.A. of our 2005 Annual Report on Form 10-K for the year ended
December 31, 2005.

         You should carefully consider and evaluate all of the information in,
or incorporated by reference in, this Current Report on Form 10-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 the securities being
offered by this report.

         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.

    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 dermatology products in the United States and the rest of the
world, except Canada, and Mexico and Central and South America, 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. Acquiring and retaining marketing and sales
force capabilities involves significant expense, and current sales levels are
not offsetting the expenses related to these efforts. In addition, our sales
personnel have only recently begun to sell and market the Sirius products. If
our sales and marketing efforts fail, then sales of the Kerastick(R), the
BLU-U(R) and the Sirius Products -- Nicomide(R), Nicomide-T(R), the AVAR(R) line
of products, METED(R), Psoriacap(R) and Psoriatec(R) will be adversely affected.



                                       42
<PAGE>


    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, adoption of our therapy and sales of our products could be
negatively impacted. Although 2005 reimbursement changes related to AK were
made, 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 currently covered, our sales could be dramatically reduced.

    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) and the Sirius Products --
    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 Kerastick(R) units in our facility,
or if either of our contract suppliers fail to supply DUSA's requirements of
Levulan(R) or the BLU-U(R), our business, financial condition and results of
operations would suffer. Although we have received approval by the FDA to
manufacture the BLU-U(R) in our Wilmington, Massachusetts facility, at this time
we expect to utilize our own facility only as a back-up to our current third
party manufacturer or for repairs.

         We are working with the supplier of the AVAR(R) line of products to
address certain manufacturing concerns. There is a risk that inventory of some
of these products could become in short supply while such concerns are being
addressed and negatively affect revenues from these products.

         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:

    o    product yields,

    o    quality control,

    o    component and service availability,

    o    compliance with FDA regulations, and

    o    the need for further FDA approval if manufacturers make material
         changes to


                                       43
<PAGE>

         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.

    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, the Levulan(R)
Kerastick(R) with the BLU-U(R) for AKs, the BLU-U(R) without Levulan(R) to treat
moderate inflammatory acne and the Sirius Products -- Nicomide(R),
Nicomide-T(R), the AVAR(R) line of products, METED(R), Psoriacap(R) and
Psoriatec(R)., 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:

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

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

     o    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:

     o    send us warning letters,

     o    impose fines and other civil penalties on us,

     o    seize our products,

     o    suspend our regulatory approvals,

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

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



                                       44
<PAGE>


     o    require us to recall products,

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

     o    impose restrictions on our operations, and/or

     o    criminally prosecute us.

         We and our manufacturers must continue to comply with the FDA's Good
Manufacturing Practice, commonly known as 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.

         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 manufacture 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 an adverse effect on our financial condition and
operations.

         Certain of the Sirius products acquired in connection with the merger
must meet certain minimum manufacturing and labeling standards established by
the FDA and applicable to products marketed without approved marketing
applications. FDA regulates such products under its 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. We believe that so long as we comply with applicable
manufacturing and labeling standards we will be consistent with FDA's current
enforcement policy. 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 seek FDA approval for these products,
market these products as over-the-counter products or as dietary supplements
under applicable legislation, or withdraw such products from the market.



                                       45
<PAGE>


    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.

    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:

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

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

     o    potential advantages over alternative treatments;

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

     o    relative convenience and ease of administration;

     o    the strength of marketing and distribution support; and

     o    sufficient third-party coverage or reimbursement.

     We Have Significant Losses And Anticipate Continued Losses For The
     Foreseeable Future.

         We have a history of operating losses. We expect to have continued
losses through at least 2006 as we attempt to increase sales of our approved
products in the marketplace and


                                       46
<PAGE>

continue research and development of potential new products. We incurred net
losses of $14,998,709 for the year ended December 31, 2005 and $15,628,980 for
the year ended December 31, 2004. We have continued to experience net losses
during the quarter ended March 31, 2006. As of March 31, 2006, our accumulated
deficit was approximately $94,178,000. We cannot predict whether any of our
products will achieve significant enough market acceptance or generate
sufficient revenues to enable us to become profitable.

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:

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

     o    compositions and apparatus for those methods, and

     o    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 are developing 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 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.


                                       47
<PAGE>

         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:

     o    these persons or entities might breach the agreements,

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

     o    our competitors will independently develop or otherwise discover our
          trade secrets.

          Nicomide is covered by a U.S. patent which issued in December 2005.
     River's Edge Pharmaceuticals LLC has filed an application with the U.S.
     Patent and Trademark Office for the reexamination of the patent. If the
     USPTO finds that the patent is invalid, River's Edge and other generics
     will be able to compete with Nicomide.

    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-party
competitors may infringe one or more of our patents, and we could be required to
spend significant resources to enforce our patent rights. Also, if we were to
sue a third-party for infringement of our patents in the United States, that
third-party could challenge the validity of our patent(s). We cannot guarantee
that a third-party will not claim, with or without merit, that we have infringed
their patent(s) or misappropriated their proprietary material. Defending this
type of legal action involves 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 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 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. 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 a River's
Edge niacinamide product infringes U.S.


                                       48
<PAGE>

patent 6,979,468. In response to a motion put forward with the filing by us, the
Court granted an expedited hearing date of May 5, 2006 in order to hear
arguments on a motion for preliminary injunction to enjoin River's Edge from
selling its alternative product to Nicomide(R). If we do not prevail in our
lawsuit, or the Nicomide(R) patent is found to be invalid, our revenues from
sales of Nicomide(R) could decrease significantly. The court has not yet ruled
on this motion.

         During 2005 and into 2006, we filed several lawsuits against
compounding pharmacies and physicians alleging violations of patent law. While
we have been successful in obtaining a default judgment against one compounding
pharmacy, settled another suit, and have obtained consent judgments from several
physicians, 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.

    We Have Only 2 Therapies That Have Received Regulatory Approval Or Clearance
And We Cannot Predict Whether We Will Ever Develop Or Commercialize Any Other
Products.

    Except For The Levulan(R) Kerastick(R) With The BLU-U(R) To Treat AKs, The
    Use Of The BLU-U(R) Alone To Treat Moderate Inflammatory Acne, and the
    Sirius Products -- Nicomide(R), Nicomide-T(R), the AVAR(R) line of products,
    METED(R), Psoriacap(R) and Psoriatec(R), All Of Our Potential Products Are
    In Early Stages Of Development And May Never Result In Any Commercially
    Successful Products.

         We do not know if the Levulan(R) Kerastick(R), the BLU-U(R) products
will ever be commercially successful. To be profitable, we must successfully
research, develop, obtain regulatory approval for, manufacture, introduce,
market and distribute our products. Except for DUSA's 2 approved therapies, all
of our other potential Levulan(R), BLU-U(R) products, and other potential
product candidates which we acquired in our merger with Sirius, 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:

     o    delays in product development, clinical testing or manufacturing,

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

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

     o    emergence of superior or equivalent products,

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

     o    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.



                                       49
<PAGE>

    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 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. As a result, it is likely that the costs
and time to approval associated with seeking regulatory approval of this
indication will be increased. 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 Sirius products acquired in connection with the Merger
must meet certain minimum manufacturing and labeling standards established by
the FDA and applicable to products marketed without approved marketing
applications. FDA regulates such products under its 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. We believe that so long as we comply with applicable
manufacturing and labeling standards we will be consistent with FDA's current
enforcement policy. 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 seek FDA approval for these products,
market these products as over-the-counter products or as dietary supplements
under applicable legislation, or withdraw such products from the market.



                                       50
<PAGE>

    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.

         Since our current sales goals for our products may not be met in the
future, 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.

         Dependent 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.

We Are Exposed To Risks Associated With Acquisitions.

         On March 10, 2006, we acquired Sirius Laboratories, Inc. We may in the
future make other acquisitions of, or significant investments in, businesses
with complementary products, services and/or technologies. Acquisitions involve
numerous risks, including, but not limited to:

     o    difficulties and increased costs in connection with integration of the
          personnel, operations, technologies and products of acquired
          companies;

     o    diversion of management's attention from other operational matters;

     o    the potential loss of key employees;

     o    the potential loss of key collaborators;

     o    lack of synergy, or the inability to realize expected synergies,
          resulting from the acquisition;

     o    acquired intangible assets becoming impaired as a result of
          technological advancements or worse-than-expected performance of the
          acquired company;

     o    the potential for unexpected liabilities; and

     o    use of cash which could be difficult to replace on reasonable terms.

         Mergers and acquisitions are inherently risky, and the inability to
effectively manage these risks could materially and adversely affect our
business, financial condition and results of operations. In addition, there may
be liabilities that we fail, or are unable, to discover in the course of
performing due diligence investigations on any company that we may acquire, or
have recently acquired. Also, there may be additional costs relating to
acquisitions including, but not limited to, possible purchase price adjustments.
Any of our rights to indemnification from sellers to us, even if obtained, may
not be enforceable, collectible or sufficient in amount, scope or



                                       51
<PAGE>

duration to fully offset the possible liabilities associated with the business
or property acquired. Any such liabilities, individually or in the aggregate,
could have a material adverse effect on our business.

      The merger between DUSA and Sirius Laboratories may be more difficult,
costly or time consuming than expected, and we may not be able to successfully
integrate our business with Sirius' business.

      Upon completion of our merger with Sirius, we began to integrate our
operations with those of Sirius. Although we have not experienced significant
difficulties to date, as the integration process continues, it is possible that
we may face difficulties which may result in, among other things, disruptions in
our ongoing operations. For example, we may experience differences in the two
companies' business procedures, controls or personnel policies, and there could
be problems that affect our ongoing relationships with our customers or that
affect our ability to realize all anticipated benefits of the merger. Some of
these difficulties include, without limitation, the loss of key employees and
customers, the disruption of ongoing business relationships, and possible
inconsistencies in standards, controls, procedures and policies. The success of
our merger with Sirius depends on our ability to successfully merge corporate
cultures and operational and financial systems, integrate and retain the
customer base of the acquired business, realize cost reduction synergies; and as
necessary, retain key management members and technical personnel of acquired
companies. If we fail to integrate Sirius' business and operations successfully,
that failure could have a material adverse effect on our business.

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 80 employees, including 2 part-time
employees as of March 31, 2006. 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. 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.



                                       52
<PAGE>


                          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 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,
photodamaged skin 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.



                                       53
<PAGE>


         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:

     o    price reductions,

     o    lower levels of third-party reimbursements,

     o    failure to achieve market acceptance, and

     o    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.

Our Products May Lose Market Share If New Manufacturers Begin Producing
Competing Products That Are Able To Penetrate Our Market.

    We Have Learned That 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. On January 31, 2005, we filed a lawsuit in the United States
District Court for the District of Arizona against The Cosmetic Pharmacy of
Tucson, Arizona alleging violations of the Lanham Act for false advertising and
trademark infringement and of United States patent law. A motion for default
judgment was granted on July 25, 2005 in our favor for failure of The Cosmetic
Pharmacy of Tucson to appear, together with injunctive relief and attorney fees
and costs in the amount of approximately $20,700. Also, on December 27, 2004, we
filed a lawsuit in United States District Court for the District of
Massachusetts against New England Compounding Pharmacy, Inc. of Framingham,
Massachusetts alleging violations of United States patent law which has now
settled. While we believe that certain actions of compounding pharmacies 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 will be successful in curbing the practices of
these pharmacies 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.



                                       54
<PAGE>


    We have learned that River's Edge is marketing an alternative niacinamide
Product.

         If generic manufacturers launch products to compete with Nicomide in
spite of our patent position, they 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 anticipate that we will face increased competition as the scientific
development of PDT/PD and the Non-PDT Drug Products advance 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.). We are also aware of
several companies commercializing and/or conducting research with ALA or
ALA-related compounds, including: medac GmbH and photonamic GmbH & Co. KG
(Germany); 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. 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. In July
2004, PhotoCure received FDA approval in the United States for its AK therapy.
If PhotoCure enters into the marketplace based on receiving this approval, its
product will represent direct competition for our products.

         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, which we are also pursuing.

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

     o    the ease of administration of our method of PDT,

     o    the degree of generalized skin sensitivity to light,

     o    the number of required doses,

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

     o    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.



                                       55
<PAGE>

                           Risks Related To Our Stock

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 March 31, 2006 there were outstanding options and warrants to
purchase 3,079,875 shares of common stock, with exercise prices 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, 2005 to March 31, 2006, the
price of our stock has ranged from a low of $6.57 to a high of $16.30. Factors
that contributed to the volatility of our stock during the last 15 months
included:

    o    quarterly levels of product sales;

    o    clinical trial results;

    o    general market conditions;

    o    increased marketing activities; and

    o    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.


                                       56
<PAGE>

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 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.


         Information relating to our issuance of unregistered securities in
connection with our merger with Sirius Laboratories, Inc. was included in our
Current Report on Form 8-K filed with the Commission on March 14, 2006.


                                       57
<PAGE>

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES.

       None.

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

       None.

ITEM 5.  OTHER INFORMATION.

       None.

ITEM 6.  EXHIBITS

10(a)  Supply Agreement by and between Sirius Laboratories, Inc. and Amide
       Pharmaceuticals, Inc. dated May 18, 2001, filed herewith, 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;

10(b)  Amendment and Extension of the Supply Agreement by and between Sirius
       Laboratories, Inc. and Amide Pharmaceuticals, Inc. dated February 8,
       2006, filed herewith, 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;

10(c)  Supply and Development Agreement by and between Sirius Laboratories, Inc.
       and Harmony Laboratories dated September 18, 2001, filed herewith,
       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;

10(d)  Amendment and Extension of the Supply and Development Agreement by and
       between Sirius Laboratories, Inc. and Harmony Laboratories dated February
       16, 2006, 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;

10(e)  Second Amendment of the Supply and Development Agreement by and between
       Sirius Laboratories, Inc. and Harmony Laboratories dated March 10, 2006,
       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;

10(f)  Supply Agreement by and between Sirius Laboratories, Inc. and L. Perrigo
       Company dated October 21, 2005, 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;



                                       58
<PAGE>


10(g)  2006 Micanol License Agreement by and between Sirius Laboratories, Inc.
       and Winston Laboratories, Inc. effective as of January 30, 2006, 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; and

10(h)  Development, License and Supply Agreement by and between Sirius
       Laboratories, Inc. and Altana Inc. dated June 13, 2005, 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)  Rule 13a-14(a)/15d-14(a) Certification of the Chief Executive Officer.

31(b)  Rule 13a-14(a)/15d-14(a) Certification of the Chief Financial Officer.

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

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

99(a)  Press Release of the Company dated May 10, 2006.









                                       59
<PAGE>


                                   SIGNATURES

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

                               DUSA Pharmaceuticals, Inc.

Date:  May 10, 2006            By:   /s/ D. Geoffrey Shulman
                                  --------------------------------
                                  D. Geoffrey Shulman
                                  Director, Chairman and Chief Executive Officer
                                  (principal executive officer)

Date:  May 10, 2006            By:   /s/ Richard C. Christopher
                                  --------------------------------
                                  Richard C. Christopher
                                  Vice President, Finance and Chief Financial
                                  Officer (principal financial officer)


<PAGE>



                                  EXHIBIT INDEX




10(a)  Supply Agreement by and between Sirius Laboratories, Inc. and Amide
       Pharmaceuticals, Inc. dated May 18, 2001, filed herewith, 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;

10(b)  Amendment and Extension of the Supply Agreement by and between Sirius
       Laboratories, Inc. and Amide Pharmaceuticals, Inc. dated February 8,
       2006, filed herewith, 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;

10(c)  Supply and Development Agreement by and between Sirius Laboratories, Inc.
       and Harmony Laboratories dated September 18, 2001, filed herewith,
       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;

10(d)  Amendment and Extension of the Supply and Development Agreement by and
       between Sirius Laboratories, Inc. and Harmony Laboratories dated February
       16, 2006, 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;

10(e)  Second Amendment of the Supply and Development Agreement by and between
       Sirius Laboratories, Inc. and Harmony Laboratories dated March 10, 2006,
       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;

10(f)  Supply Agreement by and between Sirius Laboratories, Inc. and L. Perrigo
       Company dated October 21, 2005, 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;

10(g)  2006 Micanol License Agreement by and between Sirius Laboratories, Inc.
       and Winston Laboratories, Inc. effective as of January 30, 2006, 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; and



<PAGE>


10(h)  Development, License and Supply Agreement by and between Sirius
       Laboratories, Inc. and Altana Inc. dated June 13, 2005, 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)  Rule 13a-14(a)/15d-14(a) Certification of the Chief Executive Officer.

31(b)  Rule 13a-14(a)/15d-14(a) Certification of the Chief Financial Officer.

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

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

99(a)  Press Release of the Company dated May 10, 2006.