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

(Mark One)

[X]      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
         THE SECURITIES EXCHANGE ACT OF 1934
         For the quarterly period ended      June 30, 1999
                                       ------------------------------------

                                       OR

[  ]     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
         THE SECURITIES EXCHANGE ACT OF 1934
         For the transition period from _______________ to ________________

Commission file number 0-19777

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

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

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

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


         Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 month (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

                     Yes   X                      No
                          ---                        ---


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


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

                         Yes _____            No _____

                     APPLICABLE ONLY TO CORPORATE ISSUERS:

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

                    11,022,116  shares as of August 2, 1999

<PAGE>   2

                        PART I. - FINANCIAL INFORMATION

Item 1.  FINANCIAL STATEMENTS
DUSA PHARMACEUTICALS, INC.
(a development stage company)

<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
-------------------------------------------------------------------------------------------------------------------
                                                                                   JUNE 30,          DECEMBER 31,
                                                                                     1999                1998
                                                                                  (UNAUDITED)
<S>                                                                              <C>               <C>
ASSETS

CURRENT ASSETS
  Cash (interest bearing)                                                        $    1,259,986     $   1,213,757
  U.S. government securities available for sale, at market                            9,971,209         5,508,375
    (cost- $10,023,100 and $5,502,841, respectively)
  Accrued interest receivable                                                            79,358            19,529
  Other current assets                                                                  151,294           107,993
                                                                                 ----------------------------------
                                                                                     11,461,847         6,849,654

FIXED ASSETS, NET                                                                       146,889           168,466

DEPOSITS ON EQUIPMENT                                                                   291,653           122,555
                                                                                 ----------------------------------
                                                                                 $   11,900,389     $   7,140,675
                                                                                 ==================================

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES
  Accounts payable                                                               $      134,057     $     266,737
  Accrued payroll                                                                       280,930           410,164
  Other accrued charges                                                                 125,050            47,628
                                                                                 ----------------------------------

                                                                                        540,037           724,529
                                                                                 ----------------------------------

SHAREHOLDERS' EQUITY
  Capital Stock
    Authorized: 100,000,000 shares of which 40,000,000 shares
       are designated as Common stock, no par, and
       60,000,000 shares issuable in series or classes.
    Issued and outstanding: 11,016,385 and 9,365,950
        shares of  Common stock, no par; respectively                                44,279,764        36,828,579
  Deficit accumulated during the development stage                                  (32,867,521)      (30,417,967)
  Net unrealized gain (loss) on U.S. government securities available for sale           (51,891)            5,534
                                                                                 ----------------------------------

                                                                                     11,360,352         6,416,146
                                                                                 ----------------------------------

                                                                                 $   11,900,389     $   7,140,675
                                                                                 ==================================
                                                                                 ==================================
</TABLE>

See the accompanying notes to the Consolidated Financial Statements


                                      -2-

<PAGE>   3

DUSA PHARMACEUTICALS, INC.
(a development stage company)

<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS
---------------------------------------------------------------------------------------------------------------
                                                            THREE MONTHS     THREE MONTHS        SIX MONTHS
                                                               ENDED            ENDED               ENDED
                                                              JUNE 30,         JUNE 30,            JUNE 30,
                                                                1999             1998                1999
                                                            (UNAUDITED)      (UNAUDITED)         (UNAUDITED)

<S>                                                         <C>               <C>                <C>
RESEARCH AND DEVELOPMENT COSTS                              $   1,047,760     $   1,701,333      $   1,889,682
                                                           ----------------------------------------------------
OPERATING COSTS
      General and administration                                  486,197           564,168            815,828
      Depreciation and amortization                                18,264            20,166             36,293
                                                           ----------------------------------------------------

TOTAL OPERATING COSTS                                             504,461           584,334            852,121


TOTAL COSTS                                                     1,552,221         2,285,667          2,741,803

NON-OPERATING REVENUE
      Interest income                                             122,939           134,358            283,199
                                                           ----------------------------------------------------
      Gain on foreign currency exchange                                 -             2,059                  -
      Gain on sale of U.S. government securities                        -                 -                  -
      Unrealized loss on U.S. government securities
        available for sale                                              -                 -                  -
                                                           ----------------------------------------------------

                                                                  122,939           136,417            283,199
                                                           ----------------------------------------------------
LOSS BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING           1,429,282         2,149,250          2,458,604
PRINCIPLE

CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE                     -                 -                  -
                                                           ----------------------------------------------------
NET LOSS                                                    $   1,429,282     $   2,149,250      $   2,458,604

OTHER COMPREHENSIVE (INCOME) LOSS
      Net unrealized (gain) loss on U.S. government
      securities available for sale                                57,425            (2,059)            57,425
                                                           ----------------------------------------------------

COMPREHENSIVE LOSS                                          $   1,486,707     $   2,147,191      $   2,516,029
                                                           ====================================================

BASIC AND DILUTED NET LOSS PER COMMON SHARE                 $        0.14     $        0.23      $        0.23
                                                           ====================================================

WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING           10,946,167         9,365,950         10,885,691
                                                           ====================================================

<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS
--------------------------------------------------------------------------------------------
                                                                               CUMULATIVE
                                                                               PERIOD FROM
                                                                               FEBRUARY 21,
                                                             SIX MONTHS       1991 (DATE OF
                                                                ENDED         INCORPORATION)
                                                              JUNE 30,         TO JUNE 30,
                                                                1998               1999
                                                             (UNAUDITED)       (UNAUDITED)

<S>                                                         <C>              <C>
RESEARCH AND DEVELOPMENT COSTS                              $   2,781,065     $  28,457,673
                                                           ---------------------------------
OPERATING COSTS
      General and administration                                1,007,999        10,225,991
      Depreciation and amortization                                32,388           239,835
                                                           ---------------------------------

TOTAL OPERATING COSTS                                           1,040,387        10,465,826


TOTAL COSTS                                                     3,821,452        38,923,499

NON-OPERATING REVENUE
      Interest income                                             295,266         5,697,065
      Gain on foreign currency exchange                                 -            27,204
      Gain on sale of U.S. government securities                        -           322,659
      Unrealized loss on U.S. government securities
        available for sale                                              -           (62,832)
                                                           ---------------------------------

                                                                  295,266         5,984,096
                                                           ---------------------------------
LOSS BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING           3,526,186        32,939,403
PRINCIPLE

CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE                     -           (62,832)
                                                           ---------------------------------

NET LOSS                                                    $   3,526,186     $  32,876,571

OTHER COMPREHENSIVE (INCOME) LOSS
      Net unrealized (gain) loss on U.S. government
      securities available for sale                                (2,059)           51,891
                                                           ---------------------------------

COMPREHENSIVE LOSS                                          $   3,524,127     $  32,928,462
                                                           =================================

BASIC AND DILUTED NET LOSS PER COMMON SHARE                 $        0.38     $        4.90
                                                           =================================

WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING            9,365,950         6,716,537
                                                           =================================
</TABLE>

See the accompanying notes to the Consolidated Financial Statements


                                      -3-


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

<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
---------------------------------------------------------------------------------------------------------------------
                                                                                                       CUMULATIVE
                                                                                                       PERIOD FROM
                                                                                                       FEBRUARY 21,
                                                                                                      1991 (DATE OF
                                                                  SIX MONTHS        SIX MONTHS        INCORPORATION)
                                                                    ENDED             ENDED                 TO
                                                                   JUNE 30,          JUNE 30,            JUNE 30,
                                                                     1999              1998                1999
                                                                  (UNAUDITED)       (UNAUDITED)         (UNAUDITED)
<S>                                                                 <C>             <C>               <C>
CASH FLOWS USED IN OPERATING ACTIVITIES
      Net loss                                                      $(2,458,604)     $(3,526,186)      $(32,876,571)
      Adjustments to reconcile net loss to net cash used
         in operating activities
         Amortization of premiums and accretion of
                 discounts on U.S. government securities
                 available for sale and investment
                 securities, net                                        (95,397)        (104,136)            87,149
         Depreciation and amortization                                   36,293           32,388            239,835
         Loss  on foreign currency exchange                                   -           (2,059)            30,221
         Vesting of non-employee options                                 84,000                -            165,586
          Issue of additional shares and warrants (Note 9)              152,495                -            152,495

         Gain on sale of U.S. government securities
                 available for sale                                           -                -           (322,659)
         Unrealized loss on U.S. government securities
                 available for sale                                           -                -             62,832
         Cumulative effect of change in accounting
                 principle                                                    -                -            (62,832)
         Write-off of intangible assets                                       -                -            307,519
         Compensation expense  resulting from extension
                 of outstanding stock options terms                           -                -            557,260
         Changes in other assets and liabilities
                 impacting cash flows from operations:
                 Accrued interest receivable                            (59,829)          32,575            (79,358)
                 Other current assets                                   (43,301)         (37,876)          (151,295)
                 Accounts payable                                      (132,680)        (138,874)           134,057
                 Accrued payroll and other charges                      (51,812)         (43,754)           405,980
                 License agreement obligations                                -                -            (12,203)
                                                                  ---------------------------------------------------

NET CASH USED IN OPERATING ACTIVITIES                                (2,568,835)      (3,787,922)       (31,361,984)
                                                                  ---------------------------------------------------

 CASH FLOWS PROVIDED BY (USED IN)
       INVESTING ACTIVITIES
       Purchases of U.S. government securities available
         for sale and investment securities                         (10,968,902)      (5,987,469)      (125,927,748)
       Proceeds from maturing U.S. government securities
         available for sale and investment securities                 6,544,040        6,800,000         62,364,040
       Proceeds from sale of U.S. government securities
         available for sale                                                   -                -         53,776,118
       Intangible assets                                                      -                -           (193,022)
       Purchases of fixed assets                                        (14,716)         (35,520)          (369,803)
       Deposits on equipment                                           (169,098)                           (291,653)
       Advances by a former parent                                            -                -         (2,867,900)
       Repayment of advances to former parent                                 -                -          2,867,900
                                                                  ---------------------------------------------------

NET CASH USED IN INVESTING ACTIVITIES                                (4,608,676)         777,011        (10,642,068)
                                                                  ===================================================
</TABLE>


                                      -4-

<PAGE>   5

DUSA PHARMACEUTICALS, INC.
(a development stage company)

<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
---------------------------------------------------------------------------------------------------------------------
                                                                                                       CUMULATIVE
                                                                                                       PERIOD FROM
                                                                                                       FEBRUARY 21,
                                                                                                      1991 (DATE OF
                                                                   SIX MONTHS          SIX MONTHS     INCORPORATION)
                                                                     ENDED               ENDED              TO
                                                                    JUNE 30,            JUNE 30,         JUNE 30,
                                                                      1999                1998             1999
                                                                   (UNAUDITED)         (UNAUDITED)      (UNAUDITED)
<S>                                                              <C>                 <C>              <C>
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES
       Stock offering costs                                       $    (293,135)     $           -    $  (5,341,390)
       Issuance of common stock and underwriters options              7,516,875                  -       50,919,691
       Payment received on note receivable from director                      -                  -           68,047
       Redemption of option held by former parent                             -                  -      (2,250,000)
       Receipt of Section 16(b) common stock profits                          -                  -           17,125
       Payment on license agreement obligations                               -                  -         (119,215)
                                                                 ----------------------------------------------------

NET CASH PROVIDED BY FINANCING ACTIVITIES                             7,223,740                  0       43,294,258
                                                                 ----------------------------------------------------

EFFECT OF EXCHANGE RATES ON CASH                                              -              2,059          (30,221)
                                                                 ----------------------------------------------------

NET (DECREASE) INCREASE  IN CASH                                         46,229         (3,008,852)       1,259,985

CASH AT BEGINNING OF PERIOD                                           1,213,757          4,033,267                -
                                                                 ----------------------------------------------------

CASH AT END OF PERIOD                                             $   1,259,986      $   1,024,415    $   1,259,985
                                                                 ====================================================
SUPPLEMENTAL SCHEDULE OF CASH FLOW
       INFORMATION
       Issuance of common stock for promissory note from
         former parent                                                                                $     150,000
                                                                                                     ================

       License agreement obligations incurred in the
         acquisition of an intangible asset                                                           $     131,418
                                                                                                     ================

       Deferred stock offering costs offset against
         common stock                                                                                 $   5,341,390
                                                                                                     ================

       Note receivable from director originating upon
         exercise of options for common stock                                                         $      68,047
                                                                                                     ================

       Issuance of common stock and warrants as
       compensation to placement agent (note 9)                                                       $   1,805,878
                                                                                                     ================

       Interest paid                                                                                  $      12,594
                                                                                                     ================
</TABLE>

There were no income tax payments made during the periods.

See the accompanying notes to the Consolidated Financial Statements


                                      -5-

<PAGE>   6

DUSA PHARMACEUTICALS, INC.
(a development stage company)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1.       The Consolidated Balance Sheets as of June 30, 1999, the Consolidated
    Statements of Operations for the three-month and six-month periods ended
    June 30, 1999, and 1998 and for the period from February 21, 1991, (date of
    incorporation) to June 30, 1999, and the Consolidated Statements of Cash
    Flows for the six-month periods ended June 30, 1999, and 1998 and for the
    period from February 21, 1991, (date of incorporation) to June 30, 1999,
    have been prepared by the Company, without audit.  In the opinion of
    management, all adjustments (which include only normal recurring
    adjustments) necessary to present fairly the financial position, results of
    operations and changes in cash flows as of June 30, 1999, and for all
    periods presented have been made.

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

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

2.       The Company's United States government securities available for sale
    consist of securities of the United States government, and its agencies,
    with interest rates and yields ranging from 4.731% to 6.490%, and maturity
    dates ranging from July 2, 1999 to September 21, 2000.

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

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


                                      -6-

<PAGE>   7

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


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

7.       The Company has entered into a series of agreements for research
    projects and clinical studies.  As of June 30, 1999, future payments to be
    made pursuant to these agreements, under certain terms and conditions,
    total approximately $746,000 for the remainder of 1999.

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

9.       On January 15, 1999, the Company issued 1,500,000 shares of its common
    stock in a private placement pursuant to Regulation D of the Securities Act
    of 1933 at $5.00 per share.  The Company received net proceeds of
    $7,223,740.  An additional 130,435 shares of common stock were issued as
    commission and non-accountable expense allowance to the placement agent.
    Additional compensation was paid to the placement agent in 163,043
    five-year warrants each of which are exercisable into one share of common
    stock at $5.00 per share.  These shares and warrants have been valued at
    $1,805,878 and have been recorded as stock offering costs.

         Since the Form S-3 Registration Statement which was filed to register
    the shares in the private placement was not yet effective as of June 1,
    1999, the Company was obligated to issue and did issue 15,000 shares of
    common stock to the investors and 1,630.43 additional warrants to the
    placement agent, i.e. 1% of the shares issued to the investors and 1% of
    the warrants issued to placement agent.  These warrants have the same terms
    and conditions as the original placement agent warrants. These shares and
    warrants have been valued at $152,495 and both have been recorded as part
    of general and administration costs in the consolidated statements of
    operations.

10.      Under the terms of the 1996 Omnibus Plan as amended, each person who
    is a continuing director following the Annual Meeting of Shareholders
    automatically receives 10,000 non-qualified stock options.  Consequently on
    June 11, 1999 the Company granted a total of 50,000 non-qualified stock
    options to the directors to purchase the common stock of the Company at
    $9.688 per share.  The exercise price of such options is the closing stock
    market price on the date of the grant.


                                      -7-

<PAGE>   8

11.      The Company entered into an Extension of Research Agreement effective
    April 1, 1999 with PARTEQ Innovations ("PARTEQ").  As partial
    consideration, the Company granted options to purchase 10,000 shares of
    common stock of the Company at an exercise price of $9.25 per share.  These
    options have a term of 10 years and vest at a rate of 25% each year over
    four years on the anniversary dates of the granting of the options.  These
    options have been valued at $84,000 and have been included in the
    Consolidated Statements of Operations as part of research and development
    costs, along with a cash payment of $50,000 provided to PARTEQ as funding
    support.  In addition, the Company has also agreed to provide further
    funding to PARTEQ in the amount of $29,000 on April 1, 2000.


                                      -8-

<PAGE>   9

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

GENERAL

    The following discussion should be read in conjunction with the Company's
Consolidated Financial Statements and Notes to the Consolidated Financial
Statements for the year ended December 31, 1998 and for the three and six-month
periods ended June 30, 1999, and June 30, 1998, respectively.  DUSA
Pharmaceuticals, Inc. is a development stage pharmaceutical company engaged
primarily in the research and development of a light sensitive drug named
5-aminolevulinic acid, or ALA, used in combination with appropriate light
devices in order to detect or treat a variety of human disorders. The trademark
for DUSA's brand of ALA is Levulan(R).  When Levulan(R) is used and followed by
exposure to light to produce a therapeutic effect the technology is called
photodynamic therapy or PDT.  When Levulan(R) is used and followed by exposure
to light to detect medical conditions the technology is called photodetection
or PD.  At this time, DUSA's research and development program includes
Levulan(R) photodynamic therapy and photodetection for several medical uses,
such as:

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

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

         On June 29, 1999, DUSA announced that it had received a notice of
approvability from the FDA of DUSA's first new drug application ("NDA") for use
of Levulan(R) photodynamic therapy to treat actinic keratoses (pre-cancerous
skin lesions)("AKs") of the face and scalp. The notice conditions final
approval upon DUSA's submission of labeling for the product which must be
approved by the FDA.  In addition, DUSA's third-party manufacturer of the bulk
supply of ALA, the main ingredient in Levulan(R), must have its facilities
reinspected by the FDA.  The Company has been informed that this facility does
not yet meet FDA's "good manufacturing practices" (GMP) regulations.  Prior to
receipt of marketing approval from the FDA, the manufacturer's facilities must
be in compliance with the FDA's current Good Manufacturing Practices
regulations.  DUSA is monitoring the steps being taken by the manufacturer and
believes that the manufacturer is actively working to resolve the deficiencies.
We have been advised that the manufacturer hopes


                                      -9-

<PAGE>   10

to complete its work and be ready for reinspection by the FDA by the end of the
third quarter.  However, DUSA cannot determine precisely when the modifications
will be completed, when the FDA will schedule a reinspection, or whether the
FDA will be satisfied with the modifications.

         During the quarter, the FDA separated the light device portion of the
Company's NDA into its own Pre-market Approval ("PMA") application, with the
PMA approval dependant on the NDA drug approval.  Now that DUSA has received an
approvable notice regarding its drug, the Company expects to receive an action
notice on the light device in the near future.  However, because the commercial
light unit DUSA intends to market is a modified version of the unit used in the
clinical studies, DUSA intends to file an amendment to the PMA covering these
modifications during the fourth quarter of this year.  DUSA expects that the
amendment will be approved in the normal course of the FDA's review process.
Final approval of the NDA and the PMA will be required in order to market the
drug and light products together.

         Since its inception, the Company has primarily devoted its resources
to funding research and development and as a result the Company has experienced
significant operating losses.  To strengthen its cash position and in order to
support on-going operations during the FDA review process, DUSA raised gross
proceeds of $7,500,000 in January 1999 in a private placement of 1,500,000
shares of its common stock.  The placement agent received a commission and
non-accountable expense allowance of 8% of the gross proceeds, which the
placement agent chose to take in the form of 130,435 shares of common stock.
The placement agent also received 163,043 warrants to purchase common stock at
an exercise price equal to the private placement offering price per share.  The
warrants expire on January 14, 2004.  See Footnote 9 to the Notes to the
Consolidated Financial Statements.

         As agreed, the Company registered the shares purchased in the January
private offering on a Form S-3 Registration Statement which was declared
effective by the SEC on June 18, 1999.  DUSA will not receive any proceeds from
the resale of these shares.  In addition, the Registration Statement registered
for re-sale up to 570,543 shares of common stock underlying options and
warrants, including the 163,043 warrants issued by the Company to the placement
agent in the private placement, 337,500 issued to its underwriters in two
previous securities offerings, and 70,000 to investor relations consultants.
These securities may be converted from time to time at


                                      -10-

<PAGE>   11

their various exercise prices.   See "Liquidity and Capital Resources".  Since
the Form S-3 Registration Statement which was filed to register the shares in
the private placement was not yet effective as of June 1, 1999, the Company was
obligated to issue and did issue 15,000 shares of common stock to the investors
and 1,630.43 additional warrants to the placement agent, i.e. 1% of the shares
issued to the investors and 1% of the warrants issued to the placement agent.
These warrants have the same terms and conditions as the original placement
agent warrants. The 15,000 shares and 1,630 shares which underlie the warrants
have also been registered.

Financial Condition

         DUSA's total assets were $11,900,389 as of June 30, 1999 compared to
$7,140,675 as of December 31, 1998.  Of these amounts, DUSA held cash and
United States government securities at a fair market value of $11,231,195 as of
June 30, 1999, as compared to $6,722,132 as of December 31, 1998.  The
increases are the direct result of the completion of the private placement of
the Company's shares.  Management expects that assets will decline until the
Company successfully makes the transition to profitability after approval and
launch of its first product, or concludes and receives funds as part of a
corporate alliance and/or from other financing activities.  As of June 30,
1999, the Company had outstanding current liabilities of $540,037 as compared
to $724,529 as of December 31, 1998.  As of June 30, 1999, the Company had an
accumulated deficit of $32,867,521.  Since its inception the Company has had no
long-term debt.

         The profitability of the Company is dependent upon receipt of final
marketing approval of Levulan(R) PDT for AKs by the FDA and the ability of the
Company to develop a market for its products.  Although the Company believes
its third-party manufacturer will be able to bring its facilities into
compliance with FDA's Good Manufacturing Practices regulations, there can be no
assurance that the facilities will be approved by the FDA.  If the facilities
are not approved, the Company might have to obtain a new supplier at an FDA
approved facility which would delay final approval and launch of the product
into the market.  Additionally, the Company cannot be sure that a successful
market will develop for its new technology, Levulan(R) PDT for AKs.  At this
time the Company is developing various plans for marketing its first product
upon receipt of regulatory marketing approval.  The Company is negotiating
potential collaborative licensing arrangements with pharmaceutical companies
with manufacturing and/or sales and distribution capability to market its
products.  The Company is also developing plans to market the products through


                                      -11-

<PAGE>   12

distribution or co-promotion arrangements.

         As planned, the Company has made capital expenditures in preparation
for the manufacture and commercialization of its Kerastick(TM) and BLU-U(TM)
which total $291,653 as of June 30, 1999.  The Company expects to make
additional capital expenditures, including leasehold improvements, of
approximately $228,000 for the balance of year ending December 31, 1999.

         DUSA's research and development program for the enhancement of bladder
cancer detection and for its secondary indications is continuing at modest
levels of support while the Company focuses its resources on manufacturing
scale-up marketing, and issues relating to obtaining final FDA approval of its
initial product for AKs.  During the quarter the Company filed an IND to
initiate a Phase II trial for the treatment of facial acne with Levulan(R) PDT
using blue light.  The trial is expected to start during August, 1999.  Also,
the Company's management is considering new protocols for Phase II clinical
trials for the bladder cancer detection indication.  On June 11, 1999 the
Company reported positive results from its Phase l/ll multi-center clinical
study using Levulan(R) PDT for hair removal.  In addition, investigator studies
relating to endometrial ablation and dysplasia of the cervix are also
continuing.  However, substantial research and testing will be required in
order to develop these indications into commercial products.

         Funding of additional bladder cancer detection, acne and hair removal
studies and other potential indications beyond the Company's current
commitments will be carefully reviewed in order for the Company to maintain its
operations and prepare for commercialization of its initial products, namely
the Levulan(R) Kerastick(TM) brand applicator and the BLU-U(TM) brand light
device.  Full development and testing of all potential indications which are
currently under development would require additional funding.  The timing of
future expenditures will be dependent on various factors, including receipt of
final approval for marketing of Levulan(R) PDT for AK, progress on the
Company's other research and development programs, the results of preclinical
and clinical trials, the timing of regulatory marketing approvals, competitive
developments, payments under any collaborative arrangements, if any, entered
into by the Company and the availability of alternate financing.  While the FDA
letter of approvability of the drug used in Levulan(R) PDT for the treatment of
AKs moves the Company closer to product launch, there can be no guarantee that
DUSA's current resources will be sufficient to enable the Company to obtain
final regulatory


                                      -12-

<PAGE>   13

marketing approval which is subject, in part, to the efforts of our third-party
manufacturer.  Nor can the Company assure that it has sufficient funds to
market any product for any indications currently under development. Therefore,
it is difficult to predict the timing or magnitude of the revenues from the
marketing of the Company's product or whether any such revenues will be
realized.

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

Results of Operations

         The Company has had no sales to date.  Interest income, earned
primarily on United States government securities, decreased to $122,939 for the
three-month period ended June 30, 1999, as compared to $134,358 for the
three-month period ended June 30, 1998, as the Company continues to expend
funds for ongoing research and development.  This trend is expected to continue
throughout the Company's development stage, unless the Company raises funds by
concluding a strategic alliance or other financing activities.  Interest income
for the cumulative period from February 21, 1991 (date of incorporation) to
June 30, 1999 was $5,697,065.

         Research and development costs for the three-month period ended June
30, 1999 decreased to $1,047,760 from $1,701,333 for the comparable three-month
period ended June 30, 1998.  In the second quarter of 1998, the Company
incurred significant expenses to complete the process of compiling its clinical
data into the format required to file the NDA for the AK indication.  In
addition, research and development spending has decreased since the Company has
been funding its research and development activities selectively in order to
make the best use of its existing resources.  Should the Company conclude a
corporate alliance or other financing activity, it intends to accelerate
research and development funding.

         Operating expenses were $504,461 and $584,334 for the three-month
periods ended June 30, 1999, and June 30, 1998 respectively.  Operating
expenses are expected to increase as the


                                      -13-

<PAGE>   14

Company scales up the manufacturing for the commercial production of
Levulan(R), hires additional personnel, and begins to build inventory in
anticipation of FDA approval.  The Company has also entered into a new five (5)
year lease for 16,000 sq. ft. plus an option on an additional 2,000 sq. ft. of
office/warehouse space to be used for offices and manufacturing in Wilmington,
Massachusetts.  This facility will accommodate the expansion of operational,
technical and marketing personnel for the scale-up of the manufacturing
process.  Annual rent on a triple net basis will total $140,000.00 per year
beginning June 1, 1999.  The Company has also entered into a new three (3) year
lease for approximately 1,300 sq. ft. of office space in Toronto in the
building DUSA currently occupies.  This facility will accommodate the offices
of the Company's President, financial, accounting, and shareholder services
personnel.  Annual rent payments will total $31,272 per year beginning August
1, 1999, plus approximately $27,728 for lease operating costs during the first
year of the term.

         As a result of the Company's efforts to reduce spending during the FDA
approval process, the Company incurred a net loss of $1,429,282, or $0.14 per
share, for the three-month period ended June 30, 1999, which was significantly
smaller than the net loss of $2,149,250, or $0.23 per share, for the
three-month period ended June 30, 1998.   Net losses for the cumulative period
from February 21, 1991 (date of incorporation) to June 30, 1999 were
$32,876,571, or $4.90 per share.

Liquidity and Capital Resources

         The Company's United States government securities available for sale
have an aggregate cost of $10,023,100 and a current aggregate market value of
$9,971,209 as of June 30, 1999, resulting in a net unrealized loss on
securities available for sale of $51,891 which has been included in the
shareholders' equity. Some losses could be realized, depending upon the timing
of the Company's need to convert government securities into cash to meet its
working capital requirements.  The Company's securities currently have interest
rates and yields ranging from 4.731% to 6.49%, and maturity dates ranging from
July 2, 1999 to September 21, 2000.

         The Company believes it has sufficient capital resources to proceed
with its current development program for Levulan(R) PDT/ PD through 2000 if the
Company does not reallocate resources to marketing activities related to the
actinic keratoses launch.  Management is focusing


                                      -14-

<PAGE>   15

on a limited number of indications to enhance the Company's ability to complete
the regulatory process, but full development and testing of all potential
indications which are currently under development would require additional
funding.  See "Financial Condition".

         Any proceeds that DUSA may receive upon the exercise of warrants
and/or options which have been registered on the Form S-3 mentioned above will
be used for working capital, primarily to advance research and product
development activities of its Levulan(R) PDT/PD technology platform, including
conducting pre-clinical studies and clinical trials.  The Company may receive
proceeds of up to $3,810,367.15 from the conversion of these options and
warrants. The amount that the Company receives will depend upon the exercise
price of the warrants and the options and the extent to which they are
exercised.  See "General" and "Financial Condition".

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

SFAS No. 133

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

Year 2000 Compliance

         The Year 2000 issue is the result of computer programs having been
written using two digits, rather than four, to define the applicable year.
Any of our computers, computer programs, and administrative equipment that have
date-sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000.  While DUSA's relatively new systems have been tested and
found to be Year 2000 compliant, DUSA cannot predict whether any of the systems
of third-parties with whom we do business do not contain undetected errors or
defects associated with


                                      -15-

<PAGE>   16

the year 2000 date functions that may have a material adverse effect on its
business, results of operation or financial condition.  If any of DUSA's
systems that have date-sensitive software use only two digits, system failures
or miscalculations may result causing disruptions to our operations, including
among other things, a temporary inability to process transactions, sending and
receiving electronic data with our third-party suppliers, and engaging in
similar normal business activities.

         We have not completed the process of obtaining certifications from
unrelated third-parties but expect to be complete before the end of 1999.  In
the event such certifications are not available, we are developing plans to
evaluate the potential impact on our operations if such third-parties are
unable to perform their obligations.  To the extent that such third-parties are
materially adversely affected by the year 2000 issue, we could experience
disruptions and delays in our operations and in receipt of supplies of our drug
or light devices.  These events could negatively impact our research and
development activities and our revenues of any products which may have been
commercialized by that date.  DUSA expects to replace any of its own personal
computers which are not Year 2000 compliant before the end of the year.

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

Inflation

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

Forward-Looking Statements

         The foregoing Management Discussion and Analysis contains various
"forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1993 which represent the Company's expectations or beliefs
concerning future events.  These statements refer to management's expectations
of regulatory approval of its drug and light device, the commencement


                                      -16-

<PAGE>   17

of marketing, the level of support for its research and development program and
intentions to start new trials, expectations for additional capital
expenditures, the sufficiency of the Company's cash flow for the Company's
future liquidity and capital resource needs, expectations of potential future
indications, conversion of options and warrants, and its government securities
and the use of any proceeds derived from such conversion, the decline of assets
and interest income and increase in operating expenses, the actions of its bulk
ALA supplier to resolve GMP deficiencies and timing of the FDA reinspection and
approval of the facilities, and the potential adverse effect from Year 2000
computer problems.  These forward-looking statements are further qualified by
important factors that could cause actual results to differ materially from
those in the forward-looking statements.  These factors include, without
limitation, changing stock market conditions, availability of suitable light
sources and drug supplies, clinical results of its trials, the impact of
competitive products and pricing, and the timely development, FDA approval and
market acceptance of the Company's products, none of which can be assured.
Results actually achieved may differ materially from expected results included
in these statements as a result of these or other factors.


ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
         MARKET RISK

         The Company holds fixed income U.S. government securities as described
above in Item 2 which are subject to interest rate market risks.  See
"Liquidity and Capital Resources."  DUSA does not believe that the risk is
material as it makes an effort to match the relatively short-term maturities of
these securities with its cash flow needs.


                                      -17-

<PAGE>   18

PART II- OTHER INFORMATION

Items 1-3, and 5.

                 None.

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

                 Matters submitted to a vote of security holders of the
                 Corporation at the Annual Meeting of Shareholders held June
                 10, 1999 included the election of five (5) directors and
                 ratification of the selection of Deloitte and Touche LLP as
                 the independent auditors for the Corporation for 1999;

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


<TABLE>
<CAPTION>
                                                                                            Broker
                                                  For         Against      Abstained       non-votes
                                               -------------------------------------------------------
                 <S>                             <C>            <C>            <C>             <C>
                 D. Geoffrey Shulman             7,640,974      10,127         0               0

                 John H. Abeles                  7,640,974      10,127         0               0

                 James P. Doherty                7,640,974      10,127         0               0

                 Richard C. Lufkin               7,640,974      10,127         0               0

                 Jay Haft                        7,640,974      10,127         0               0
</TABLE>

         (2)     Shareholders ratified the selection of Deloitte & Touche LLP
                 as the independent auditors for the Corporation for 1999 as
                 follows:


<TABLE>
                 <S>                                    <C>
                 Votes cast for                         7,625,832

                 Votes cast against                         7,875

                 Abstained                                 17,394

                 Broker non-votes                               0
</TABLE>


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

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


                                      -18-

<PAGE>   19

         b)      The following Reports on Form 8-K were filed during the
                 quarter:

                 i)  Form 8-K dated and filed on June 11, 1999 which reported
                 results for its Phase II multi-center clinical study using
                 Levulan(R) PDT for hair removal; and

                 ii) Form 8-K dated and filed on June 29, 1999 which reported
                 the receipt of notice from the FDA that it has completed the
                 review of DUSA's NDA and stating that the application is
                 approvable.





                                   SIGNATURES

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


                                     DUSA PHARMACEUTICALS, INC.



DATE:   August 4,  1999              BY:   /s/D. Geoffrey Shulman
       ----------------                 ----------------------------------------
                                     D. Geoffrey Shulman, MD, FRCPC
                                     President, Chief Executive Officer, and
                                     Chief Financial Officer (Principal
                                     Executive and Financial Officer)


                                      -19-

<PAGE>   20

                                 EXHIBIT INDEX

<TABLE>
<CAPTION>
Exhibit No.                                     Description
<S>                <C>
     27            Financial Data Schedule, which is submitted electronically to the
                   Securities and Exchange Commission for information only and not
                   filed.
</TABLE>


                                      -20-