<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 September 30, 1998
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.
9,365,950 shares as of November 9, 1998
November 9, 1998
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Part 1.
Item 1. FINANCIAL STATEMENTS
DUSA PHARMACEUTICALS, INC
(a development stage company)
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash (interest bearing) $ 425,878 $ 4,033,267
U.S. government securities available for sale, at market
(cost- $7,298,274 and $8,760,498, respectively) 7,307,279 8,733,875
Accrued interest receivable 33,432 87,792
Other current assets 149,024 84,151
------------ ------------
7,915,613 12,939,085
FIXED ASSETS 149,782 142,163
------------ ------------
$ 8,065,395 $ 13,081,248
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 365,352 $ 745,074
Accrued charges 290,665 316,823
------------ ------------
656,017 1,061,897
------------ ------------
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
Issued and outstanding: 9,365,950 shares of common
stock, no par 36,746,993 36,746,993
Deficit accumulated during the development stage (29,346,619) (24,701,019)
Net unrealized gain (loss) on U.S. government securities
available for sale 9,004 (26,623)
------------ ------------
7,409,378 12,019,351
------------ ------------
$ 8,065,395 $ 13,081,248
============ ============
</TABLE>
See the accompanying notes to the Consolidated Financial Statements
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DUSA PHARMACEUTICALS, INC
(a development stage company)
CONSOLIDATED STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CUMULATIVE
PERIOD FROM
FEBRUARY 21,
THREE MONTHS THREE MONTHS NINE MONTHS NINE MONTHS 1991 (DATE OF
ENDED ENDED ENDED ENDED INCORPORATION) TO
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1998 1997 1998 1997 1998
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUE
Interest income $ 112,122 $ 213,543 $ 407,388 $ 704,447 $ 5,312,998
Gain on foreign currency exchange -- -- 240 20,276
Gain on sale of U.S. government securities -- -- -- -- 322,659
Unrealized loss on U.S. government securities
available for sale -- -- -- -- (62,832)
----------- ----------- ----------- ----------- ------------
112,122 213,543 407,388 704,687 5,593,101
----------- ----------- ----------- ----------- ------------
RESEARCH AND DEVELOPMENT COSTS 892,318 1,724,864 3,673,383 4,488,870 25,738,983
----------- ----------- ----------- ----------- ------------
OPERATING COSTS
General and administration 321,038 360,687 1,329,037 1,226,205 9,076,972
Depreciation and amortization 18,180 14,281 50,568 40,284 186,597
----------- ----------- ----------- ----------- ------------
339,218 374,968 1,379,605 1,266,489 9,263,569
----------- ----------- ----------- ----------- ------------
LOSS BEFORE CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING PRINCIPLE (1,119,414) (1,886,289) (4,645,600) (5,050,672) (29,409,451)
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE -- -- -- -- 62,832
----------- ----------- ----------- ----------- ------------
NET LOSS $(1,119,414) $(1,886,289) $(4,645,600) $(5,050,672) $(29,346,619)
=========== =========== =========== =========== ============
BASIC AND DILUTED NET LOSS PER COMMON
SHARE $ (0.12) $ (0.20) $ (0.50) $ (0.54) $ (4.62)
=========== =========== =========== =========== ============
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 9,365,950 9,355,950 9,365,950 9,355,950 6,357,749
=========== =========== =========== =========== ============
</TABLE>
See the accompanying notes to the Consolidated Financial Statements
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DUSA PHARMACEUTICALS, INC
(a development stage company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CUMULATIVE
PERIOD FROM
FEBRUARY 21,
1991 (DATE OF
NINE MONTHS NINE MONTHS INCORPORATION)
ENDED ENDED TO
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1998 1997 1998
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS USED IN OPERATING ACTIVITIES
Net loss $ (4,645,600) $ (5,050,672) $ (29,346,619)
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 238,164 (113,875) 240,636
Depreciation and amortization 50,568 40,284 186,597
Loss (gain) on foreign currency exchange (2,059) (240) (22,335)
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 54,360 104,374 (33,432)
Other current assets (64,873) (50,918) (149,024)
Accounts payable (379,722) (364,538) 365,352
Accrued charges (26,158) 93,179 290,665
License agreement obligations -- -- (12,203)
------------ ------------ -------------
NET CASH USED IN OPERATING ACTIVITIES (4,775,320) (5,342,406) (27,938,243)
------------ ------------ -------------
CASH FLOWS PROVIDED BY (USED IN)
INVESTING ACTIVITIES
Purchases of U.S. government securities available for
sale and investment securities (9,025,941) (8,533,796) (111,687,370)
Proceeds from maturing U.S. government securities
available for sale and investment security 10,250,000 15,635,000 50,695,000
Proceeds from sale of U.S. government securities
available for sale -- -- 53,776,118
Intangible assets -- -- (193,022)
Purchases of fixed assets (58,187) (38,522) (319,458)
Advances by a former parent -- -- (2,867,900)
Repayment of advances to former parent -- -- 2,867,900
------------ ------------ -------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 1,165,872 7,062,682 (7,728,732)
------------ ------------ -------------
</TABLE>
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DUSA PHARMACEUTICALS, INC
(a development stage company)
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CUMULATIVE
PERIOD FROM
FEBRUARY 21,
1991 (DATE OF
NINE MONTHS NINE MONTHS INCORPORATION)
ENDED ENDED TO
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1998 1997 1998
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS PROVIDED BY FINANCING
ACTIVITIES
Stock offering costs $ -- $ -- $ (5,048,255)
Issuance of common stock and underwriters' options -- -- 43,402,816
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 -- -- 36,070,518
----------- ---------- ------------
EFFECT OF EXCHANGE RATES ON CASH 2,059 240 22,335
----------- ---------- ------------
NET (DECREASE) INCREASE IN CASH (3,607,389) 1,720,516 425,878
CASH AT BEGINNING OF PERIOD 4,033,267 1,686,090 --
----------- ---------- ------------
CASH AT END OF PERIOD $ 425,878 $3,406,606 $ 425,878
=========== ========== ============
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 $ 5,048,255
============
Note receivable from director originating upon
exercise of options for common stock $ 68,047
============
Interest paid $ 12,594
============
</TABLE>
There were no income tax payments made during the periods.
See the accompanying notes to the Consolidated Financial Statements
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<PAGE> 6
DUSA PHARMACEUTICALS, INC.
(a development stage company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. The Consolidated Balance Sheet as of September 30, 1998, the Consolidated
Statements of Operations for the nine-month periods ended September 30,
1998, and 1997 and for the period from February 21, 1991, (date of
incorporation) to September 30, 1998, and the Consolidated Statements of
Cash Flows for the nine-month periods ended September 30, 1998, and 1997
and for the period from February 21, 1991, (date of incorporation) to
September 30, 1998, 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 September 30, 1998,
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, 1997 audited
consolidated financial statements and notes thereto.
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiary, DUSA Pharmaceuticals New York, Inc. All
significant intercompany accounts have been eliminated on consolidation.
2. The Company's United States government securities available for sale
consist of securities of the United States government, and its agencies,
with interest rates and yields ranging from 5.13% to 6.358%, and maturity
dates ranging from October 16, 1998 to August 10, 1999.
3. In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income.
SFAS No. 130 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. SFAS No. 130
requires all items that are required to be recognized under accounting
standards as components of comprehensive income be reported with the same
prominence as other financial statements. As required, the Company adopted
SFAS No. 130 in the quarter ended March 31, 1998. All prior period
comprehensive amounts have been restated in accordance with SFAS No. 130.
The Company's comprehensive loss is as follows:
<TABLE>
<CAPTION>
Cumulative
period from
February 21,
Nine Months Nine Months 1991 (date of
ended ended incorporation) to
September 30, September 30, September 30,
1998 1997 1998
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C>
Net loss $(4,645,600) $(5,050,672) $(29,346,619)
Net unrealized gain (loss) on U.S. government
securities available for sale 35,627 13,173 9,004
----------- ----------- ------------
Comprehensive loss $(4,609,973) $(5,037,499) $(29,337,615)
=========== =========== ============
</TABLE>
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<PAGE> 7
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. Stock options are not included in the computation of the weighted
average number of shares outstanding for diluted net loss per common share
during the period as the effect would be antidilutive.
5. In February 1998, the FASB issued SFAS No. 132, Employers' Disclosure about
Pension and Other Postretirement Benefits. The Statement standardizes the
disclosure requirements for pension and other postretirement benefits. The
Statement is effective for the Company's financial statements as of
December 31, 1998. The Company does not anticipate that the implementation
of this Statement will have a material impact on the consolidated financial
statements.
6. The Company has entered into an employment agreement with its Chief
Operating Officer effective May 14, 1998. The agreement sets out the
remuneration, benefits and incentive bonuses to which the officer is
entitled. The full term of employment is unlimited in duration unless
terminated in accordance with the terms of the agreement. As partial
consideration for the employment agreement, the Company granted incentive
stock options to purchase up to 60,000 shares of the Company's common stock
at $11.50 per share pursuant to the terms of the 1996 Omnibus Plan as
amended. The exercise price of such options is the closing stock market
price on May 7, 1998, the date of the grant.
7. On May 7, 1998 the Company granted incentive stock options to two employees
of the Company to purchase up to 50,000 shares of the Company's common
stock at $11.50 per share pursuant to the terms of the 1996 Omnibus Plan as
amended. The exercise price of such options is the closing stock market
price on the date of the grant.
8. On June 11, 1998 at the Annual Meeting of the Shareholders, the
shareholders approved an amendment to the Company's Certificate of
Incorporation to increase the number of authorized shares from 20 million
shares of common stock without par value, to 100 million shares, 40 million
of which are designated common stock without par value, and 60 million of
which may be further divided into classes or series of shares with rights,
preferences and limitations as may be determined by the Board of Directors.
9. 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 12, 1998 the Company granted a total of 50,000 non-qualified stock
options to the directors to purchase the common stock of the Company at
$6.9375 per share. The exercise price of such options is the closing stock
market price on the date of the grant.
10. In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. The 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. The Statement is effective for the fiscal
quarters of the Company's year ended December 31, 2000. The Company does
not anticipate that the implementation of this Statement will have a
material impact on the consolidated financial statements.
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<PAGE> 8
11. On September 9, 1998, the Board of Directors of the Company granted
incentive stock options to six employees of the Company to purchase up to
42,000 shares of the Company's common stock at $3.25 per share pursuant to
the terms of the 1996 Omnibus Plan as amended. The exercise price of such
options is the closing stock market price on the date of the grant. Certain
grants require clearance of state securities laws.
12. The Company has entered into a series of agreements for research projects
and clinical studies. As of September 30, 1998, future payments to be made
pursuant to these agreements, under certain terms and conditions, total
approximately $288,600 for the remainder of 1998, and $737,500 for 1999.
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<PAGE> 9
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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, 1997 and for the nine-month periods
ended September 30, 1998, and September 30, 1997, respectively. The Company is a
development-stage pharmaceutical company engaged primarily in the development of
proprietary methods of photodynamic therapy ("PDT") and photodetection ("PD")
utilizing Levulan(R), the Company's brand of aminolevulinic acid ("ALA"). The
Company has raised funds through its initial public offering of the Company's
common stock in January 1992, private placements and additional public offerings
in December 1995 and May 1996. The Company's wholly-owned subsidiary, DUSA
Pharmaceuticals New York, Inc., located in Valhalla, New York, is the Company's
center for its research and development activities.
Financial Condition
The Company's total assets were $8,065,395 as of September 30, 1998,
compared to $13,081,248 as of December 31, 1997. The decline of assets, which is
within management's expectations, will continue as research and development
activities proceed, until and unless the Company successfully concludes and
receives funds as part of a corporate alliance, or from other financing
activities. As of September 30, 1998, the Company had outstanding current
liabilities of $656,017 as compared to $1,061,897 as of December 31, 1997. The
decrease in current liabilities from December 31, 1997 is due to the timing of
certain expense payments, and lower expenditures in the quarter subsequent to
submission of the Company's first NDA on July 1, 1998. Since its inception the
Company has had no long-term debt. The level of total expenditures for 1998 are
expected to be below that for 1997 due to the completion of the NDA during the
first half of the year and management's efforts to reduce spending in order to
conserve its resources while the NDA is being reviewed by the FDA.
The Company continues to pursue various options to strengthen its financial
position, preferably through a dermatology marketing alliance. While the
regulatory review of the Company's first NDA is underway, the Company is
continuing with preparations for manufacturing and commercialization of the
initial actinic keratoses ("AK") light and drug products. The Company's research
and development program is also continuing for the enhancement of bladder cancer
detection. Future funding of this and other potential indications will be
carefully reviewed and controlled in order for the Company to maintain its
operations and prepare for commercialization of its first product during the FDA
review of the AK NDA.
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<PAGE> 10
If it does not conclude a dermatology marketing alliance, the Company will
require additional funding to build up inventory and to market its first product
upon FDA approval. There is no way to predict the timing or magnitude of the
revenues from the marketing of the Company's products or whether any such
revenues will be realized.
The Company held United States government securities at a fair market value
as of $7,307,279 as of September 30, 1998, as compared to $8,733,875 as of
December 31, 1997. The Company does not expect the current volatility in the
stock markets to materially impact the market value of the Company's current
assets, as it only holds short-term US government securities. Maturity dates
have been selected to match the Company's requirement for cash for operations.
In the three-month period ending September 30, 1998, the Company incurred an
operational net loss of $1,119,414, compared to $1,886,289 for the three-month
period ended September 30, 1997. (See "Results of Operations").
Other than bladder cancer detection trials, the Company is planning a pilot
Phase I/II trial for the treatment of acne using 20% Levulan(R) and the
Blu-U(TM), and will be analyzing the results of a hair removal trial expected to
be completed late in 1998 or early 1999. The Company also intends to initiate
one or more additional pilot Phase I/II trials in 1999 subject to sufficient
resources being available. Full development and testing of these potential
indications will require additional funding. The timing of future expenditures
for these potential indications, and others such as endometrial ablation, will
be dependent on various factors, including the approval of the AK NDA, progress
on the Company's research and development programs, the results of preclinical
and clinical trials, the timing of regulatory marketing approvals, competitive
developments, payments under any collaborative arrangements, if any, entered
into by the Company and the availability of alternate financing. There can be no
assurance, however, that even if such funds were available that they would be
sufficient to enable the Company to obtain regulatory marketing approval or to
market any product for any of these indications. Consequently, in order to
maintain the current research and development program, including the bladder
cancer detection trials, throughout 1999 and beyond, it will be necessary to
raise additional funds through future corporate alliances, financings, or other
sources, and there can be no guarantee that such funds will be available.
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, and to provide
funding for certain research projects.
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<PAGE> 11
As stated above, during the quarter, the Company continued to support a
Phase I/II study analyzing the ability of Levulan(R) photodetection (PD) to
enhance the visual detection of bladder cancer. Although a full analysis will
not be possible until the study is completed, it appears (based upon partial
results of this study) that techniques used in the study may be complementary to
standard cystoscopy. Upon completion of this Phase I/II trial, DUSA intends to
fully evaluate the data in consultation with a panel of urology experts, in
order to determine how best to utilize Levulan(R) PD in the clinic.
At this time, DUSA plans to continue to support various lower-cost
corporate clinical studies and other independent investigator-sponsored studies
using ALA PDT/PD for a variety of dermatological and internal conditions. The
intention is to support studies which may lead to development of commercial
indications in the future. Some of these may be targeted for more advanced
development by the Company over the next 6-12 months, subject to appropriate
financing being available.
Results of Operations
The Company has had no sales to date. Interest income, earned primarily on
United States government securities, decreased to $112,122 for the three-month
period ended September 30, 1998, as compared to $213,543 for the three-month
period ended September 30, 1997, 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 September
30, 1998 was $5,312,998.
Research and development costs for the three-month period ended September
30, 1998 decreased significantly to $892,318 from $1,724,864 for the comparable
three-month period ended September 30, 1997. Last year at this time, research
and development costs were high as the Company was in the process of completing
its clinical trials for the AK indication and compiling the NDA for filing.
Also, while the Company pursues a dermatology alliance, it has reduced or
postponed certain research activities other than those for bladder cancer
detection or the activities described above in order to conserve its current
assets pending market approval of its first product. For 1999, research and
development costs other than pilot manufacturing and scale-up expenses are
expected to stabilize at third-quarter 1998 levels until/unless additional funds
are obtained through a strategic alliance and/or financing activities. Total
research and development costs for the cumulative period from February 21, 1991
(date of incorporation) to September 30, 1998 were $25,738,983. Costs and
development fees associated with all agreements for research
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<PAGE> 12
projects and clinical studies commit the Company to make payments of
approximately $288,600, for the remainder of 1998.
Operating expenses were $339,218 and $374,968 for the three-month periods
ended September 30, 1998, and September 30, 1997 respectively. Operating
expenses are expected to increase as the Company hires additional employees and
scales up the manufacturing for the commercial production of Levulan(R). To
reduce risks associated with reliance on third-party manufacturers, the Company
intends to lease manufacturing and office space in New England for several
additional employees and to purchase additional equipment, at the appropriate
time, in order to establish a second-source for manufacturing. The Company
anticipates that purchases of equipment also may be necessary for commercial
production of light devices and drug applicators at the Company's third-party
manufacturers' facilities (depending upon inventory requirements). There may be
expenses related to compliance with FDA's Good Manufacturing Practices and
inspections of the Company's and third-party's facilities. Any delay in meeting
GMPs could adversely affect the Company's ability to obtain final FDA marketing
approval of its product and delay potential revenues.
The Company incurred a net loss of $1,119,414, or $0.12 per share, for the
three-month period ended September 30, 1998, as compared to a net loss of
$1,886,289, or $0.20 per share, for the three-month period ended September 30,
1997. Net losses for the cumulative period from February 21, 1991 (date of
incorporation) to September 30, 1998 were $29,346,619, or $4.62 per share.
Liquidity and Capital Resources
The Company's United States government securities available for sale have
an aggregate cost of $7,298,275 and a current aggregate market value of
$7,307,279 as of September 30, 1998, resulting in a net unrealized gain on
securities available for sale of $9,004, which has been included in the
shareholders' equity. Some losses could be realized, depending upon the timing
of the Company's need to convert government securities into cash to meet its
working capital requirements. The Company's securities currently have interest
rates and yields ranging from 5.13% to 6.358%, and maturity dates ranging from
October 5, 1998 to August 10, 1999. Management is focusing its resources on
commercialization of its AK product and its bladder cancer detection trials to
enhance the Company's ability to sustain operations during the regulatory review
process of its first product using existing resources. Full development and
testing of other potential indications which are currently under development
will require additional funding (see "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
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<PAGE> 13
long-term basis. The Company believes that its current capital resources should
be sufficient through 1999 to support is current Levulan(R) PDT/PD program.
However, there can be no guarantee that this will be the case.
Consistent with its current plans to conserve resources, the Company has
agreed to enter an equipment lease with Lumenetics, Inc., its former light
device consultants whose principals became employees of the Company during the
second quarter. The Company had previously planned to acquire the equipment. The
equipment lease provides the Company with an option to acquire the equipment and
to apply a portion of the lease payments to the purchase price.
Year 2000 Compliance
The financial impact to the Company of Year 2000 compliance has not been
material to the Company's financial position or results of operation. The
Company's relatively new management information systems which were supplied and
are maintained by third-parties, have been certified as Year 2000 compliant.
However, because most computer systems are, by their very nature,
interdependent, it is possible that non-compliant third-party computers could
affect the Company's computer systems. The Company could be adversely affected
by the Year 2000 problem if unrelated parties fail to successfully address this
problem. The Company has begun to communicate with key unrelated parties and to
seek certifications by June 30, 1999 that such parties' systems are Year 2000
compliant. In the event such certifications are not available, the Company is
developing plans to evaluate the potential impact on the Company's operations,
and to prepare contingency plans, if such third-parties were unable to perform
their obligations to the Company. The costs incurred in addressing Year 2000
compliance are not considered at this time to be material and will be expensed
as incurred.
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, including, but not limited to statements regarding management's
expectations of a continuing decline in assets, the impact of volatile financial
markets, the regulatory approval and the commencement of sales of its Levulan(R)
AK product, the impact of Year 2000 problems, and the sufficiency of the
Company's cash flow for the Company's future liquidity and capital resource
needs for its research and development program to commercialize its AK product
and to maintain operations while awaiting approval of its NDA. 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 market
conditions, availability of light
-13-
<PAGE> 14
sources and drug supplies from third-party manufacturers meeting GMP
requirements, results of its clinical trials, the impact of competitive products
and pricing, the ability of the Company and third-party vendors to eliminate
Year 2000 issues, 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.
Inflation
Although inflation rates have been comparatively low in recent years,
inflation is expected to apply upward pressure on the operating costs of the
Company. The Company has included an inflation factor in its cost estimates,
however, the overall net effect of inflation on the operations of the Company
should be minimal.
-14-
<PAGE> 15
PART II- OTHER INFORMATION
Items 1-4.
None.
Item 5. Other Information.
The Securities and Exchange Commission amended Rules 14a-4 and 14a-5
promulgated under the Securities Exchange Act of 1934, as amended (the "1934
Act"), effective June 29, 1998, with respect to the Company's exercise of
discretionary voting authority at its annual shareholder meetings relative to
matters not submitted under the provisions of the Shareholder Proposal Rule set
forth in Rule 14a-8 of the 1934 Act.
Under the amended Rules, a company retains its discretionary voting
authority in those instances in which the company did not receive notice of the
matter at least 45 days before the month and date in the current year
corresponding to the date on which the company first mailed its proxy materials
for the prior year's annual meeting of shareholders, or by a date established by
an override advance notice provision in the company's articles of incorporation
or bylaws. The Company has not implemented such an override advance notice
provision at this time. Therefore, the date after which notice of a shareholder
proposal submitted outside of Rule 14a-8 of the 1934 Act will be considered
untimely for the 1999 Annual Shareholder's Meeting is March 13, 1999.
Item 6. Exhibits.
a) Exhibits 27 - Financial Data Schedule, which is submitted electronically
to the Securities and Exchange Commission for information only and not
filed.
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 November 9, 1998 BY: /s/D. GEOFFREY SHULMAN
------------------- ------------------------------------
D. GEOFFREY SHULMAN, MD, FRCPC
PRESIDENT, CHIEF EXECUTIVE OFFICER,
AND CHIEF FINANCIAL OFFICER
-15-
<PAGE> 16
EXHIBIT INDEX
Exhibit No. Description
27 Financial Data Schedule, which is submitted electronically
to the Securities and Exchange Commission for information
only and not filed.
-16-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED BALANCE SHEETS, CONSOLIDATED STATEMENTS OF OPERATIONS
AND CONSOLIDATED STATEMENTS OF CASH FLOWS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FORM 10-Q FOR THE QUARTER ENDING SEPTEMBER 30, 1998.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 425,878
<SECURITIES> 7,307,279
<RECEIVABLES> 33,432
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 7,915,613
<PP&E> 149,782
<DEPRECIATION> 0
<TOTAL-ASSETS> 8,065,395
<CURRENT-LIABILITIES> 656,017
<BONDS> 0
0
0
<COMMON> 36,746,993
<OTHER-SE> (29,346,619)
<TOTAL-LIABILITY-AND-EQUITY> 8,065,395
<SALES> 0
<TOTAL-REVENUES> 407,388
<CGS> 0
<TOTAL-COSTS> 3,673,838
<OTHER-EXPENSES> 1,379,605
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (4,645,600)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,645,600)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,645,600)
<EPS-PRIMARY> (0.50)
<EPS-DILUTED> (0.50)
</TABLE>
