are registered trademarks. Several of these trademarks are also registered in Europe, Australia, Canada, and in other parts of the world. Numerous other trademark applications are pending.
As of March 31, 2009, we had an accumulated deficit of approximately $143,458,000. We cannot predict whether any of our products will achieve significant enough market acceptance or generate sufficient revenues to enable us to become profitable on a sustainable basis. If our domestic PDT revenue growth rates for the remainder of 2009 are comparable to prior year levels, we expect to become cash flow positive and profitable on a quarterly basis sometime late in 2009. We recorded significant impairment changes of goodwill during the fourth quarter of 2007 and the third quarter of 2008. Achieving our goal of becoming a profitable operating company is dependent upon greater acceptance of our PDT therapy by the medical and consumer constituencies, increased sales of our products and other factors contained in this report.
CRITICAL ACCOUNTING POLICIES
Our accounting policies are disclosed in Note 2 to the Notes to the Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2008. Since all of these accounting policies do not require management to make difficult, subjective or complex judgments or estimates, they are not all considered critical accounting policies. We have discussed these policies and the underlying estimates used in applying these accounting policies with our Audit Committee. There have been no changes to our critical accounting policies in the three months ended March 31, 2009.

RESULTS OF OPERATIONS - THREE MONTHS ENDING MARCH 31, 2009 VERSUS MARCH 31, 2008
REVENUES - Total revenues for the three-month period ended March 31, 2009 were
$7,138,000, as compared to $7,930,000 in 2008 and were comprised of the
following:

                                                              2009                 2008             Increase/(Decrease)

PDT PRODUCT REVENUES

LEVULAN® KERASTICK® PRODUCT REVENUES
United States                                             $ 5,685,000          $ 4,774,000          $          911,000
Canada                                                        135,000              159,000                     (24,000 )
Korea                                                         170,000              365,000                    (195,000 )
Rest of world                                                  87,000               56,000                      31,000


Subtotal Levulan® Kerastick® product revenues               6,077,000            5,354,000                     723,000

BLU-U® PRODUCT REVENUES
United States                                                 642,000              476,000                     166,000

Subtotal BLU-U® product revenues                              642,000              476,000                     166,000

TOTAL PDT PRODUCT REVENUES                                  6,719,000            5,830,000                     889,000

TOTAL NON-PDT DRUG PRODUCT REVENUES                           419,000            2,100,000                  (1,681,000 )


TOTAL PRODUCT REVENUES                                    $ 7,138,000          $ 7,930,000          $         (792,000 )

For the three-month period ended March 31, 2009, total PDT Drug and Device Products revenues, comprised of revenues from our Kerastick® and BLU-U® products, were $6,719,000. This represents an increase of $889,000 or 15%, over the comparable 2008 total of $5,830,000. The increase in revenues was driven primarily by increased Kerastick® and BLU-U® revenues in the United States. For the three-month period ended March 31, 2009, Kerastick® revenues were $6,077,000, representing an increase of $723,000 or 13%, over the comparable 2008 total of $5,354,000. Kerastick® unit sales to end-users for the three-month period ended March 31, 2009 were 51,947, including 46,662 sold in the United States, 1,500 sold in Canada and 2,274 sold in Korea. Kerastick® units sold in the three-month period ended March 31, 2008 were 52,110, including 43,296 sold in the United States, 2,100 sold in Canada and 6,036 sold in Korea. Our average net selling price for the Kerastick® increased to $115.36 per unit for the three-month period ended March 31, 2009 from $101.33 per unit in 2008. Our average net selling price for the Kerastick® in the US increased from $110.26 per unit in 2008 to $121.83 per unit in 2009. The increase in 2009 Kerastick® revenues was driven mainly by an increase in both sales volumes and average net selling price in the United States, partially offset by a decrease in international Kerastick® revenues. The decrease in Korea is attributable to the purchase of launch quantities in the 2008 period.
For the three-month period ended March 31, 2009, BLU-U® revenues were $642,000, representing a $166,000 or a 35% increase, over the comparable 2008 total of $476,000. The increase in 2009 BLU-U® revenues was driven by increased overall sales volumes, offset in part by a decrease in our average selling price. In the three-month period ended March 31, 2009, there were 81 units sold, versus 56 units in 2008. All of the units sold in both years were sold in the United States. Our average net selling price for the BLU-U® decreased to $7,589 for the three-month period ended March 31, 2009 from $8,245 for 2008. Our BLU-U® evaluation program allows customers to take delivery for a limited number of BLU-U® units for a period of up to four months for private practitioners and up to

one year for hospital clinics, before a purchase decision is required. At March 31, 2009, there were approximately 31 units in the field pursuant to this evaluation program, compared to 58 units in the field at December 31, 2008. The units are classified as inventory in the financial statements and are being amortized during the evaluation period to cost of goods sold using an estimated life for the equipment of three years.
Non-PDT Drug Product Revenues reflect the revenues generated by the products acquired as part of our acquisition of Sirius. Total Non-PDT drug product revenues for the three-month period ended March 31, 2009 were $419,000, compared to $2,100,000 for the comparable 2008 period. The substantial majority of the Non-PDT product revenues were from Nicomide® related royalties and sales of ClindaReach®. In April 2008, we were notified by Actavis Totowa, LLC, the manufacturer of Nicomide®, that Actavis would cease manufacturing several prescription vitamins, including Nicomide®, due to continuing discussions with the FDA. As we previously disclosed, Actavis Totowa had received notice that the FDA considers prescription dietary supplements to be unapproved new drugs. In response to this notification and subsequent discussions with the FDA, we stopped the sale and distribution of Nicomide®as a prescription product in June 2008.
On August 12, 2008, we entered into a worldwide non-exclusive patent License Agreement to our patent covering Nicomide® with River's Edge Pharmaceuticals, LLC and an amendment to our Settlement Agreement with River's Edge. The amendment to the Settlement Agreement, which has been further amended as described further in Note 16 Subsequent Events to the Condensed Consolidated Financial Statements, allowed River's Edge to manufacture and market a product that could be substitutable for Nicomide® pursuant to the terms of the License Agreement and changed certain payment obligations of River's Edge for sales of its substitutable product. In consideration for granting the license, we were paid a share of the net revenues, as defined in the License Agreement, of River's Edge's licensed product sales under the License Agreement. The Settlement Agreement and the subsequent amendment are described in Notes 15 and 16 to the Condensed Consolidated Financial Statements.
The decrease in our total revenues for the three month period ended March 31, 2009 compared with the comparable period in 2008 results from decreases in Non-PDT revenues and international Kerastick® revenues, partially offset by increased PDT segment revenues in the United States. We must continue to increase sales from these levels in order for us to become profitable. PhotoCure received FDA approval to market Metvixia® for treatment of AKs in July 2004, and this product, which is directly competitive with our Levulan®Kerastick® product, is now commercially available. While we are entitled to royalties from PhotoCure on its net sales of Metvixia®, a large dermatology company has the marketing rights in the U.S., which may adversely affect our ability to maintain or increase our Levulan® market. Nonetheless, we remain confident that PDT revenues in the United States should continue to increase through increased consumption of our PDT products by our existing customers, as well as the addition of new customers. We expect to be able to grow our PDT segment revenues in the United States during 2009, due in part to the 6% increase in reimbursement of our PDT-related procedure fee, which became effective January 1, 2009, as well as our price increases, which were effective October 1, 2008 and January 1, 2009. We also believe that these two price increases may have impacted the purchasing patterns of our larger customers during this quarter. Although we expect growth in our PDT segment revenues, a portion of our customer base, i.e., those focusing on the cosmetic market, are more susceptible to the uncertain economic conditions facing our markets, and reduced sales to that customer base could be expected until the economy recovers. The vast majority of our international sales and medi-spa sales fall into this market. We expect our Non-PDT revenues for 2009 to be significantly reduced compared to 2008 since, although we are receiving royalties, we are no longer manufacturing and marketing Nicomide® as a prescription product and we licensed the AVAR product line.
COST OF PRODUCT REVENUES - Cost of product revenues for the three-month period ended March 31, 2009 were $1,938,000 as compared to $1,701,000 in 2008. A summary of the components of cost of product revenues and royalties is provided below:

                                                                                                   Increase/
                                                              2009                2008            (Decrease)

Levulan® Kerastick® Cost of Product Revenues and
Royalties
Direct Levulan® Kerastick® Product costs                  $   564,000          $ 638,000          $ (74,000 )
Other Levulan® Kerastick® production costs
including internal costs assigned to support
products, net                                                 359,000             10,000            349,000
Royalty and supply fees                                       253,000            248,000              5,000


Subtotal Levulan® Kerastick® Cost of Product
Revenues and Royalties                                      1,176,000            896,000            280,000

BLU-U® Cost of Product Revenues

Direct BLU-U® Product Costs                                   291,000            201,000             90,000

Other BLU-U® Product Costs including internal costs
assigned to support products; as well as, costs
incurred to ship, install and service the BLU-U® in
physicians offices                                            248,000            177,000             71,000


Subtotal BLU-U® Cost of Product Revenues                      539,000            378,000            161,000

                                                                                                     Increase/
                                                              2009                 2008              (Decrease)

TOTAL PDT DRUG AND DEVICE COST OF PRODUCT REVENUES
AND ROYALTIES                                               1,715,000            1,274,000             441,000

Non-PDT Drug Cost of Product Revenues and Royalties           223,000              427,000            (204,000 )


TOTAL COST OF PRODUCT REVENUES AND ROYALTIES              $ 1,938,000          $ 1,701,000          $  237,000

MARGINS - Total product margins for the three-month period ended March 31, 2009 was $5,200,000 as compared to $6,229,000 for the comparable 2008 period, as shown below:

                                                                                                        Increase/
                                        2009                             2008                           (Decrease)
Levulan® Kerastick® Gross
Margin                               $ 4,901,000            81 %      $ 4,458,000            83 %      $    443,000
BLU-U® Gross Margin                      103,000            16 %           98,000            21 %             5,000


Total PDT Drug and Device Gross
Margin                               $ 5,004,000            74 %      $ 4,556,000            78 %      $    448,000


Total Non-PDT Drug Gross Margin          196,000            47 %      $ 1,673,000            80 %        (1,477,000 )


TOTAL GROSS MARGIN                   $ 5,200,000            73 %      $ 6,229,000            79 %      $ (1,029,000 )

Kerastick® gross margins for the three-month period ended March 31, 2009 were 81% versus 83% for the comparable 2008 period. The decrease in the Kerastick® margin is mainly attributable to the absence of production volumes associated with initial stocking orders from our international partners, which occurred in the first quarter of 2008, partially offset by an increase in both sales volumes and the average selling price in the U.S. Our long-term goal is to achieve higher gross margins on Kerastick® sales which will be significantly dependent on increased volume. We believe that we can achieve improved gross margins on our Kerastick® during 2009 due to the anticipated increased volumes from continued growth in the U.S.
BLU-U® margins for the three month period ended March 31, 2009 were 16% versus 21% for the comparable 2008 period. The decrease in gross margin is a result of a decrease in the average selling price per unit; as well as, increased overall costs incurred to support the product line. Our short-term strategy is to at a minimum breakeven on device sales in an effort to drive Kerastick® sales volumes.
Non-PDT Drug Product Margins reflect the gross margin generated by the products acquired as part of our merger with Sirius. Total margin for the three-month period ended March 31, 2009 was 47% compared with 80% for the comparable period in 2008. Non-PDT Product margins in 2009 were negatively impacted by our discontinuance of sales of Nicomide® as a prescription product. RESEARCH AND DEVELOPMENT COSTS - Research and development costs for the three-month period ended March 31, 2009 were $1,185,000 as compared to $2,186,000 in the comparable 2008 period. The decrease in 2009 compared to 2008 was due primarily to the absence of spending related to our Phase IIb clinical trial on acne, which concluded in October 2008, and a one-time $0.6 million Prescription Drug User Fee Act (PDUFA) charge, which occurred in the first quarter of 2008, related to our approved AK indication.
Based on the results of the Phase IIb clinical trial, which were previously announced, we will not pursue further clinical development of Levulan® PDT with BLU-U® for moderate to severe acne. However, we do expect to continue to support investigator initiated studies in moderate to severe acne with Levulan and various light sources. In May 2009 we filed a 510(k) application with the FDA for an expansion of our BLU-U® label to include severe acne. We previously had filed a patent application to cover an invention arising from the study. We initiated a Phase II pilot clinical trial, which we expect will include up to 36 patients at multiple centers across the United States, for the treatment of actinic keratoses and reduction of non-melanoma skin cancers in immunosuppressed solid organ transplant recipients, or SOTR, who have demonstrated that they are at risk of developing multiple squamous cell carcinomas. An Orphan Drug Designation Application with respect to the prevention of cancer occurrence in these patients is pending with the FDA, and we expect a decision by FDA by the end of the second quarter of 2009. We expect enrollment of these patients to take approximately one year. We expect to receive preliminary results from the study in approximately 15 months and full results in approximately two years. We expect that our overall research and development costs for 2009 will remain below 2008 levels since we will not have expenditures relating to the acne trial.
We have entered into a series of agreements for our research projects and clinical studies. As of March 31, 2009 future minimum payments to be made pursuant to these agreements, under certain terms and conditions, total approximately $788,000 for the remainder of 2009.
MARKETING AND SALES COSTS - Marketing and sales costs for the three-month period ended March 31, 2009 were $3,410,000 as compared to $3,057,000 for the comparable 2008 period. These costs consisted primarily of expenses such as salaries and benefits for the marketing and sales staff, commissions, and related support expenses such as travel, and telephone, totaling $2,309,000 for the three-month period ended March 31, 2009, compared to $2,057,000 in the comparable 2008 period. The increase in this category is

due to primarily to increased headcount. The remaining expenses consisted of tradeshows, miscellaneous marketing and outside consultants totaling $1,101,000 for the three-month period ended March 31, 2009, compared to $1,000,000 for the comparable 2008 period. The increase in this category is due primarily to an increase in tradeshow related expenditures. We expect marketing and sales costs for the full year 2009 to increase slightly over 2008 levels, but to decrease as a percentage of revenues.
GENERAL AND ADMINISTRATIVE COSTS - General and administrative costs for the three-month period ended March 31, 2009 were $2,141,000 as compared to $2,368,000 for the comparable 2008 period. The decrease is mainly attributable to a decrease in compensation related costs, offset by an increase in legal expenses. General and administrative expenses are highly dependent on our legal and other professional fees, which can vary significantly from period to period particularly in light of our litigation strategy to protect our intellectual property. We may incur significant legal fees in 2009 due to the arbitration process which has been commenced by Winston Laboratories. See Note 17 to the Condensed Consolidated Financial Statements.
NET GAIN FROM SETTLEMENT OF LITIGATION - During the fourth quarter of 2007, we entered into a Settlement Agreement and Mutual Release with River's Edge Pharmaceuticals, LLC. Under the terms of the Settlement Agreement, River's Edge made a lump-sum settlement payment to us in the amount of $425,000 for damages and paid to DUSA $25.00 for every prescription of NIC 750 above 5,000 prescriptions that were substituted for Nicomide® from September 30, 2007 through June 30, 2008. During the three-month periods ended March 31, 2009 and 2008 the net gain from settlement of litigation was $0 and $236,000, respectively. These payments under the Settlement Agreement ceased due to an amendment effective as of July 3, 2008. See Note 15 to the Condensed Consolidated Financial Statements.
OTHER INCOME, NET - Other income for the three-month period ended March 31, 2009, decreased to $65,000, as compared to $207,000 during the same period in 2008. This decrease reflects a decrease in our average investable cash balances during 2009 as compared to 2008 along with a general decrease in interest rates over the same timeframe.
LOSS ON CHANGE IN FAIR VALUE OF WARRANTS - The warrants issued to investors in connection with the October 29, 2007 private placement were recorded initially at fair value and are marked to market each reporting period. The increase in the liability during the three month periods ended March 31, 2009 and 2008 was $135,000 and $345,000, respectively, which resulted in a non-cash loss in both periods. The increases in fair value were due primarily to increases in our stock price during both quarters.
NET LOSS - We incurred a net loss of $1,607,000, or $0.07 per share, for the three-month period ended March 31, 2009, as compared to a net loss of $1,284,000, or $0.05 per share, for the comparable 2008 period. The increase in the net loss is attributable to the reasons discussed above.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2009, we had approximately $17,911,000 of total liquid assets, comprised of $3,671,000 of cash and cash equivalents and marketable securities available-for-sale totaling $14,240,000. We believe that our liquidity will be sufficient to meet our cash requirements for at least the next twelve months based on our projections of revenues and spending over that timeframe. We have invested our funds in liquid investments, so that we will have ready access to these cash reserves, as needed, for the funding of development plans on a short-term and long-term basis. As of March 31, 2009, these securities had a weighted average yield of 2.98% and maturity dates ranging from May 2009 to January 2013. Our net cash used in operations for the three-month period ended March 31, 2009 was $841,000, versus $5,000 provided by operations in the comparable prior year period. The year over year decrease in cash from operations is primarily attributable to an increase in our net loss as well as a decrease in payments received from our international distributor partners primarily from a one-time milestone payment and purchase of launch quantities and the absence of a bonus payout in 2008. As of March 31, 2009 working capital (total current assets minus total current liabilities) was $18,464,000, as compared to $20,278,000 as of December 31, 2008. Total current assets decreased by $1,984,000 during the three-month period ended March 31, 2009, due primarily to decreases in our marketable securities, accounts receivable, inventory and prepaid and other current asset balances. Total current liabilities decreased by $170,000 during the same period due primarily to a decrease in accrued compensation, partially offset by an increase in other accrued expenses and the . . .