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<!--DOCTYPE html PUBLIC "-//W3C//DTD XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd" -->
<!-- Begin Block Tagged Note 1 - us-gaap:OrganizationConsolidationAndPresentationOfFinancialStatementsDisclosureTextBlock-->
<!-- xbrl,ns -->
<!-- xbrl,nx -->
<div style="font-family: 'Times New Roman',Times,serif">
<div align="left">
</div>
<div align="left" style="font-size: 10pt; margin-top: 0pt"><b></b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 0pt"><b></b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 12pt"><b>1) BASIS OF PRESENTATION</b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">The Condensed Consolidated Balance Sheet as of June 30, 2011, the Condensed Consolidated Statements
of Operations for the three and six-month periods ended June 30, 2011 and 2010, and the Condensed
Consolidated Statements of Cash Flows for the six-month periods ended June 30, 2011 and 2010 of
DUSA Pharmaceuticals, Inc. (the “Company” or “DUSA”) have been prepared in accordance with
accounting principles generally accepted in the United States of America (“U.S. GAAP”). These
condensed consolidated financial statements are unaudited but include all normal recurring
adjustments, which management of the Company believes to be necessary for fair presentation of the
periods presented. The results of the Company’s operations for any interim period are not
necessarily indicative of the results of the Company’s operations for any other interim period or
for a full year.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">Certain information and footnote disclosures normally included in financial statements prepared in
accordance with U.S. GAAP have been condensed or omitted. These condensed consolidated financial
statements should be read in conjunction with the Consolidated Financial Statements and Notes to
the Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended
December 31, 2010 filed with the Securities and Exchange Commission. The Condensed Consolidated
Balance Sheet as of December 31, 2010 included herein was derived from the audited financial
statements at that date but does not include all of the information and footnotes required by U.S.
GAAP for complete financial statements.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">The Company considers events or transactions that occur after the balance sheet date but before the
financial statements are issued to provide additional evidence relative to certain estimates or to
identify matters that require disclosure. Subsequent events have been evaluated through the date
of issuance of these financial statements.
</div>
</div>
<!--DOCTYPE html PUBLIC "-//W3C//DTD XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd" -->
<!-- Begin Block Tagged Note 2 - us-gaap:ScheduleOfNewAccountingPronouncementsAndChangesInAccountingPrinciplesTextBlock-->
<div style="font-family: 'Times New Roman',Times,serif">
<div align="left" style="font-size: 10pt; margin-top: 12pt"><b>2) NEW ACCOUNTING PRONOUNCEMENTS</b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">In June 2011, the FASB issued Accounting Standards Update (ASU) No. 2011-05, “ <i>Comprehensive Income
(Topic 220) </i>” (ASU 2011-05). This newly issued accounting standard (1) eliminates the option to
present the components of other comprehensive income as part of the statement of changes in
stockholders’ equity; (2) requires the consecutive presentation of the statement of net income and
other comprehensive income; and (3) requires an entity to present reclassification adjustments on
the face of the financial statements from other comprehensive income to net income. The amendments
in this ASU do not change the items that must be reported in other comprehensive income or when an
item of other comprehensive income must be reclassified to net income nor do the amendments affect
how earnings per share is calculated or presented. This ASU is required to be applied
retrospectively and is effective for fiscal years and interim periods within those years beginning
after December 15, 2011, which for the Company means January 1, 2012. As this accounting standard
only requires enhanced disclosure, the adoption of this standard will not impact our financial
position or results of operations.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">In May 2011, the FASB issued ASU No. 2011-04, “ <i>Fair Value Measurement (Topic 820): Amendments
to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs </i>” (ASU
2011-04). This newly issued accounting standard clarifies the application of certain existing fair
value measurement guidance and expands the disclosures for fair value measurements that are
estimated using significant unobservable (Level 3) inputs. This ASU is effective on a prospective
basis for annual and interim reporting periods beginning on or after December 15, 2011, which for
the Company means January 1, 2012. We do not expect that adoption of this standard will have a
material impact on our financial position or results of operations.
</div>
</div>
<!--DOCTYPE html PUBLIC "-//W3C//DTD XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd" -->
<!-- Begin Block Tagged Note 3 - dusa:FinancialInstrumentsTextBlock-->
<div style="font-family: 'Times New Roman',Times,serif">
<div align="left" style="font-size: 10pt; margin-top: 12pt"><b>3) FINANCIAL INSTRUMENTS</b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt"><i>Fair Value Measurements</i>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     Fair value is defined as the price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at the measurement date. In order
to increase consistency and comparability in fair value measurements, financial instruments are
categorized based on a hierarchy that prioritizes observable and unobservable inputs used to
measure fair value into three broad levels, which are described below:
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">Level 1: Quoted market prices in active markets for identical assets or liabilities. Level 1
primarily consists of financial instruments whose value is based on quoted market prices such as
exchange-traded instruments and listed equities.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">Level 2: Observable market based inputs or unobservable inputs that are corroborated by market
data. Level 2 consists of financial instruments that are valued using quoted market prices, broker
or dealer quotations, or alternative pricing sources with reasonable levels of price transparency
in the determination of value. The Company accesses publicly available market activity from
third-party databases and credit ratings of the issuers of the securities it holds to corroborate
the data used in the fair value calculations obtained from its primary pricing source. The Company
also takes into account credit rating changes, if any, of the securities or recent marketplace
activity.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">Level 3: Unobservable inputs that are not corroborated by market data. Level 3 is comprised of
financial instruments whose fair value is estimated based on internally developed models or
methodologies utilizing significant inputs that are generally less readily observable. We
initially recorded the warrant liability at its fair value using the Black-Scholes option-pricing
model and revalue it at each reporting date until the warrants are exercised or expire. The fair
value of the warrants is subject to significant fluctuation based on changes in our stock price,
expected volatility, remaining contractual life and the risk-free interest rate.
</div>
<!-- Folio -->
<!-- /Folio -->
</div>
<!-- PAGEBREAK -->
<div style="font-family: 'Times New Roman',Times,serif">
<div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">     The Company’s cash equivalents and investments are classified within Level 1 or Level 2 of the
fair value hierarchy because they are valued using quoted market prices, or broker dealer
quotations and matrix pricing compiled by third party pricing vendors, respectively, which are
based on third party pricing sources with reasonable levels of price transparency. The Company’s
investments are valued based on a market approach in which all significant inputs are observable
or can be derived from or corroborated by observable market data such as interest rates, yield
curves, and credit risk.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">The following table presents the Company’s financial instruments recorded at fair value in the
Condensed Consolidated Balance Sheet, classified according to the three categories described
above:
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="52%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="10" style="border-bottom: 0px solid #000000"><b>Fair Value Measurements at June 30, 2011</b></td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Carrying Value</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>(Level 1)</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>(Level 2)</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>(Level 3)</b></td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px"><b>Assets</b>
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Cash and cash equivalents
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">20,743,000</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">20,743,000</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">—</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">United States government-backed securities
</div></td>
<td> </td>
<td> </td>
<td align="right">2,831,000</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">2,831,000</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Corporate securities
</div></td>
<td> </td>
<td> </td>
<td align="right">547,000</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">547,000</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Total assets at fair value
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">24,121,000</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">20,743,000</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">3,378,000</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">—</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px"><b>Liabilities</b>
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Warrant liability
</div></td>
<td> </td>
<td> </td>
<td align="right">4,268,000</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">4,268,000</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Total liabilities at fair value
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">4,268,000</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">4,268,000</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<!-- End Table Body -->
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="52%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="10" style="border-bottom: 0px solid #000000"><b>Fair Value Measurements at December 31, 2010</b></td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Carrying Value</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>(Level 1)</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>(Level 2)</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>(Level 3)</b></td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px"><b>Assets</b>
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Cash and cash equivalents
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">8,884,000</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">8,884,000</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">—</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">United States government-backed securities
</div></td>
<td> </td>
<td> </td>
<td align="right">9,985,000</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">9,985,000</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Corporate securities
</div></td>
<td> </td>
<td> </td>
<td align="right">778,000</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">778,000</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Total assets at fair value
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">19,647,000</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">8,884,000</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">10,763,000</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">—</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px"><b>Liabilities</b>
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Warrant liability
</div></td>
<td> </td>
<td> </td>
<td align="right">1,204,000</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">1,204,000</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Total liabilities at fair value
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">1,204,000</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">1,204,000</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     The Company reviewed the level classifications of its investments at June 30, 2011
compared to December 31, 2010 and determined that there were no significant transfers between
levels in the six-month period ended June 30, 2011.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     The table below includes a rollforward of the balance sheet amounts for the six-month periods
ended June 30, 2011 and 2010 for the warrant liability, which is classified as Level 3. When a
determination is made to classify a financial instrument within Level 3, the determination is based
upon the significance of the unobservable parameters to the overall fair value measurement.
However, Level 3 financial instruments typically include, in addition to the unobservable
components, observable components (that is, components that are actively quoted and can be
validated to external sources). Accordingly, the gains and losses in the table below include
changes in fair value due in part to observable factors that are part of the methodology.
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="28%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="22"><b>Fair Value Measurements Using Significant Unobservable Inputs (Level 3)</b></td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="22" style="border-bottom: 1px solid #000000"><b>Three-Month Period Ended June 30, 2011</b></td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Total</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"> </td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Unrealized</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Purchases,</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"> </td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Fair Value</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Loss</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Sales,</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Transfers</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"> </td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>at</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Recognized in</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Issuances,</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>In and/or</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Fair Value at</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Change in</b></td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>April 1,</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Statement</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Settlements,</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Out of</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>June 30,</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Unrealized</b></td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2011</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Of Operations</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>net</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Level 3</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2011</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Losses in 2011</b></td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Warrant Liability
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">3,393,000</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">875,000</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">4,268,000</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="left">$</td>
<td align="right">(875,000</td>
<td nowrap="nowrap">)</td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<!-- Folio -->
<!-- /Folio -->
</div>
<!-- PAGEBREAK -->
<div style="font-family: 'Times New Roman',Times,serif">
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="28%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="22"><b>Fair Value Measurements Using Significant Unobservable Inputs (Level 3)</b></td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="22" style="border-bottom: 1px solid #000000"><b>Three-Month Period Ended June 30, 2010</b></td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Total</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"> </td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Unrealized</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Purchases,</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"> </td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Loss</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Sales,</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Transfers</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"> </td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Fair Value at</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Recognized in</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Issuances,</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>In and/or</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Fair Value at</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Change in</b></td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>April 1,</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Statement Of</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Settlements,</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Out of</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>June 30</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Unrealized</b></td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2010</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Operations</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>net</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Level 3</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2010</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Gains in 2010</b></td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Warrant Liability
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">1,012,000</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">157,000</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">1,169,000</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="left">$</td>
<td align="right">(157,000</td>
<td nowrap="nowrap">)</td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="28%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="22" style="border-bottom: 1px solid #000000"><b>Six-Month Period Ended June 30, 2011</b></td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Total</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"> </td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Unrealized</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Purchases,</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"> </td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Fair Value</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Loss</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Sales,</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Transfers</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"> </td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>at</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Recognized in</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Issuances,</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>In and/or</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Fair Value at</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Change in</b></td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>January 1,</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Statement Of</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Settlements,</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Out of</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>June 30,</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Unrealized</b></td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2011</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Operations</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>net</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Level 3</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2011</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Losses in 2011</b></td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Warrant Liability
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">1,204,000</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">3,064,000</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">4,268,000</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="left">$</td>
<td align="right">(3,064,000</td>
<td nowrap="nowrap">)</td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="28%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="22"><b>Fair Value Measurements Using Significant Unobservable Inputs (Level 3)</b></td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="22" style="border-bottom: 1px solid #000000"><b>Six-Month Period Ended June 30, 2010</b></td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Total</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"> </td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Unrealized</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Purchases,</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"> </td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Loss</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Sales,</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Transfers</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"> </td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Fair Value at</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Recognized in</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Issuances,</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>In and/or</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Fair Value at</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Change in</b></td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>January 1,</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Statement Of</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Settlements,</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Out of</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>June 30</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Unrealized</b></td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2010</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Operations</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>net</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Level 3</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2010</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Gains in 2010</b></td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Warrant Liability
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">813,000</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">356,000</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">1,169,000</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="left">$</td>
<td align="right">(356,000</td>
<td nowrap="nowrap">)</td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<div align="left" style="font-size: 10pt; margin-top: 12pt"><i>Marketable Securities</i>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     The Company’s marketable securities consist of the following:
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="52%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="14" style="border-bottom: 1px solid #000000"><b>June 30, 2011</b></td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Gross</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Gross</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"> </td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Amortized</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Unrealized</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Unrealized</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Fair</b></td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Cost</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Gains</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Losses</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Value</b></td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:30px; text-indent:-15px">United States government-backed securities
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">2,804,000</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">27,000</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">2,831,000</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:30px; text-indent:-15px">Corporate securities
</div></td>
<td> </td>
<td> </td>
<td align="right">525,000</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">22,000</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">547,000</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:30px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Total marketable securities
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">3,329,000</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">49,000</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">3,378,000</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:30px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="52%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="14" style="border-bottom: 1px solid #000000"><b>December 31, 2010</b></td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Gross</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Gross</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"> </td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Amortized</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Unrealized</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Unrealized</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Fair</b></td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Cost</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Gains</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Losses</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Value</b></td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:30px; text-indent:-15px">United States government-backed securities
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">9,954,000</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">34,000</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="left">$</td>
<td align="right">(3,000</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td align="left">$</td>
<td align="right">9,985,000</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:30px; text-indent:-15px">Corporate securities
</div></td>
<td> </td>
<td> </td>
<td align="right">732,000</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">46,000</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">778,000</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:30px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Total marketable securities
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">10,686,000</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">80,000</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="left">$</td>
<td align="right">(3,000</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td align="left">$</td>
<td align="right">10,763,000</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:30px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     The Company amortizes or accretes the premiums and discounts paid for the securities
into interest income over the period to maturity of the securities. The decrease in net unrealized
gains on such securities for the six-month periods ended June 30, 2011 and 2010 was $28,000 and
$75,000, respectively, which has been recorded in accumulated other comprehensive income and is
reported as part of shareholders’ equity in the Condensed Consolidated Balance Sheets. Realized
losses on sales of marketable securities were $0 for the six-month periods ended June 30, 2011 and
2010. As of June 30, 2011, current yields range from 0.21% to 6.27% and maturity dates range from
July 2011 to January 2013.
</div>
<div align="left" style="font-size: 10pt; margin-top: 12pt"><i>Common Stock Warrants</i>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     Upon issuance of the warrants on October 29, 2007, the Company recorded the warrant liability
at its initial fair value of $1,950,000. Warrants that are classified as a liability are revalued
at each reporting date until the warrants are exercised or expire with changes in the fair value
reported in the Company’s Condensed Consolidated Statements of Operations as gain or loss on fair
value of warrants. Non-cash losses
for the three and six-month periods ended June 30, 2011 were
$875,000 and $3,064,000, respectively, compared with $157,000 and $356,000, respectively, for the
comparable 2010 periods. At June 30, 2011 and December 31, 2010, the aggregate fair value of these
warrants was $4,268,000 and $1,204,000, respectively. Assumptions used for the Black-Scholes
option-pricing models in determining the fair value as of June 30, 2011 and December 31, 2010 are
as follows:
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="76%"> </td>
<td width="5%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="4%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="3" style="border-bottom: 1px solid #000000"><b>June 30,</b></td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="3" style="border-bottom: 1px solid #000000"><b>December 31,</b></td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="3" style="border-bottom: 1px solid #000000"><b>2011</b></td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="3" style="border-bottom: 1px solid #000000"><b>2010</b></td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Expected volatility
</div></td>
<td> </td>
<td nowrap="nowrap" align="right"> </td>
<td align="right">63.7</td>
<td nowrap="nowrap">%</td>
<td> </td>
<td nowrap="nowrap" align="right"> </td>
<td align="right">81</td>
<td nowrap="nowrap">%</td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Remaining contractual term (years)
</div></td>
<td> </td>
<td> </td>
<td align="right">1.8</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">2.3</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Risk-free interest rate
</div></td>
<td> </td>
<td nowrap="nowrap" align="right"> </td>
<td align="right">0.5</td>
<td nowrap="nowrap">%</td>
<td> </td>
<td nowrap="nowrap" align="right"> </td>
<td align="right">0.7</td>
<td nowrap="nowrap">%</td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Expected dividend yield
</div></td>
<td> </td>
<td nowrap="nowrap" align="right"> </td>
<td align="right">0</td>
<td nowrap="nowrap">%</td>
<td> </td>
<td nowrap="nowrap" align="right"> </td>
<td align="right">0</td>
<td nowrap="nowrap">%</td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Common stock price
</div></td>
<td> </td>
<td align="right">$</td>
<td align="right">6.22</td>
<td> </td>
<td> </td>
<td align="right">$</td>
<td align="right">2.45</td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
</div>
<!--DOCTYPE html PUBLIC "-//W3C//DTD XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd" -->
<!-- Begin Block Tagged Note 4 - us-gaap:SchedulesOfConcentrationOfRiskByRiskFactorTextBlock-->
<div style="font-family: 'Times New Roman',Times,serif">
<div align="left" style="font-size: 10pt; margin-top: 12pt"><b>4) CONCENTRATIONS</b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">The Company invests cash in accordance with a policy objective that seeks to preserve both
liquidity and safety of principal. The Company manages the credit risk associated with its
investments in marketable securities by investing in U.S. government securities and investment
grade corporate bonds. The Company’s exposure to credit risk relating to its accounts receivable is
limited. To manage credit risk in accounts receivable, the Company performs regular credit
evaluations of its customers and provides allowances for potential credit losses, when applicable.
At June 30, 2011, one customer represented 12% of the Company’s accounts receivable balance. The
Company is dependent upon sole-source suppliers for a number of its products. There can be no
assurance that these suppliers will be able to meet the Company’s future requirements for such
products or parts or that they will be available at favorable terms. Any extended interruption in
the supply of any such products or parts or any significant price increase could have a material
adverse effect on the Company’s operating results in any given period.
</div>
</div>
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<!-- Begin Block Tagged Note 5 - us-gaap:InventoryDisclosureTextBlock-->
<div style="font-family: 'Times New Roman',Times,serif">
<div align="left" style="font-size: 10pt; margin-top: 12pt"><b>5) INVENTORY</b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">Inventory consisted of the following:
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="76%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">June 30,</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">December 31,</td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">2011</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">2010</td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr style="font-size: 1px">
<td> </td>
<td> </td>
<td colspan="7" align="left" style="border-top: 1px solid #000000"> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Finished goods
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">1,554,000</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">907,000</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">BLU-U<sup style="font-size: 85%; vertical-align: text-top">®</sup> evaluation units
</div></td>
<td> </td>
<td> </td>
<td align="right">86,000</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">129,000</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Work in process
</div></td>
<td> </td>
<td> </td>
<td align="right">158,000</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">371,000</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Raw materials
</div></td>
<td> </td>
<td> </td>
<td align="right">1,188,000</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">758,000</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td> </td>
<td> </td>
<td colspan="7" align="left" style="border-top: 1px solid #000000"> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:30px; text-indent:-15px">Total
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">2,986,000</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">2,165,000</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td> </td>
<td> </td>
<td colspan="7" align="left" style="border-top: 3px double #000000"> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">BLU-U<sup style="font-size: 85%; vertical-align: text-top">®</sup> commercial light sources placed in physicians’ offices for an
initial evaluation period are included in inventory until all revenue recognition criteria are met.
The Company amortizes the cost of the evaluation units during the evaluation period to cost of
goods sold using an estimated life of three years to approximate its net realizable value.
</div>
</div>
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<!-- Begin Block Tagged Note 6 - dusa:OtherAccruedExpensesTextBlock-->
<div style="font-family: 'Times New Roman',Times,serif">
<div align="left" style="font-size: 10pt; margin-top: 12pt"><b>6) OTHER ACCRUED EXPENSES</b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">Other accrued expenses consisted of the following:
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="76%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">June 30,</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">December 31,</td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">2011</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">2010</td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr style="font-size: 1px">
<td> </td>
<td> </td>
<td colspan="7" align="left" style="border-top: 1px solid #000000"> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Research and development costs
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">98,000</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">231,000</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Marketing and sales costs
</div></td>
<td> </td>
<td> </td>
<td align="right">244,000</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">195,000</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Reserve for sales returns and allowances
</div></td>
<td> </td>
<td> </td>
<td align="right">187,000</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">125,000</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Other product related costs
</div></td>
<td> </td>
<td> </td>
<td align="right">899,000</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">798,000</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Legal and other professional fees
</div></td>
<td> </td>
<td> </td>
<td align="right">406,000</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">308,000</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Due to former Sirius shareholders
</div></td>
<td> </td>
<td> </td>
<td align="right">241,000</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">232,000</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Employee benefits
</div></td>
<td> </td>
<td> </td>
<td align="right">336,000</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">298,000</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Other expenses
</div></td>
<td> </td>
<td> </td>
<td align="right">161,000</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">162,000</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td> </td>
<td> </td>
<td colspan="7" align="left" style="border-top: 1px solid #000000"> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:30px; text-indent:-15px">Total
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">2,572,000</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">2,349,000</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td> </td>
<td> </td>
<td colspan="7" align="left" style="border-top: 3px double #000000"> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<!-- Folio -->
<!-- /Folio -->
</div>
<!-- PAGEBREAK -->
<div style="font-family: 'Times New Roman',Times,serif">
</div>
<!--DOCTYPE html PUBLIC "-//W3C//DTD XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd" -->
<!-- Begin Block Tagged Note 7 - us-gaap:DisclosureOfCompensationRelatedCostsShareBasedPaymentsTextBlock-->
<div style="font-family: 'Times New Roman',Times,serif">
<div align="left" style="font-size: 10pt; margin-top: 12pt"><b>7) SHARE-BASED COMPENSATION</b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">Total share-based compensation expense, related to all of the Company’s share-based awards,
recognized for the three and six-month periods ended June 30, 2011 and 2010 included the following
line items:
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="52%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #ffffff">Three months ended</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #ffffff">Six months ended</td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">June 30, 2011</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">June 30, 2010</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">June 30, 2011</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">June 30, 2010</td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr style="font-size: 1px">
<td> </td>
<td> </td>
<td colspan="15" align="left" style="border-top: 1px solid #000000"> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Cost of product revenues
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">16,000</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">12,000</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">25,000</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">27,000</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Research and development
</div></td>
<td> </td>
<td> </td>
<td align="right">40,000</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">30,000</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">67,000</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">65,000</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Marketing and sales
</div></td>
<td> </td>
<td> </td>
<td align="right">53,000</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">19,000</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">107,000</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">46,000</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">General and administrative
</div></td>
<td> </td>
<td> </td>
<td align="right">266,000</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">215,000</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">373,000</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">350,000</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td> </td>
<td> </td>
<td colspan="15" align="left" style="border-top: 1px solid #000000"> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Share-based compensation expense
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">375,000</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">276,000</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">572,000</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">488,000</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td> </td>
<td> </td>
<td colspan="15" align="left" style="border-top: 3px double #000000"> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt"><i>Incentive And Non-qualified Stock Options </i>—
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">The weighted-average estimated fair values of employee stock options granted during the three and
six-month periods ended June 30, 2011 were $3.83 and $2.89 per share, respectively, using the
Black-Scholes option valuation model with the following weighted-average assumptions (annualized
percentages):
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="76%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #ffffff">Three months</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #ffffff">Six months</td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6">ended June 30, 2011</td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr style="font-size: 1px">
<td> </td>
<td> </td>
<td colspan="7" align="left" style="border-top: 1px solid #000000"> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Expected volatility
</div></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">77.69</td>
<td nowrap="nowrap">%</td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">77.03</td>
<td nowrap="nowrap">%</td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Risk-free interest rate
</div></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">2.01</td>
<td nowrap="nowrap">%</td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">2.33</td>
<td nowrap="nowrap">%</td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Expected dividend yield
</div></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">0</td>
<td nowrap="nowrap">%</td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">0</td>
<td nowrap="nowrap">%</td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Expected life-directors and officers (years)
</div></td>
<td> </td>
<td> </td>
<td align="right">5.94</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">5.94</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Expected life-non-officer employees (years)
</div></td>
<td> </td>
<td> </td>
<td align="right">5.58</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">5.58</td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">A summary of stock option activity for the six-month period ended June 30, 2011 is as follows:
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="52%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">Average</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"> </td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">Weighted</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">Remaining</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"> </td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">Average</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">Contractual</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">Aggregate</td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">Exercise</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">Term</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">Intrinsic</td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">Price</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">(Years)</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">Value</td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Outstanding, beginning of period, January 1, 2011
</div></td>
<td> </td>
<td> </td>
<td align="right">3,064,050</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">4.09</td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Options granted
</div></td>
<td> </td>
<td> </td>
<td align="right">134,300</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">4.38</td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Options forfeited
</div></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(6,425</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td align="left">$</td>
<td align="right">1.48</td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Options expired
</div></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(82,500</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td align="left">$</td>
<td align="right">14.10</td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Options exercised
</div></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(273,338</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td align="left">$</td>
<td align="right">1.89</td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Outstanding, end of period
</div></td>
<td> </td>
<td> </td>
<td align="right">2,836,087</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">4.03</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">4.34</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">8,673,000</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Exercisable, end of period
</div></td>
<td> </td>
<td> </td>
<td align="right">1,848,314</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">5.16</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">3.80</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">4,417,000</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Options vested and expected to vest, end of period
</div></td>
<td> </td>
<td> </td>
<td align="right">2,696,462</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">4.13</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">4.28</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">8,094,000</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt"><i>Unvested Shares Of Common Stock </i>—
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">A summary of unvested shares of common stock activity for the six-month periods ended June 30, 2011
and 2010 is as follows:
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="76%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="3" style="border-bottom: 1px solid #000000"><b>2011</b></td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="3" style="border-bottom: 1px solid #000000"><b>2010</b></td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Outstanding, beginning of period,
</div></td>
<td> </td>
<td> </td>
<td align="right">586,000</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">393,250</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Shares granted
</div></td>
<td> </td>
<td> </td>
<td align="right">506,000</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">308,000</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Shares vested
</div></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(191,250</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(104,000</td>
<td nowrap="nowrap">)</td>
</tr>
<tr style="font-size: 1px">
<td> </td>
<td> </td>
<td colspan="7" nowrap="nowrap" align="left" style="border-top: 1px solid #000000"> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Outstanding, end of period
</div></td>
<td> </td>
<td> </td>
<td align="right">900,750</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">597,250</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td> </td>
<td> </td>
<td colspan="7" align="left" style="border-top: 3px double #000000"> </td>
</tr>
<tr valign="bottom"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Weighted average grant date fair value of shares vested during period
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">1.88</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">1.43</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Weighted average grant date fair value of shares granted during period
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">4.42</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">1.65</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Weighted average grant date fair value of unvested shares, end of period
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">3.08</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">1.52</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Weighted average remaining years to vest
</div></td>
<td> </td>
<td> </td>
<td align="right">3.00</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">3.14</td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<!-- Folio -->
<!-- /Folio -->
</div>
<!-- PAGEBREAK -->
<div style="font-family: 'Times New Roman',Times,serif">
<div align="left" style="font-size: 10pt; margin-top: 6pt">     At June 30, 2011 total unrecognized estimated compensation cost related to non-vested common shares
was $2,393,000, which is expected to be recognized over a weighted average period of 2.98 years. At
June 30, 2011 total unrecognized estimated compensation cost related to stock options was
$1,014,000 which is expected to be recognized over a weighted average period of 2.38 years.
</div>
</div>
<!--DOCTYPE html PUBLIC "-//W3C//DTD XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd" -->
<!-- Begin Block Tagged Note 8 - us-gaap:EarningsPerShareTextBlock-->
<div style="font-family: 'Times New Roman',Times,serif">
<div align="left" style="font-size: 10pt; margin-top: 12pt"><b>8) BASIC AND DILUTED NET INCOME (LOSS) PER SHARE</b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">Basic net income (loss) per common share is based on the weighted-average number of common shares
outstanding during each period. Diluted net income (loss) is based on the weighted-average shares
outstanding and any contingently issuable shares. The net outstanding shares are adjusted for the
dilutive effect of shares issuable upon the assumed conversion of the Company’s common stock
equivalents, which consist of outstanding stock options, warrants and unvested shares of common
stock.
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="52%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #ffffff">Three months ended</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #ffffff">Six months ended</td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">June 30, 2011</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">June 30, 2010</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">June 30, 2011</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">June 30, 2010</td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr style="font-size: 1px">
<td> </td>
<td> </td>
<td colspan="15" align="left" style="border-top: 1px solid #000000"> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Weighted average common shares outstanding-basic
</div></td>
<td> </td>
<td> </td>
<td align="right">24,539,627</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">24,187,569</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">24,412,221</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">24,155,194</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Stock options, warrants and unvested shares of
common stock
</div></td>
<td> </td>
<td> </td>
<td align="right">2,273,702</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">378,907</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">1,921,837</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td> </td>
<td> </td>
<td colspan="15" align="left" style="border-top: 1px solid #000000"> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Weighted average common shares
outstanding-diluted
</div></td>
<td> </td>
<td> </td>
<td align="right">26,813,329</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">24,566,476</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">26,334,058</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">24,155,194</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td> </td>
<td> </td>
<td colspan="15" align="left" style="border-top: 3px double #000000"> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">The following stock options were not included in weighted average diluted common shares
outstanding because they are anti-dilutive:
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="52%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #ffffff">Three months ended</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #ffffff">Six months ended</td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">June 30, 2011</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">June 30, 2010</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">June 30, 2011</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">June 30, 2010</td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr style="font-size: 1px">
<td> </td>
<td> </td>
<td colspan="15" align="left" style="border-top: 1px solid #000000"> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Stock options
</div></td>
<td> </td>
<td> </td>
<td align="right">852,000</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">2,212,000</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">890,000</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">3,134,000</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Warrants
</div></td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">1,145,000</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">1,395,000</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Unvested shares of common stock
</div></td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">597,000</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td> </td>
<td> </td>
<td colspan="15" align="left" style="border-top: 1px solid #000000"> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Total
</div></td>
<td> </td>
<td> </td>
<td align="right">852,000</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">3,357,000</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">890,000</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">5,126,000</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td> </td>
<td> </td>
<td colspan="15" align="left" style="border-top: 3px double #000000"> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
</div>
<!--DOCTYPE html PUBLIC "-//W3C//DTD XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd" -->
<!-- Begin Block Tagged Note 9 - us-gaap:SegmentReportingDisclosureTextBlock-->
<div style="font-family: 'Times New Roman',Times,serif">
<div align="left" style="font-size: 10pt; margin-top: 12pt"><b>9) SEGMENT REPORTING</b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">The Company has two reportable segments: Photodynamic Therapy (PDT) Drug and Device Products and
Non-Photodynamic Therapy (Non-PDT) Products. Operating segments are defined as components of the
Company for which separate financial information is available to manage resources and evaluate
performance regularly by the chief operating decision maker. The table below presents the revenues,
costs of revenues and gross margins attributable to these reportable segments for the periods
presented. The Company does not allocate research and development, selling and marketing and
general and administrative expenses to its reportable segments, because these activities are
managed at a corporate level.
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="52%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #ffffff">Three-month period ended</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #ffffff">Six-month period ended</td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">June 30, 2011</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">June 30, 2010</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">June 30, 2011</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">June 30, 2010</td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr style="font-size: 1px">
<td> </td>
<td> </td>
<td colspan="15" align="left" style="border-top: 1px solid #000000"> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">REVENUES
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:30px; text-indent:-15px">PDT drug and device product revenues
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">9,671,000</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">8,411,000</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">20,653,000</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">16,707,000</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:30px; text-indent:-15px">Non-PDT product revenues
</div></td>
<td> </td>
<td> </td>
<td align="right">92,000</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">290,000</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">192,000</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">708,000</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td> </td>
<td> </td>
<td colspan="15" align="left" style="border-top: 1px solid #000000"> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:45px; text-indent:-15px">Total revenues
</div></td>
<td> </td>
<td> </td>
<td align="right">9,763,000</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">8,701,000</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">20,845,000</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">17,415,000</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td> </td>
<td> </td>
<td colspan="15" align="left" style="border-top: 3px double #000000"> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">COSTS OF REVENUES
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:30px; text-indent:-15px">PDT drug and device cost of product
revenues
</div></td>
<td> </td>
<td> </td>
<td align="right">1,457,000</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">1,462,000</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">3,074,000</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">3,043,000</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:30px; text-indent:-15px">Non-PDT cost of product revenues
</div></td>
<td> </td>
<td> </td>
<td align="right">137,000</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">320,000</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">281,000</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">557,000</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td> </td>
<td> </td>
<td colspan="15" align="left" style="border-top: 1px solid #000000"> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:45px; text-indent:-15px">Total costs of product revenues
</div></td>
<td> </td>
<td> </td>
<td align="right">1,594,000</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">1,782,000</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">3,355,000</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">3,600,000</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">GROSS MARGIN
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:30px; text-indent:-15px">PDT drug and device product gross margin
</div></td>
<td> </td>
<td> </td>
<td align="right">8,214,000</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">6,949,000</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">17,579,000</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">13,664,000</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:30px; text-indent:-15px">Non-PDT product gross margin
</div></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(45,000</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(30,000</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(89,000</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td> </td>
<td align="right">151,000</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td> </td>
<td> </td>
<td colspan="15" align="left" style="border-top: 1px solid #000000"> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:45px; text-indent:-15px">Total gross margin
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">8,169,000</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">6,919,000</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">17,490,000</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">13,815,000</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td> </td>
<td> </td>
<td colspan="15" align="left" style="border-top: 3px double #000000"> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<!-- Folio -->
<!-- /Folio -->
</div>
<!-- PAGEBREAK -->
<div style="font-family: 'Times New Roman',Times,serif">
<div align="left" style="font-size: 10pt; margin-top: 6pt">During the three and six-month periods ended June 30, 2011 and 2010, the Company derived
revenues from the following geographies based on the location of the customer (as a percentage of
product revenues):
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="52%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000">Three months ended</td>
<td style="border-bottom: 1px solid #000000"> </td>
<td style="border-bottom: 1px solid #000000"> </td>
<td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000">Six months ended</td>
<td style="border-bottom: 1px solid #000000"> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">June 30,</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">June 30,</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">June 30,</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">June 30,</td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">2011</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">2010</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">2011</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">2010</td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr style="font-size: 1px">
<td> </td>
<td> </td>
<td colspan="15" align="left" style="border-top: 1px solid #000000"> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">United States
</div></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">99</td>
<td nowrap="nowrap">%</td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">95</td>
<td nowrap="nowrap">%</td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">98</td>
<td nowrap="nowrap">%</td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">96</td>
<td nowrap="nowrap">%</td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Canada
</div></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">—</td>
<td nowrap="nowrap">%</td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">2</td>
<td nowrap="nowrap">%</td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">1</td>
<td nowrap="nowrap">%</td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">1</td>
<td nowrap="nowrap">%</td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Korea
</div></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">1</td>
<td nowrap="nowrap">%</td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">1</td>
<td nowrap="nowrap">%</td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">1</td>
<td nowrap="nowrap">%</td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">1</td>
<td nowrap="nowrap">%</td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Other
</div></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">—</td>
<td nowrap="nowrap">%</td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">2</td>
<td nowrap="nowrap">%</td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">—</td>
<td nowrap="nowrap">%</td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">2</td>
<td nowrap="nowrap">%</td>
</tr>
<tr style="font-size: 1px">
<td> </td>
<td> </td>
<td colspan="15" nowrap="nowrap" align="left" style="border-top: 1px solid #000000"> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:30px; text-indent:-15px">Total
</div></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">100</td>
<td nowrap="nowrap">%</td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">100</td>
<td nowrap="nowrap">%</td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">100</td>
<td nowrap="nowrap">%</td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">100</td>
<td nowrap="nowrap">%</td>
</tr>
<tr style="font-size: 1px">
<td> </td>
<td> </td>
<td colspan="15" nowrap="nowrap" align="left" style="border-top: 3px double #000000"> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
</div>
<!--DOCTYPE html PUBLIC "-//W3C//DTD XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd" -->
<!-- Begin Block Tagged Note 10 - us-gaap:ComprehensiveIncomeNoteTextBlock-->
<div style="font-family: 'Times New Roman',Times,serif">
<div align="left" style="font-size: 10pt; margin-top: 6pt"><b>10) COMPREHENSIVE INCOME (LOSS)</b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">For the three and six-month periods ended June 30, 2011 and 2010, comprehensive loss consisted of
the following:
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="52%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #ffffff">Three months ended</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #ffffff">Six months ended</td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">June 30, 2011</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">June 30, 2010</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">June 30, 2011</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">June 30, 2010</td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr style="font-size: 1px">
<td> </td>
<td> </td>
<td colspan="15" align="left" style="border-top: 1px solid #000000"> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">NET INCOME (LOSS)
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">1,111,000</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">188,000</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">506,000</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="left">$</td>
<td align="right">(236,000 </td>
<td nowrap="nowrap">)</td>
</tr>
<tr valign="bottom">
<td nowrap="nowrap">
<div style="margin-left:15px; text-indent:-15px">Change in net unrealized gains
on marketable securities
available-for-sale
</div></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(4,000</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(41,000</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(28,000</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(75,000 </td>
<td nowrap="nowrap">)</td>
</tr>
<tr style="font-size: 1px">
<td> </td>
<td> </td>
<td colspan="15" nowrap="nowrap" align="left" style="border-top: 1px solid #000000"> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">COMPREHENSIVE INCOME (LOSS)
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">1,107,000</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">147,000</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">478,000</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="left">$</td>
<td align="right">(311,000 </td>
<td nowrap="nowrap">)</td>
</tr>
<tr style="font-size: 1px">
<td> </td>
<td> </td>
<td colspan="15" nowrap="nowrap" align="left" style="border-top: 3px double #000000"> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
</div>
<!--DOCTYPE html PUBLIC "-//W3C//DTD XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd" -->
<!-- Begin Block Tagged Note 11 - dusa:SignificantProductAgreementsTextBlock-->
<div style="font-family: 'Times New Roman',Times,serif">
<div align="left" style="font-size: 10pt; margin-top: 12pt"><b>11) SIGNIFICANT PRODUCT AGREEMENTS</b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt"><i>Stiefel Agreement</i>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     In the third quarter of 2010, the Company gave notice to Stiefel Laboratories, Inc.
terminating the parties’ Marketing, Distribution and Supply Agreement, dated January 12, 2006, as
amended, as of September 26, 2007. The termination of this Agreement, which had appointed Stiefel
as the Company’s exclusive marketing and distribution partner for the Company’s product, the
Levulan<sup style="font-size: 85%; vertical-align: text-top">®</sup> Kerastick<sup style="font-size: 85%; vertical-align: text-top">®</sup>, in Latin America, resulted in the
acceleration of the recognition of deferred revenues of $555,000, comprised of deferred drug
shipments of $87,000 and the unamortized balance of milestone payments of $468,000, and the
acceleration of deferred cost of revenues of $42,000.
</div>
<div align="left" style="font-size: 10pt; margin-top: 12pt"><i>Daewoong Agreement</i>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     In January 2007 the Company licensed to Daewoong Pharmaceutical Co., LTD. and its wholly-owned
subsidiary DNC Daewoong Derma & Plastic Surgery Network Company, the exclusive rights to market
Levulan<sup style="font-size: 85%; vertical-align: text-top">®</sup> PDT in Korea and other Asia Pacific countries for payments by
Daewoong of up to $3,500,000. The Company also manufactures and supplies finished product for
Daewoong, which the Company began shipping in October 2007. In consideration for the transaction
Daewoong agreed to pay the Company as follows: (i) $1,000,000 upon contract signing; (ii)
$1,000,000 upon achieving regulatory approval in Korea; and (iii) two installments of $750,000 each
for cumulative end-user sales totaling 200,000 units and 500,000 units. Daewoong launched the
product in November 2007 in Korea. The Company is deferring and recognizing the up-front and
regulatory approval milestones as license revenues on a straight-line basis, beginning with product
launch in the territory through the fourth quarter of 2016, which is the term of the Daewoong
Agreement. Daewoong pays a fixed price per unit for the inventory and an Excess Purchase Price, as
defined in the agreement, if the Average Selling Price to end-users during any calendar quarter
exceeds a certain threshold. During the six-month periods ended June 30, 2011 and 2010, the
Company’s shipments of Levulan<sup style="font-size: 85%; vertical-align: text-top">®</sup> Kerastick<sup style="font-size: 85%; vertical-align: text-top">®</sup> to Daewoong
were $0. At June 30, 2011 and December 31, 2010 the total revenues deferred associated with
shipments to Daewoong were $386,000 and $487,000, respectively, in accordance with the Company’s
policy of deferring revenues during a product’s launch phase and recognizing revenues based on
delivery to end-users. Deferred revenues at June 30, 2011 and December 31, 2010 associated with
milestone payments received from Daewoong were $1,130,000 and $1,232,000, respectively. The
agreement with Daewoong also establishes regulatory milestones and cumulative minimum purchase
quantities over the first five years following regulatory approval. If Daewoong fails to meet its
regulatory milestones or minimum purchase quantities, the Company may, in addition to other
remedies, at its sole discretion, appoint one or more other distributors in the covered
territories, or terminate the agreement.
</div>
<div align="left" style="font-size: 10pt; margin-top: 12pt"><i>Photocure Agreement</i>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     On May 30, 2006, the Company entered into a patent license agreement under which the Company
granted Photocure ASA a non-exclusive license under the patents the Company licenses from PARTEQ
for ALA esters. In addition, the Company granted a non-exclusive license to Photocure for its
existing formulations of Hexvix<sup style="font-size: 85%; vertical-align: text-top">®</sup> and Metvix<sup style="font-size: 85%; vertical-align: text-top">®</sup> (known in
the U.S. as Metvixia<sup style="font-size: 85%; vertical-align: text-top">®</sup>) for any patent the Company owns now or in the future.
On October 1, 2009, Photocure announced that it had sold Metvix/Metvixia to Galderma, S.A., a large
dermatology company. While
we are entitled to royalties on net sales of Metvixia, Galderma has considerably more resources
than we have, which could significantly hamper our ability to maintain or increase our market
share.
</div>
<!-- Folio -->
<!-- /Folio -->
</div>
<!-- PAGEBREAK -->
<div style="font-family: 'Times New Roman',Times,serif">
<div align="left" style="font-size: 10pt; margin-top: 6pt">     Photocure is obligated to pay the Company royalties on sales of its ester products to the
extent they are covered by the Company’s patents in the U.S. and certain other territories. As part
of the agreement, Photocure paid the Company a prepaid royalty in the amount of $1,000,000 in 2006.
Revenues recognized pursuant to the Photocure Agreement have not been material to date. The balance
of the prepaid royalty under the Photocure Agreement is included in deferred revenues in the
accompanying Condensed Consolidated Balance Sheets.
</div>
</div>
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<div style="font-family: 'Times New Roman',Times,serif">
<div align="left" style="font-size: 10pt; margin-top: 12pt"><b>12) INCOME TAXES</b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     Based on an Internal Revenue Code (IRC) Section 382 study performed, the Company determined
that it has experienced prior ownership changes, as defined under IRC Section 382, with the most
recent change in ownership occurring in 2007 (the 2007 Ownership Change). The Company’s pre-change
NOL carryforwards are subject to an annual limitation of approximately $2.2 million per year.
Further, additional rules provide for the enhancement of the aforementioned annual limitation for
the first five years after the ownership change. A loss corporation may increase its IRC Section
382 limitation by the amount of the net unrealized built-in gain (NUBIG) recognized within five
years of the ownership change. The calculated aggregate amount of NUBIG enhancement for the Company
is approximately $4.3 million (i.e., approximately $868,000 per year for the first five years after
the ownership change). This NUBIG enhancement will be utilized in conjunction with the
approximately $2.2 million of IRC Section 382 base annual limitation, resulting in approximately
$3.0 million per year for the first five years after the ownership change. Based on these
additional factors, the Company estimates that it will be able to utilize approximately $54.3
million of its current net operating losses, provided that sufficient income is generated and no
further ownership changes were to occur. However, it is reasonably possible that a future ownership
change, which could be the result of transactions involving the Company’s common stock that are
outside of its control (such as sales by existing shareholders), could occur during 2011 or
thereafter. Future ownership changes could further restrict the utilization of the Company’s net
operating losses and tax credits, reducing or eliminating the benefit of such net operating losses
and tax credits. An ownership change occurs under IRC Section 382 if the aggregate stock ownership
of certain shareholders increases by more than 50 percentage points over such shareholders’ lowest
percentage ownership during the testing period, which is generally three years.
</div>
</div>
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<div style="font-family: 'Times New Roman',Times,serif">
<div align="left" style="font-size: 10pt; margin-top: 12pt"><b>13) COMMITMENTS AND CONTINGENCIES</b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt"><b>Business Acquisition</b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     On March 10, 2006, the Company acquired all of the outstanding common stock of Sirius
Laboratories, Inc. (“Sirius”). The Company agreed to pay additional consideration in future periods
to the former Sirius shareholders based upon the achievement of total cumulative sales milestones
for the Sirius products over the period beginning with the closing of the acquisition and ending
December 31, 2011, according to an amendment to the parties’ agreement.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     If the remaining sales milestones are attained, additional consideration will be paid in
either common stock or cash, at the Company’s sole discretion. The remaining cumulative sales
milestones and related consideration are, as follows:
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="80%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="78%"> </td>
<td width="2%"> </td>
<td width="20%"> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center">Additional</td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td nowrap="nowrap" align="left" style="border-bottom: 1px solid #000000">Cumulative Sales Milestone:</td>
<td> </td>
<td nowrap="nowrap" align="center" style="border-bottom: 1px solid #000000">Consideration:</td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">$35.0 million
</div></td>
<td> </td>
<td align="center" valign="bottom">$1.0 million</td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">$45.0 million
</div></td>
<td> </td>
<td align="center" valign="bottom">$1.0 million</td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="1" align="center" valign="bottom" style="border-top: 1px solid #000000"> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:30px; text-indent:-15px">Total
</div></td>
<td> </td>
<td align="center" valign="bottom">$2.0 million</td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="1" align="center" valign="bottom" style="border-top: 3px double #000000"> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<div align="left" style="font-size: 10pt; margin-top: 12pt"><b>Third Amendment to Merger Agreement</b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     In April 2009, the Company and the former shareholders of Sirius entered into a letter
agreement providing for the consent of the former Sirius shareholders to the Amendment to the
License Agreement with River’s Edge Pharmaceuticals, LLC, a release, and the Third Amendment to the
Merger Agreement, dated as of December 30, 2005, by and among the DUSA Pharmaceuticals, Inc.,
Sirius and the shareholders of Sirius. Pursuant to the Merger Agreement prior to this amendment,
the Company agreed to pay additional consideration after the closing of the merger to the former
shareholders of Sirius based upon the attainment of pre-determined total cumulative sales
milestones for the products acquired from Sirius over the period ending 50 months from the date of
the March 2006 closing of the original Merger Agreement. Pursuant to the agreements entered into in
April 2009, the Company agreed to extend the Milestone Termination Date from 50 months from the
date of the closing of the original Merger Agreement until December 31, 2011 and to include in the
definition of Net Sales in the Merger Agreement payments which the Company may receive from the
divestiture of Sirius products. The Third Amendment to the Merger Agreement also removes the
Company’s obligation to market the Sirius products according to certain previously required
standards and allows the Company to manage all business activities relating to the products
acquired from Sirius without further approval from the former Sirius shareholders. In April 2009
the Company paid to the former Sirius shareholders, on a pro rata basis, $100,000. In addition, in
the event that the $1,000,000 milestone payment that would become due to the former Sirius
shareholders under the Merger Agreement if cumulative Net Sales of the Sirius products reach
$35,000,000 is not, in fact, triggered by December 31, 2011, then the Company has agreed to pay
$250,000 to the
former Sirius shareholders on a pro rata basis on or before January 6, 2012. The present value of
the guaranteed $250,000 milestone payment, or $241,000, is included in other accrued expenses in
the accompanying Condensed Consolidated Balance Sheets.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     The Company has not accrued amounts for any other potential contingencies as of June 30, 2011.
</div>
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</div>
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<div style="font-family: 'Times New Roman',Times,serif">
<div align="left" style="font-size: 10pt; margin-top: 6pt">     The Company is involved in legal matters arising in the ordinary course of business. Although
the outcome of these matters cannot presently be determined, management does not expect that the
resolution of these matters will have a material effect on the Company’s financial position or
results of operation.
</div>
<div align="left" style="font-size: 10pt; margin-top: 12pt"><b>Lease Arrangements</b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     The Company leases its facilities under operating leases. The Company’s lease arrangements
have terms which expire through 2014. For the six-month periods ended June 30, 2011 and 2010, total
rent expense under operating leases was approximately $175,000 and $195,000, respectively. Future
minimum payments under lease arrangements at June 30, 2011 are as follows:
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="80%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="88%"> </td>
<td width="5%"> </td>
<td width="3%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>Operating</b></td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td nowrap="nowrap" align="left" style="border-bottom: 1px solid #000000"><b>Years Ending December 31,</b></td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Lease Obligations</b></td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">2011
</div></td>
<td> </td>
<td align="center">$</td>
<td align="right">191,000</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">2012
</div></td>
<td> </td>
<td> </td>
<td align="right">389,000</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">2013
</div></td>
<td> </td>
<td> </td>
<td align="right">396,000</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">2014
</div></td>
<td> </td>
<td> </td>
<td align="right">367,000</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Total
</div></td>
<td> </td>
<td align="center">$</td>
<td align="right">1,343,000</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
</div>
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<div style="font-family: 'Times New Roman',Times,serif">
<div align="left" style="font-size: 10pt; margin-top: 12pt"><b>14) GAIN ON SALE OF ASSETS</b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     On June 30, 2011 the Company entered into an Asset Purchase Agreement with Acella
Pharmaceuticals, LLC (Acella) pursuant to which the Company sold to Acella U.S. Patent No.
6,979,468 covering Nicomide<sup style="font-size: 85%; vertical-align: text-top"><sup style="font-size: 85%; vertical-align: text-top">®</sup> </sup>, together with the trademarks
Nicomide<sup style="font-size: 85%; vertical-align: text-top"><sup style="font-size: 85%; vertical-align: text-top">®</sup> </sup>and Nicomide-T<sup style="font-size: 85%; vertical-align: text-top"><sup style="font-size: 85%; vertical-align: text-top">®</sup> </sup>, and related domain names
(the Divested Assets). The Divested Assets, which had a carrying value of $0, were sold for cash
consideration of $750,000, all of which was paid at the closing. The Company ceased selling
Nicomide<sup style="font-size: 85%; vertical-align: text-top"><sup style="font-size: 85%; vertical-align: text-top">®</sup> </sup>in June, 2008. The agreement includes customary representations,
warranties and covenants for a transaction of this type.
</div>
</div>
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