<PAGE>


                       SECURITIES AND EXCHANGE COMMISSION

                              Washington, DC 20549

                              --------------------

                                   FORM 10-QSB

                              --------------------

                  QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
                       THE SECURITIES EXCHANGE ACT OF 1934


                        For Quarter Ended June 30, 1997

                              --------------------

                         Commission File Number 1-31070

                              --------------------

                              Derma Sciences, Inc.
        (Exact name of small business issuer as specified in its Charter)

               Pennsylvania                           23-2328753
          (State or other jurisdiction              (IRS employer
             of Incorporation)                    identification number)


                              214 Carnegie Center, Suite 100
                               Princeton, NJ 08540
                                 (609) 514-4744
                    (Address including zip code and telephone
                     number, of principal executive offices)

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

                                  Yes|X| No| |

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

Date: June 30, 1997              Class: Common Stock, par value $.01 per share
                                 Shares Outstanding: 4,067,632


<PAGE>                                                                         

                              DERMA SCIENCES, INC.

                                   FORM 10-QSB

                                      INDEX

Description                                                                 Page

Part I - Financial Information

  Item 1.  Condensed Financial Statements

    Balance Sheet - June 30, 1997..........................................   2

    Statements of Operations - Three months ended June 30, 1996
       and June 30, 1997...................................................   3

    Statements of Operations - Six months ended June 30, 1996
       and June 30, 1997...................................................   4

    Statements of Cash Flows - Six months ended June 30, 1996
       and June 30, 1997...................................................   5

    Notes to Condensed Financial Statements................................   6

  Item 2.  Management's Discussion and Analysis of Financial Condition
          and Results of Operations........................................   7

Part II - Other Information

  Item 1.  Legal Proceedings...............................................  12

  Item 4.  Submission of Matters to a Vote of Shareholders.................  12

  Item 6.  Exhibits and Reports on Form 8-K................................  12


<PAGE>

                              DERMA SCIENCES, INC.
                                  BALANCE SHEET
                                  June 30, 1997
                                   (Unaudited)

                                     ASSETS

CURRENT ASSETS:
   Cash and cash equivalents                                       $    144,962
   Short-term investments                                               837,929
   Accounts receivable, net                                             798,851
   Inventory                                                            779,097
   Other current assets                                                 250,187
                                                                ----------------
      Total Current Assets                                            2,811,026

PROPERTY AND EQUIPMENT, NET                                              94,858

OTHER ASSETS                                                            697,439
                                                                ----------------
TOTAL ASSETS                                                       $  3,603,323
                                                                ================

                      LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
   Demand note payable                                             $    789,000
   Accounts payable                                                     631,708
   Other current liabilities                                            551,199
                                                                ----------------
      Total Current Liabilities                                       1,971,907

NOTES PAYABLE                                                            95,000
                                                                 ---------------
TOTAL LIABILITIES                                                     2,066,907
  
SHAREHOLDERS' EQUITY:
   Common stock, $.01 par value, authorized 15,000,000 shares,
      issued and outstanding 4,067,632 shares                            40,676
   Additional paid-in capital                                         4,644,741
   Retained deficit                                                  (3,149,001)
                                                                ----------------
      Total Shareholders' Equity                                      1,536,416
                                                                ----------------
           Total Liabilities and Shareholders' Equity              $  3,603,323
                                                                ================

See accompanying notes.
<PAGE>

                              DERMA SCIENCES, INC.
                            STATEMENTS OF OPERATIONS
                                   (Unaudited)

                                                         Three Months Ended
                                                              June 30,
                                                   -----------------------------
                                                   -----------------------------
                                                        1996             1997
                                                   -------------  --------------
 
NET SALES                                            $1,453,223      $  796,246

COST OF SALES                                           225,356         225,852
                                                   -------------  --------------
GROSS PROFIT                                          1,227,867         570,394

OPERATING EXPENSES:
   Product development                                  197,710          33,521
   Selling, general and administrative                  966,968       1,645,710
                                                   ------------   --------------
       Total Operating Expenses                       1,164,678       1,679,231
                                                   -------------  --------------

INCOME (LOSS) FROM OPERATIONS                            63,189      (1,108,837)

OTHER  INCOME (EXPENSE):
   Interest income                                       37,378           1,728
   Interest expense                                     (16,065)        (10,926)
                                                    ------------  --------------
       Total Other Income (Expense)                      21,313          (9,198)
                                                   -------------  --------------

INCOME (LOSS) BEFORE INCOME TAXES:                       84,502      (1,118,035)
   Income taxes                                         (30,429)              0
                                                   -------------  --------------

NET INCOME  (LOSS)                                   $  114,931     ($1,118,035)
                                                   =============  ==============

NET  INCOME (LOSS) PER COMMON SHARE                       $0.03          ($0.27)

WEIGHTED AVERAGE NUMBER OF COMMON
      SHARES OUTSTANDING                              4,054,233       4,067,632
                                                   =============  ==============

See accompanying notes.
<PAGE>

                              DERMA SCIENCES, INC.
                            STATEMENTS OF OPERATIONS
                                   (Unaudited)

                                                        Six Months Ended
                                                             June 30,
                                               ---------------------------------
                                               ---------------------------------
                                                      1996            1997
                                               ----------------  ---------------
 
NET SALES                                           $2,496,398       $1,547,979

COST OF SALES                                          485,217          409,707
                                               ----------------  ---------------

GROSS PROFIT                                         2,011,181        1,138,272

OPERATING EXPENSES:
   Product development                                 402,286          230,109
   Selling, general and administrative               1,866,786        2,396,549
                                               ----------------  ---------------
       Total Operating Expenses                      2,269,072        2,626,658
                                               ----------------  ---------------

LOSS FROM OPERATIONS                                  (257,891)      (1,488,386)

OTHER  INCOME (EXPENSE):
   Interest income                                      78,829           31,412
   Interest expense                                    (30,547)         (27,418)
                                               ----------------  ---------------
       Total Other Income (Expense)                     48,282            3,994
                                               ----------------  ---------------

LOSS BEFORE INCOME TAXES:                             (209,609)      (1,484,392)
   Income taxes                                        (55,217)               0
                                               ----------------  ---------------

NET LOSS                                           ($  154,392)   ($  1,484,392)
                                               ================  ===============

NET LOSS PER COMMON SHARE                               ($0.04)          ($0.36)
                                               ================  ===============
WEIGHTED AVERAGE NUMBER OF COMMON
      SHARES OUTSTANDING                             4,054,233        4,067,632
                                               ================  ===============

See accompanying notes.

<PAGE>

                              DERMA SCIENCES, INC.
                            STATEMENTS OF CASH FLOWS
                                   (Unaudited)

                                                             Six Months Ended
                                                                 June 30,
                                                         -----------------------
                                                            1996         1997
                                                         ----------- -----------
OPERATING ACTIVITIES:
Net Loss                                               ($ 154,392)($  1,484,392)
 Adjustments to Reconcile Net Loss to Net Cash
   Used in Operating Activities:
    Depreciation and amortization                          24,638        98,464
    Provision for bad debts                                             166,477
    Changes in operating assets and liabilities:                     
     Accounts receivable                                   13,012       354,525
     Inventory                                             75,694        58,562
     Other current assets                                  17,310       (25,413)
     Other assets                                        (359,699)      (52,517)
     Accounts payable                                     133,792      (113,834)
     Accrued expenses                                     (36,964)     (102,753)
     Income taxes payable                                 (66,290)
                                                        ----------- ------------
       Net Cash Used in Operating Activities             (352,899)   (1,100,881)

INVESTING ACTIVITIES:
    (Increase) decrease in short-term investments         (22,949)    1,049,242
    Purchases of property and equipment, net              (48,642)      (74,176)
    Increase in patents and trademarks                    (24,830)
                                                        ----------- -----------
      Net Cash (Used in) Provided by Investing
      Activities                                          (96,421)      975,066

FINANCING ACTIVITIES:
       Net change in revolving line of credit             100,000       (11,000)
       Principal payments on long-term debt and                       
          capitalized lease obligations                      (247)
      Proceeds from acquisition                           190,000
      Net change in officers' notes receivable                          221,569
                                                       ------------ ------------
           Net Cash Provided by Financing Activities      289,753       210,569

NET (DECREASE)INCREASE IN CASH AND CASH EQUIVALENTS      (159,567)       84,754

CASH AND CASH EQUIVALENTS AT BEGINNING
   OF PERIOD                                              195,773        60,208
                                                       ------------- -----------

CASH AND CASH EQUIVALENTS AT END OF PERIOD                $36,206     $ 144,962
                                                       ============== ==========
See accompanying notes.

<PAGE>

                              DERMA SCIENCES, INC.
                     NOTES TO CONDENSED FINANCIAL STATEMENTS
                                   (Unaudited)


Note 1 - Basis of Presentation

     The  accompanying   unaudited  condensed  financial  statements  have  been
prepared in accordance with generally accepted accounting principles for interim
financial  information and with the  instructions to Form 10-QSB and Item 310(b)
of Regulation S-B.  Accordingly,  they do not include all of the information and
footnotes  required by generally  accepted  accounting  principles  for complete
financial statements. In the opinion of management,  all adjustments (consisting
of normal recurring accruals)  considered necessary for a fair presentation have
been included.  Operating  results for the six-month period ended June 30, 1997,
are not necessarily  indicative of the results that may be expected for the year
ending  December  31,  1997.  For further  information,  refer to the  financial
statements and footnotes thereto for the year ended December 31, 1996,  included
in Form 10-KSB filed with the  Securities  and Exchange  Commission on March 24,
1997.

Note 2 - Contingency

     ABS Life Sciences,  Inc. has instituted litigation against the Company. For
further information relative to the ABS litigation,  please refer to Form 10-KSB
filed by the Company on March 24, 1997.

Note 3 - Officers' Note Receivable

     Various   officers  of  the  Company   received  draws  against   incentive
compensation  during 1994  totaling  approximately  $296,156.  The  Compensation
Committee of the Board of Directors  subsequently  determined  that no incentive
compensation was payable relative to 1994.  Accordingly,  the officers  executed
promissory notes requiring repayment of the incentive compensation over a period
of ten years  with  interest  of 8.01% per  annum.  The Board of  Directors  has
determined  that the officers may tender  either  common stock of the Company or
cash in payment of the promissory notes.

     In January, 1997, a former officer repaid his promissory note in the amount
of  $77,893  inclusive  of  principal  and  interest  from the  proceeds  of his
severance  compensation.  Also in January,  1997, two officers  tendered  common
stock of the Company at the stock's  closing  price quoted by Nasdaq on the date
of tender  ($2.00 per share) in  satisfaction  of payments  due during 1996 with
respect to their promissory  notes. In May, 1997, a former officer's  promissory
note  in the  amount  of  $74,247.68  was  forgiven  pursuant  to his  severance
agreement. For further information,  refer to Form 8-K filed with the Securities
and Exchange Commission on July 1, 1997.


<PAGE>

                              DERMA SCIENCES, INC.

                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS


Quarter Ended June 30, 1997 Compared to Quarter Ended June 30, 1996

Results of Operations

Net Sales and Gross Profit

     Net sales for the second  quarter,  1997  decreased  $656,977,  or 45%,  to
$796,246 from $1,453,223 in the second quarter,  1996. The decrease in net sales
is attributable both to the restructuring of the Company's  distribution  system
and the  elimination  or  reduction  of  Medicare  reimbursement  for  Dermagran
Ointment, Dermagran Spray and Dermagran Zinc Saline Wet Dressing.

     Net sales of Dermagran Ointment decreased $580,227,  or 53%, to $523,828 in
the second quarter, 1997 from $1,104,055 in the second quarter,  1996. Net sales
of Dermagran Spray decreased $48,892,  or 54%, to $42,084 in the second quarter,
1997  from  $90,976  in  the  second  quarter,  1996.  Net  sales  of  Dermagran
Zinc-Saline  Wet Dressing  decreased  $26,685,  or 62%, to $16,682 in the second
quarter,  1997 from $43,367 in the second  quarter,  1996.  These  decreases are
attributable to the factors discussed above. Net sales of Dermagran  Hydrophilic
Wound  Dressing  increased  marginally to $217,171 in the second  quarter,  1997
versus  $211,337 in the second  quarter,  1996.  Sales of Dermagran Wet Dressing
(Saline) were not a material  revenue  producing  factor in the second  quarter,
1997 or the second quarter, 1996.

     Cost of sales,  expressed as a percentage of net sales,  increased from 16%
in the second quarter, 1996 to 28% in the second quarter, 1997. This increase is
attributable primarily to the sales decreases, discussed above, in the Company's
relatively high margin Dermagran Ointment and Dermagran Spray. Aggregate cost of
sales increased marginally to $225,852 in the second quarter, 1997 from $225,356
in the second quarter, 1996.

     Gross profit, expressed as a percentage of net sales, decreased from 84% in
the second  quarter,  1996 to 72% in the second quarter,  1997.  Aggregate gross
profit decreased $657,473,  or 54%, to $570,394 in the second quarter, 1997 from
$1,227,867 in the second quarter,  1996. These decreases are attributable to the
increase in cost of sales discussed above.

Operating Expenses

     Operating  expenses  increased  $514,553,  or 44%,  from  $1,164,678 in the
second quarter,  1996 to $1,679,231 in the second  quarter,  1997. This increase
represents the net effect of the increase in selling, general and administrative
expense and the decrease in product development expense discussed below.
<PAGE>

     Product  development  expense  for  the  second  quarter,   1997  decreased
$164,189,  or 83%, to $33,521 from $197,710 in the second  quarter,  1996.  This
decrease is attributable to a decrease in product development  staffing together
with increased outsourcing of product development functions.

     Selling,  general and administrative  expense for the second quarter,  1997
increased  $678,742,  or 70%, to  $1,645,710  in the second  quarter,  1997 from
$966,968 in the second  quarter,  1996.  The  aggregate  increase  is  primarily
attributable  to increases  in wages and  benefits  expense and bad debt expense
together with the incurrence of recruiting expense.

     Wages and  benefits  expense for the second  quarter,  1997  expressed as a
percentage  of sales  increased  to 76% from 16% in the  second  quarter,  1996.
Aggregate  wages and  benefits  expense  increased  $371,446 to $605,682 for the
second quarter, 1997 from $234,236 for the second quarter, 1996. These increases
are attributable to severance costs of $251,992 and compensation incident to the
hiring of marketing and sales personnel of $119,454.

     Bad debt expense for the second quarter,  1997 expressed as a percentage of
sales increased to 15% from a negative 2% in the second quarter, 1996. Aggregate
bad debt  expense,  net of  recoveries,  increased  $140,582 to $116,477 for the
second quarter, 1997 from a negative $24,105 for the second quarter, 1996. These
increases  are  primarily  attributable  to an  increase  in the  allowance  for
doubtful accounts of $125,000 from $100,000 to $225,000.

     Recruiting  fees of $83,000 were  incurred in the second  quarter,  1997 in
connection with the hiring of marketing and sales personnel. No comparable costs
were incurred in the second quarter, 1996.

Income (Loss) from Operations

     The Company incurred a loss from operations for the second quarter, 1997 in
the amount of $1,108,837  compared to income from  operations of $63,189 for the
second quarter,  1996. This loss from operations for the second quarter, 1997 is
attributable  to the decrease in net sales and  increase in  operating  expenses
discussed above under "Net Sales and Gross Profit" and "Operating Expenses."

Net (Loss) Income

     The  Company  incurred a loss of  $1,118,035,  or $0.27 per share,  for the
second quarter,  1997 compared to net income of $114,931, or $.03 per share, for
the second quarter,  1996. The loss for the second quarter, 1997 is attributable
to the factors discussed above under "Income (Loss) from Operations."


<PAGE>

Six Months Ended June 30, 1997 Compared to Six Months Ended June 30, 1996

Results of Operations

Net Sales and Gross Profit

     Net sales for the six months  ended June 30, 1997  decreased  $948,419,  or
38%, to $1,547,979  from  $2,496,398 in the six months ended June 30, 1996.  The
decrease  in net  sales  is  attributable  both  to  the  second  quarter,  1997
restructuring  of the  Company's  distribution  system  and the  elimination  or
reduction of Medicare reimbursement for Dermagran Ointment,  Dermagran Spray and
Dermagran Zinc Saline Wet Dressing.

     Net sales of Dermagran Ointment decreased $713,170,  or 42%, to $986,331 in
the six months ended June 30, 1997 from  $1,699,501 in the six months ended June
30, 1996. Net sales of Dermagran Spray decreased $74,580,  or 47%, to $84,761 in
the six months  ended June 30, 1997 from  $159,341 in the six months  ended June
30, 1996. Net sales of Dermagran  Zinc-Saline Wet Dressing decreased $46,099, or
59%, to $32,569 in the six months  ended June 30,  1997 from  $78,668 in the six
months ended June 30, 1996.  Net sales of Dermagran  Hydrophilic  Wound Dressing
decreased  $53,486,  or 11%, to  $442,582 in the six months  ended June 30, 1997
from $496,068 in the six months ended June 30, 1996.  Net sales of Dermagran Wet
Dressing  (Saline)  decreased  $13,114,  or 97%, to $346 in the six months ended
June 30,  1997  from  $13,460  in the six  months  ended  June 30,  1996.  These
decreases are attributable to the factors discussed above.

     Cost of sales,  expressed as a percentage of net sales,  increased from 19%
in the six months  ended June 30,  1996 to 26% in the six months  ended June 30,
1997. This increase is attributable primarily to the sales decreases,  discussed
above, in the Company's  relatively high margin Dermagran Ointment and Dermagran
Spray.  Aggregate  cost of sales  decreased  to $409,707 in the six months ended
June 30, 1997 from $485,217 in the six months ended June 30, 1996.

     Gross profit, expressed as a percentage of net sales, decreased from 81% in
the six months ended June 30, 1996 to 74% in the six months ended June 30, 1997.
Aggregate  gross profit  decreased  $872,909,  or 43%, to  $1,138,272 in the six
months  ended June 30,  1997 from  $2,011,181  in the six months  ended June 30,
1996.  These  decreases  are  attributable  to the  increase  in cost  of  sales
discussed above.

Operating Expenses

     Operating expenses increased  $357,586,  or 16%, from $2,269,072 in the six
months ended June 30, 1996 to  $2,626,658 in the six months ended June 30, 1997.
This increase represents the net effect of the increase in selling,  general and
administrative expense and the decrease in product development expense discussed
below.
<PAGE>

     Product  development  expense  for the  six  months  ended  June  30,  1997
decreased  $172,177,  or 43%, to $230,109 from $402,286 for the six months ended
June  30,  1996.  This  decrease  is  attributable  to  a  decrease  in  product
development staffing together with increased  outsourcing of product development
functions.

     Selling,  general and administrative  expense for the six months ended June
30, 1997 increased $529,763,  or 28%, to $2,396,549 in the six months ended June
30, 1997 from  $1,866,786 in the six months ended June 30, 1996. The increase in
selling,  general  and  administrative  expense  is  primarily  attributable  to
increases in wages and benefits  expense and bad debt expense  together with the
incurrence of recruiting expense.

     Wages and benefits expense for the six months ended June 30, 1997 expressed
as a percentage of sales  increased to 53% from 18% in the six months ended June
30, 1996.  Aggregate wages and benefits expense  increased  $360,573 to $818,160
for the six months  ended June 30, 1997 from  $457,587  for the six months ended
June 30, 1996.  These increases are  attributable to severance costs of $251,992
and  compensation  incident to the hiring of  marketing  and sales  personnel of
$108,581.

     Bad debt  expense  for the six months  ended June 30, 1997  expressed  as a
percentage  of sales  increased  to 11% from 1% in the six months ended June 30,
1996.  Aggregate  bad debt  expense  increased  $130,192 to $166,477 for the six
months  ended June 30, 1997 from $36,285 for the six months ended June 30, 1996.
These  increases are primarily  attributable to an increase in the allowance for
doubtful accounts of $125,000 from $100,000 to $225,000.

     Recruiting  fees of $83,000 were  incurred in the second  quarter,  1997 in
connection with the hiring of marketing and sales personnel. No comparable costs
were incurred in the six months ended June 30, 1996.

Loss from Operations

     The Company  incurred a loss from  operations for the six months ended June
30,  1997 in the amount of  $1,488,386  compared  to a loss from  operations  of
$257,891 for the six months ended 1996. The increased  loss from  operations for
the six months ended June 30, 1997 is  attributable to the decrease in net sales
and increase in operating  expenses  discussed  above under "Net Sales and Gross
Profit" and "Operating Expenses."

Net Loss

     The Company  incurred a net loss of $1,484,392,  or $.36 per share, for the
six months ended 1997 compared to a net loss of $154,392, or $.04 per share, for
the six months ended 1996.  The increased net loss for the six months ended June
30,  1997 is  attributable  to the  factors  discussed  above  under  "Loss from
Operations."
<PAGE>

Liquidity and Capital Resources

     The Company's cash, cash equivalents and short-term investments at June 30,
1997 decreased $1,455,739, or 60%, to $982,891 from $2,438,630 at June 30, 1996.
The Company's working capital at June 30, 1997 decreased $2,521,072,  or 75%, to
$839,119 from $3,360,191 at June 30, 1996.  These decreases are  attributable to
lower net sales and increased operating expenses which occasioned  increased use
of the Company's short-term investments and line-of-credit.

     The Company has a bank  line-of-credit,  secured by inventory  and accounts
receivable,  whose balance at June 30, 1997 was $789,000. This line-of-credit is
renewable  (payable in full)  September 30, 1997.  The Company  believes that it
will be able  either to secure  renewal  of its  current  credit  line or secure
credit upon comparable terms with another financial institution.

     The Company  has  instituted  several  measures  with a view to  increasing
sales.  Among these are  included:  (a) the hiring of a new vice  president  for
marketing and a new vice  president for sales  together with four regional sales
managers and directors,  (b) restructuring of the Company's  distribution system
to eliminate  non-producing  distributors,  increase  profit margins and improve
territorial  coverage,  (c)  expansion  of the  Company's  product  line via the
licensing of wound care  products  from other  companies,  and (d) licensing the
Company's  proprietary  products for  distribution  under  private  labels.  The
Company has also taken steps to reduce its operating  expenses,  including:  (a)
downsizing  administrative staff, (b) reducing the size of leasehold facilities,
and (c)  outsourcing  financial and R&D functions.  The Company expects that the
foregoing measures will enable it to significantly  narrow its operating loss in
the third quarter, 1997, achieve break-even in the fourth quarter, 1997 and meet
it's obligations in the ordinary course of buisness.

     The  Company is  presently  investigating  several  sources  of  investment
capital relative to the financing of its growth  strategies.  Although there can
be no assurance that these efforts will be successful, the Company believes that
it will be able to secure financing in the amounts,  and upon terms,  acceptable
to it.

     Statements that are not historical  facts,  including  statements about the
Company's  confidence and  strategies,  and  expectations  about new or existing
products, technologies and opportunities,  market demand or acceptance of new or
existing  products  are  forward-looking   statements  that  involve  risks  and
uncertainties.  These  uncertainties  include,  but are not limited to,  product
demand and market acceptance risks,  impact of competitive  products and prices,
product development,  commercialization or technological delays or difficulties,
and trade, legal, social, financial and economic risks.

<PAGE>


                           Part II - Other Information

Item 1.  Legal Proceedings

     Information  required by Item 103 of Regulation S-B and required hereunder,
as filed with the Securities and Exchange Commission on Form 10-KSB on March 24,
1997, is incorporated herein by reference.

Item 4.  Submission of Matters to a Vote of Shareholders

     On May 14, 1997, the Company held its annual meeting of  shareholders.  The
items for  consideration by the shareholders  were the election of directors and
the  ratification of the selection of Ernst & Young LLP as independent  auditors
for the year ended  December  31, 1997.  Proxies for the meeting were  solicited
pursuant  to  Regulation  14A under the  Securities  Exchange  Act of 1934.  All
nominees for director were elected for one year terms.  The selection of Ernst &
Young LLP as  independent  auditors was ratified by a vote of 3,140,536 in favor
and 47,019 against with 26,550 abstentions.

Item 6.  Exhibits and Reports on Form 8-K

     (a) Exhibits. With the exception of the following, all exhibits required by
Item 601 of Regulation S-B and required hereunder,  as filed with the Securities
and Exchange Commission on Form 10-KSB on March 24, 1997 and on Form 8-K on July
1, 1997 are incorporated herein by reference.

    Item            Description
    3.1             Bylaws effective May 14, 1997
    10.01*          Stock Option Agreement between the Company and Stephen T.
                    Wills, CPA, MST dated July 23, 1997
    27              Financial Data Schedule (filed electronically with the U. S.
                    Securities and Exchange Commission only)

            *Management Contract

     (b) Reports on Form 8-K. On May 6, 1997 and May 23, 1997 the Company  filed
Forms  8-K  relative  to the  hiring/promotion  of  several  executives  and the
execution  of a  letter  of  intent  to form a  joint  venture  with  Innovative
Technologies Group plc, respectively.