|                               |
|------------------------------------|
|                               |
| UNITED STATES                      |
| SECURITIES AND EXCHANGE COMMISSION |

----

| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITES EXCHANGE ACT OF 1934 |
|---|----------------------------------------------------------------------------------------|

| o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|---|------------------------------------------------------------------------------------------|

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

|   | Large accelerated filer |  ̈ |                                          | Accelerated filer         |  ̈ |   |
|--------|-------------------------|--------|-----------------------------------------------|---------------------------|--------|--------|
|   | Non-accelerated filer   |  ̈ | (Do not check if a smaller reporting company) | Smaller reporting company | x      |   |

| Date:  May 10, 2011 | Class: | Common Stock, par value $.01 per share   |
|-------------------------------|--------|------------------------------------------|
|                          |   | Shares Outstanding:  6,743,557 |
|                          |

----

| Description                          |                                                                                                           |  Page |
|--------------------------------------|----------------------------------------------------------------------------------------------------------------|------------|
|                                 |                                                                                                           |       |   |   |
| Part I – Financial Information |                                                                                                           |       |   |
|                                 |                                                                                                           |       |   |   |
|                                 | Item 1.  Financial Statements (Unaudited)                                                            |       |   |   |
|                                 |                                                                                                           |       |   |   |
|                                 | Consolidated Balance Sheets – March 31, 2011 and December 31, 2010                                  |       |   | 2 |
|                                 |                                                                                                           |       |   |   |
|                                 | Consolidated Statements of Operations – Three months ended March 31, 2011 and March 31, 2010             |       |   | 3 |
|                                 |                                                                                                           |       |   |   |
|                                 | Consolidated Statements of Cash Flows – Three months ended March 31, 2011 and March 31, 2010             |       |   | 4 |
|                                 |                                                                                                           |       |   |   |
|                                 | Notes to Consolidated Financial Statements                                                                     |       |   | 5 |
|                                 |                                                                                                           |       |   |   |
|                                 | Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations |       |   | 13 |
|                                 |                                                                                                           |       |   |   |
|                                 | Item 4.  Controls and Procedures                                                                     |       |   | 19 |
|                                 |                                                                                                           |       |   |   |
| Part II - Other Information          |                                                                                                           |       |   |
|                                 |                                                                                                           |       |   |   |
|                                 | Item 1A.  Risk Factors                                                                               |       |   | 20 |
|                                 |                                                                                                           |       |   |   |
|                                 | Item 6.  Exhibits                                                                                    |       |   | 21 |

----

| DERMA SCIENCES, INC. AND SUBSIDIARIES   |
|-----------------------------------------|
|                                    |
| Consolidated Balance Sheets (Unaudited) |

|                                                                                                                                                               |   | March 31, |        |   | December 31, |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------|-------------|--------|-------------------|--------|
|                                                                                                                                                               |   | 2011           |        |   | 2010              |   |
| ASSETS                                                                                                                                                             |   |           |        |   |              |   |
| Current Assets                                                                                                                                                     |   |           |        |   |              |   |
| Cash and cash equivalents                                                                                                                                          |   | $              | 827,253     |   |              | $      | 404,216 |   |
| Accounts receivable, net                                                                                                                                           |   |           | 5,417,200   |   |              |   | 5,441,511 |   |
| Inventories                                                                                                                                                        |   |           | 11,052,842  |   |              |   | 12,498,519 |   |
| Prepaid expenses and other current assets                                                                                                                          |   |           | 2,174,522   |   |              |   | 609,164 |   |
| Total current assets                                                                                                                                               |   |           | 19,471,817  |   |              |   | 18,953,410 |   |
| Equipment and improvements, net                                                                                                                                    |   |           | 3,811,954   |   |              |   | 3,608,242 |   |
| Identifiable intangible assets, net                                                                                                                                |   |           | 6,523,126   |   |              |   | 6,971,626 |   |
| Goodwill                                                                                                                                                           |   |           | 7,119,726   |   |              |   | 7,119,726 |   |
| Other assets                                                                                                                                                       |   |           | 292,260     |   |              |   | 316,859 |   |
| Total Assets                                                                                                                                                       |   | $              | 37,218,883  |   |              | $      | 36,969,863 |   |
|                                                                                                                                                               |   |           |        |   |              |   |   |   |
| LIABILITIES AND SHAREHOLDERS’ EQUITY                                                                                                                         |   |           |        |   |              |   |   |   |
| Current Liabilities                                                                                                                                                |   |           |        |   |              |   |   |   |
| Line of credit borrowings                                                                                                                                          |   | $              | 2,374,998   |   |              | $      | 3,075,555 |   |
| Current maturities of long-term debt                                                                                                                               |   |           | –     |   |              |   | 5,851 |   |
| Accounts payable                                                                                                                                                   |   |           | 3,611,570   |   |              |   | 3,777,454 |   |
| Accrued expenses and other current liabilities                                                                                                                     |   |           | 2,878,193   |   |              |   | 2,150,621 |   |
| Total current liabilities                                                                                                                                          |   |           | 8,864,761   |   |              |   | 9,009,481 |   |
| Long-term liabilities                                                                                                                                              |   |           | 319,586     |   |              |   | 211,581 |   |
| Deferred tax liability                                                                                                                                             |   |           | 1,096,598   |   |              |   | 1,068,088 |   |
| Total Liabilities                                                                                                                                                  |   |           | 10,280,945  |   |              |   | 10,289,150 |   |
|                                                                                                                                                               |   |           |        |   |              |   |   |   |
| Shareholders’ Equity                                                                                                                                         |   |           |        |   |              |   |   |   |
| Convertible preferred stock, $.01 par value; 1,468,750 shares authorized; issued and outstanding: 284,844 (liquidation preference of $4,201,426 at March 31, 2011) |   |           | 2,848       |   |              |   | 2,848 |   |
| Common stock, $.01 par value; 18,750,000 shares authorized; issued and outstanding: 6,724,894 at March 31, 2011 and 6,563,076 at December 31, 2010                 |   |           | 67,249      |   |              |   | 65,631 |   |
| Additional paid-in capital                                                                                                                                         |   |           | 49,481,144  |   |              |   | 48,803,210 |   |
| Accumulated other comprehensive income – cumulative translation adjustments                                                                                  |   |           | 1,729,645   |   |              |   | 1,604,940 |   |
| Accumulated deficit                                                                                                                                                |   |           | (24,342,948 | )      |              |   | (23,795,916 | ) |
| Total Shareholders’ Equity                                                                                                                                   |   |           | 26,937,938  |   |              |   | 26,680,713 |   |
| Total Liabilities and Shareholders’ Equity                                                                                                                   |   | $              | 37,218,883  |   |              | $      | 36,969,863 |   |

----

| DERMA SCIENCES, INC. AND SUBSIDIARIES             |
|---------------------------------------------------|
|                                              |
| Consolidated Statements of Operations (Unaudited) |

|                                                                                    |   | Three Months ended March 31, |       |
|-----------------------------------------------------------------------------------------|--------|--------------------------------------------------|------------|
|                                                                                    |   | 2011                                             |       |   | 2010 |   |
| Net Sales                                                                               |   | $                                                | 14,371,271 |   |   | $ | 12,844,382 |   |
| Cost of sales                                                                           |   |                                             | 9,942,889  |   |   |   | 8,854,482 |   |
| Gross Profit                                                                            |   |                                             | 4,428,382  |   |   |   | 3,989,900 |   |
| Operating Expenses                                                                      |   |                                             |       |   |   |   |   |   |
| Selling, general and administrative                                                     |   |                                             | 4,738,019  |   |   |   | 4,187,745 |   |
| Research and development                                                                |   |                                             | 143,827    |   |   |   | 116,107 |   |
| Total operating expenses                                                                |   |                                             | 4,881,846  |   |   |   | 4,303,852 |   |
| Operating loss                                                                          |   |                                             | (453,464   | ) |   |   | (313,952 | ) |
| Other expense, net:                                                                     |   |                                             |       |   |   |   |   |   |
| Interest expense                                                                        |   |                                             | 93,629     |   |   |   | 159,892 |   |
| Loss on debt extinguishment                                                             |   |                                             | –    |   |   |   | 114,072 |   |
| Other income, net                                                                       |   |                                             | (73,429    | ) |   |   | (109,506 | ) |
| Total other expense                                                                     |   |                                             | 20,200     |   |   |   | 164,458 |   |
| Loss before income taxes                                                                |   |                                             | (473,664   | ) |   |   | (478,410 | ) |
| Income taxes                                                                            |   |                                             | 73,368     |   |   |   | 100,279 |   |
| Net Loss                                                                                |   | $                                                | (547,032   | ) |   | $ | (578,689 | ) |
| Net loss per common share – basic and diluted                                     |   | $                                                | (0.08      | ) |   | $ | (0.10 | ) |
| Shares used in computing net loss per common share – basic and  diluted |   |                                             | 6,634,187  |   |   |   | 5,647,175 |   |

----

| DERMA SCIENCES, INC. AND SUBSIDIARIES             |
|---------------------------------------------------|
|                                              |
| Consolidated Statements of Cash Flows (Unaudited) |

|                                                                            |   | Three Months Ended March 31, |       |
|---------------------------------------------------------------------------------|--------|--------------------------------------------------|------------|
|                                                                            |   | 2011                                             |       |   | 2010 |   |
| Operating Activities                                                            |   |                                             |       |   |   |   |
| Net Loss                                                                        |   | $                                                | (547,032   | ) |   | $ | (578,689 | ) |
| Adjustments to reconcile net loss to net cash provided by operating activities: |   |                                             |       |   |   |   |   |   |
| Depreciation of equipment and improvements                                      |   |                                             | 259,141    |   |   |   | 241,796 |   |
| Amortization of intangible assets                                               |   |                                             | 448,500    |   |   |   | 364,000 |   |
| Amortization of deferred financing costs                                        |   |                                             | 25,927     |   |   |   | 32,678 |   |
| Loss on debt extinguishment                                                     |   |                                             | -          |   |   |   | 114,072 |   |
| Provision (recovery) of bad debts                                               |   |                                             | 6,000      |   |   |   | (2,688 | ) |
| Allowance for sales adjustments                                                 |   |                                             | (21,274    | ) |   |   | 3,481 |   |
| Provision for inventory obsolescence                                            |   |                                             | 63,781     |   |   |   | 105,006 |   |
| Deferred rent expense                                                           |   |                                             | 101,756    |   |   |   | (5,211 | ) |
| Compensation charge for employee stock options                                  |   |                                             | 248,887    |   |   |   | 165,376 |   |
| Compensation charge for restricted stock                                        |   |                                             | 63,344     |   |   |   | - |   |
| Deferred taxes provision                                                        |   |                                             | 20,204     |   |   |   | 13,760 |   |
| Changes in operating assets and liabilities:                                    |   |                                             |       |   |   |   |   |   |
| Accounts receivable                                                             |   |                                             | 50,452     |   |   |   | (176,552 | ) |
| Inventories                                                                     |   |                                             | 1,470,925  |   |   |   | (1,693,834 | ) |
| Prepaid expenses and other current assets                                       |   |                                             | (1,568,901 | ) |   |   | 7,076 |   |
| Other assets                                                                    |   |                                             | (156       | ) |   |   | 310,818 |   |
| Accounts payable                                                                |   |                                             | (201,029   | ) |   |   | 419,476 |   |
| Accrued expenses and other current liabilities                                  |   |                                             | 671,446    |   |   |   | 809,749 |   |
| Long-term liabilities                                                           |   |                                             | (2,043     | ) |   |   | (5,049 | ) |
| Net cash provided by operating activities                                       |   |                                             | 1,089,928  |   |   |   | 125,265 |   |
| Investing Activities                                                            |   |                                             |       |   |   |   |   |   |
| Purchase of equipment and improvements                                          |   |                                             | (394,057   | ) |   |   | (42,927 | ) |
| Purchase of intangible asset                                                    |   |                                             | -          |   |   |   | (2,250,000 | ) |
| Net cash used in investing activities                                           |   |                                             | (394,057   | ) |   |   | (2,292,927 | ) |
| Financing Activities                                                            |   |                                             |       |   |   |   |   |   |
| Net change in bank line of credit                                               |   |                                             | (700,557   | ) |   |   | 119,294 |   |
| Long-term debt repayments                                                       |   |                                             | (5,851     | ) |   |   | (4,023,365 | ) |
| Net change in restricted cash                                                   |   |                                             | -          |   |   |   | 2,032,164 |   |
| Proceeds from issuance of common stock, net of costs                       |   |                                             | 367,321    |   |   |   | 4,511,840 |   |
| Net cash (used in) provided by financing activities                             |   |                                             | (339,087   | ) |   |   | 2,639,933 |   |
| Effect of exchange rate changes on cash                                         |   |                                             | 66,253     |   |   |   | 96,807 |   |
| Net increase in cash and cash equivalents                                       |   |                                             | 423,037    |   |   |   | 569,078 |   |
| Cash and cash equivalents                                                       |   |                                             |       |   |   |   |   |   |
| Beginning of period                                                             |   |                                             | 404,216    |   |   |   | 243,524 |   |
| End of period                                                                   |   | $                                                | 827,253    |   |   | $ | 812,602 |   |
| Supplemental disclosures of cash flow information:                              |   |                                             |       |   |   |   |   |   |
| Purchase of license rights                                                      |   | $                                           | -          |   |   | $ | 4,667,126 |   |
| Issuance of common stock and warrants                                           |   |                                             | -          |   |   |   | (2,417,126 | ) |
| Cash paid                                                                       |   | $                                                |  -    |   |   | $ | 2,250,000 |   |
|                                                                            |   |                                             |       |   |   |   |   |   |
| Cash paid during the period for:                                           |   |                                             |       |   |   |   |   |   |
| Interest                                                                        |   | $                                                | 101,013    |   |   | $ | 142,225 |   |

----

| DERMA SCIENCES, INC. AND SUBSIDIARIES                  |
|--------------------------------------------------------|
|                                                   |
| Notes to Consolidated Financial Statements (Unaudited) |

| 1. | Organization and Summary of Significant Accounting Policies |
|----|-------------------------------------------------------------|

|                        |   | Three Months Ended March 31, |      |
|-----------------------------|--------|--------------------------------------------------|-----------|
|                        |   |  2011                                       |      |   |  2010 |   |
| Dilutive shares:            |   |                                             |      |   |   |   |
| Convertible preferred stock |   |                                             | 284,844   |   |   |   | 285,064 |   |
| Restricted common stock     |   |                                             | 50,500    |   |   |   | - |   |
| Warrants                    |   |                                             | 1,358,906 |   |   |   | 1,734,531 |   |
| Stock options               |   |                                             | 1,341,132 |   |   |   | 1,168,350 |   |
|                        |   |                                             |      |   |   |   |   |   |
| Total dilutive shares       |   |                                             | 3,035,382 |   |   |   | 3,187,945 |   |

----

| DERMA SCIENCES, INC. AND SUBSIDIARIES                  |
|--------------------------------------------------------|
|                                                   |
| Notes to Consolidated Financial Statements (Unaudited) |

| 2. | Adjustment of Prior Year Financial Statement Amounts |
|----|------------------------------------------------------|

|                                  |   | As Adjusted |       |   | As PreviouslyReported |   |
|---------------------------------------|--------|------------------|------------|--------|----------------------------|--------|
| Consolidated Balance Sheet:           |   |             |       |   |                       |   |
| Deferred tax liability                |   | $                | 920,437    |   |                       | $      | 336,695 |   |
| Total liabilities                     |   |             | 9,553,766  |   |                       |   | 8,970,024 |   |
| Shareholders’ equity            |   |             | 27,764,901 |   |                       |   | 28,348,643 |   |
|                                  |   |             |       |   |                       |   |   |   |
| Consolidated Statement of Operations: |   |             |       |   |                       |   |   |   |
| Income taxes                          |   |             | 100,279    |   |                       |   | 56,494 |   |
| Net loss                              |   |             | (578,689   | )      |                       |   | (534,904 | ) |
| Net loss per common share             |   |             | (0.10      | )      |                       |   | (0.09 | ) |

| 3. | Inventories |
|----|-------------|

|                |   | March 31,2011 |       |   | December 31,2010 |   |
|---------------------|--------|--------------------|------------|--------|-----------------------|--------|
|                |   |               |       |   |                  |   |   |   |
| Finished goods      |   | $                  | 8,030,753  |   |                  | $      | 8,727,822 |   |
| Work in process     |   |               | 616,713    |   |                  |   | 598,486 |   |
| Packaging materials |   |               | 984,699    |   |                  |   | 778,900 |   |
| Raw materials       |   |               | 1,420,677  |   |                  |   | 2,393,311 |   |
|                |   |               |       |   |                  |   |   |   |
| Total inventory     |   | $                  | 11,052,842 |   |                  | $      | 12,498,519 |   |

| 4. | Line of Credit Borrowings |
|----|---------------------------|

----

| DERMA SCIENCES, INC. AND SUBSIDIARIES                  |
|--------------------------------------------------------|
|                                                   |
| Notes to Consolidated Financial Statements (Unaudited) |

| 5. | Shareholders’ Equity |
|----|----------------------------|

----

| DERMA SCIENCES, INC. AND SUBSIDIARIES                  |
|--------------------------------------------------------|
|                                                   |
| Notes to Consolidated Financial Statements (Unaudited) |

| Series |   |   | Number of Warrants |          |   | Exercise Price |   | Expiration Date |
|--------|--------|--------|------------------------------|---------------|--------|---------------------|--------|----------------------|
|   |   |   |                         |          |   |                |   |                 |
| H      |   |   |                         | 120,807       |   |                | $      | 8.00                 |   | April 30,2011 |
| J      |   |   |                         | 267,858       |   |                | $      | 6.16                 |   | May 31, 2013 |
| K      |   |   |                         | 389,064       |   |                | $      | 9.60                 |   | April 1, 2013 |
| L      |   |   |                         | 6,250         |   |                | $      | 3.12                 |   | March 31, 2014 |
| N      |   |   |                         | 100,000       |   |                | $      | 6.25                 |   | February 22, 2015 |
| O      |   |   |                         | 336,899       |   |                | $      | 5.50                 |   | February 22, 2015 |
| P      |   |   |                         | 4,695         |   |                | $      | 6.25                 |   | February 16, 2015 |
| Q      |   |   |                         |  133,333 |   |                | $      | 5.50                 |   | February 22, 2015 |
|   |   |   |                         |          |   |                |   |                 |   |   |
| Total  |   |   |                         | 1,358,906     |   |                |   |                 |   |   |

|   | Stock Options |
|--------|---------------|

| Risk-free interest rate      |   |   | 2.51 | %      |
|------------------------------|--------|--------|------|--------|
| Volatility factor            |   |   | 107  | %      |
| Dividend yield               |   |   | 0    | %      |
| Expected option life (years) |   |   | 6.25 |   |

----

| DERMA SCIENCES, INC. AND SUBSIDIARIES                       |
|-------------------------------------------------------------|
|                                                        |
| Notes to Consolidated Financial Statements (Unaudited) |

|                                    |   | Options |       |   | WeightedAverageExercise Price |   |
|-----------------------------------------|--------|---------|------------|--------|------------------------------------|--------|
|                                    |   |    |       |   |                               |   |   |   |
| Outstanding – January 1, 2011     |   |    | 1,203,600  |   |                               | $      | 5.07 |   |
| Granted                                 |   |    | 138,000    |   |                               |   | 4.95 |   |
| Exercised                               |   |    |  (468 | )      |                               |   | 3.04 |   |
|                                    |   |    |       |   |                               |   |   |   |
| Outstanding – March 31, 2011      |   |    | 1,341,132  |   |                               | $      | 5.06 |   |
|                                    |   |    |       |   |                               |   |   |   |
| Expected to vest – March 31, 2011 |   |    | 1,327,721  |   |                               | $      | 5.06 |   |
|                                    |   |    |       |   |                               |   |   |   |
| Exercisable at March 31, 2011           |   |    | 1,104,891  |   |                               | $      | 5.13 |   |

|                                         |   | Three Months Ended March 31, |    |
|----------------------------------------------|--------|--------------------------------------------------|---------|
|                                         |   | 2011                                             |    |   | 2010 |   |
|                                         |   |                                             |    |   |   |   |   |   |
| Cost of sales                                |   | $                                                | 24,713  |   |   | $ | 20,100 |   |
| Selling, general and administrative expenses |   |                                             | 224,174 |   |   |   | 145,276 |   |
|                                         |   |                                             |    |   |   |   |   |   |
| Total stock option compensation expense      |   | $                                                | 248,887 |   |   | $ | 165,376 |   |

----

| DERMA SCIENCES, INC. AND SUBSIDIARIES                  |
|--------------------------------------------------------|
|                                                   |
| Notes to Consolidated Financial Statements (Unaudited) |

| Convertible preferred shares (series A – D) |   |   | 284,844   |   |
|---------------------------------------------------|--------|--------|-----------|--------|
| Common stock options available for grant          |   |   | 85,425    |   |
| Common stock options outstanding                  |   |   | 1,341,132 |   |
| Common stock warrants outstanding                 |   |   | 1,358,906 |   |
| Restricted common stock grants                    |   |   | 50,500    |   |
| Restricted common stock available for grant       |   |   | 240,125   |   |
|                                              |   |   |      |   |
| Total common stock shares reserved                |   |   | 3,360,932 |   |

| 6. | Comprehensive Loss |
|----|--------------------|

|   | The Company’s comprehensive loss was as follows: |
|--------|--------------------------------------------------------|

|                                    |   | Three Months Ended March 31, |     |
|-----------------------------------------|--------|------------------------------|----------|
|                                    |   | 2011                         |     |   | 2010 |   |
|                                    |   |                         |     |   |   |   |
| Net loss as reported                    |   | $                            | (547,032 | ) |   | $ | (578,689 | ) |
| Other comprehensive income:             |   |                         |     |   |   |   |   |   |
| Foreign currency translation adjustment |   |                         | 124,705  |   |   |   | 176,273 |   |
|                                    |   |                         |     |   |   |   |   |   |
| Comprehensive loss                      |   | $                            | (422,327 | ) |   | $ | (402,416 | ) |

| 7. | Operating Segments |
|----|--------------------|

----

| DERMA SCIENCES, INC. AND SUBSIDIARIES                  |
|--------------------------------------------------------|
|                                                   |
| Notes to Consolidated Financial Statements (Unaudited) |

| Three Months Ended March 31, 2011 |   |
|------------------------------------------------------------|--------|
|                                                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                       |   | Wound Care |   |   | Wound Closure-SpecialtySecurement Devices |   |   | Skin Care |   |   | Other |   |   | TotalCompany |   |
|                                                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net sales                                                  |   | $ | 13,799,246 |   |   | $ | 441,354 |   |   | $ | 130,671 |   |   |   | - |   |   | $ | 14,371,271 |   |
|                                                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Gross profit                                               |   |   | 4,156,228 |   |   |   | 238,736 |   |   |   | 33,418 |   |   |   | - |   |   |   | 4,428,382 |   |
| Total expenses                                             |   |   | - |   |   |   | - |   |   |   | - |   |   | $ | (4,975,414 | ) |   |   | (4,975,414 | ) |
|                                                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net loss                                                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | $ | (547,032 | ) |

| Three Months Ended March 31, 2010 |   |
|------------------------------------------------------------|--------|
|                                                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net sales                                                  |   | $ | 12,247,021 |   |   | $ | 473,471 |   |   | $ | 123,890 |   |   |   | - |   |   | $ | 12,844,382 |   |
|                                                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Gross profit                                               |   |   | 3,693,464 |   |   |   | 265,800 |   |   |   | 30,636 |   |   |   | - |   |   |   | 3,989,900 |   |
| Total expenses                                             |   |   | - |   |   |   | - |   |   |   | - |   |   | $ | (4,568,589 | ) |   |   | (4,568,589 | ) |
|                                                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net loss                                                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | $ | (578,689 | ) |

|          |   | Three Months Ended March 31, |   |
|---------------|--------|--------------------------------------------------|--------|
|          |   |                                             |   |   |   |   |
|          |   | 2011                                             |   |   | 2010 |   |
|          |   |                                             |   |   |   |   |
| United States |   |                                             | 67     | % |   |   | 68 | % |
| Canada        |   |                                             | 26     | % |   |   | 28 | % |
| Other         |   |                                             | 7      | % |   |   | 4 | % |

----

| DERMA SCIENCES, INC. AND SUBSIDIARIES                  |
|--------------------------------------------------------|
|                                                   |
| Notes to Consolidated Financial Statements (Unaudited) |

| 8. | Income Taxes |
|----|--------------|

|               |   | 2011   |   |   | 2010   |   |
|--------------------|--------|--------|--------|--------|--------|--------|
|               |   |   |   |   |   |   |
| Income tax expense |   | $      | 73,368 |   |   | $      | 100,279 |   |
| Effective tax rate |   |   | (15.5  | %)     |   |   | (21.0 | %) |

----

|                                        |   | Quarter Ended March 31, |       | Variance            |
|---------------------------------------------|--------|----------------------------------------|------------|---------------------|
|                                   |   | 2011                                   |       | 2010                |   |   |
| Gross sales                                 |   | $                                      | 17,122,198 |                |   | $ | 15,451,136 |   |   | $ | 1,671,062 |     |   |   | 10.8 | %  |
| Sales adjustments                           |   |                                   | (2,750,927 | )    |   |   | (2,606,754 | )    |   |   | (144,173 | )   |   |   | 5.5 | %  |
| Net sales                                   |   |                                   | 14,371,271 |                |   |   | 12,844,382 |   |   |   | 1,526,889 |     |   |   | 11.9 | % |
| Cost of sales                               |   |                                   | 9,942,889  |                |   |   | 8,854,482 |   |   |   | 1,088,407 |     |   |   | 12.3 | %  |
| Gross profit                                |   |                                   | 4,428,382  |                |   |   | 3,989,900 |   |   |   | 438,482 |   |   |   | 11.0 | %  |
|                                        |   |                                   |       |                |   |   |   |   |   |   |   |   |   |   |   |   |
| Selling, general and administrative expense |   |                                   | 4,738,019  |                |   |   | 4,187,745 |   |   |   | 550,274 |     |   |   | 13.1 | % |
| Research and development expense            |   |                                   | 143,827    |                |   |   | 116,107 |   |   |   | 27,720 |   |   |   | 23.9 | %  |
| Interest expense                            |   |                                   | 93,629     |                |   |   | 159,892 |   |   |   | (66,263 | )    |   |   | (41.4 | )% |
| Loss on debt extinguishment                 |   |                                   | -          |                |   |   | 114,072 |   |   |   | (114,072 | ) |   |   | - | %  |
| Other income, net                           |   |                                   | (73,429    | )    |   |   | (109,506 | )   |   |   | 36,077 |     |   |   | (33.0 | )% |
| Total expenses                              |   |                                   | 4,902,046  |                |   |   | 4,468,310 |   |   |   | 433,736 |     |   |   | 9.7 | % |
| Loss before income taxes                    |   |                                   | (473,664   | )    |   |   | (478,410 | )    |   |   | 4,746 |   |   |   | 1.0 | % |
| Income taxes                                |   |                                   | 73,368     |      |   |   | 100,279 |    |   |   | (26,911 | )  |   |   | (26.8 | )% |
| Net loss                                    |   | $                                      | (547,032   | )              |   | $ | (578,689 | ) |   | $ | 31,657 |   |   |   | 5.5 | % |

|                   |   | Quarter Ended March 31, |
|------------------------|--------|----------------------------------------|
|                   |   | 2011                                   |   | 2010 |
| Gross sales            |   | $                                      | 17,122,198 |   |   | $ | 15,451,136 |   |
| Trade rebates          |   |                                   | (2,033,670 | )    |   |   | (1,947,867 | )    |
| Distributor fees       |   |                                   | (350,548 | )    |   |   | (329,673 | )    |
| Sales incentives       |   |                                   | (172,151 | )    |   |   | (123,810 | )    |
| Returns and allowances |   |                                   | (64,717 | )    |   |   | (97,154 | )    |
| Cash discounts         |   |                                   | (129,841 | )    |   |   | (108,250 | )    |
| Total adjustments      |   |                                   | (2,750,927 | )  |   |   | (2,606,754 | ) |
| Net sales              |   | $                                      | 14,371,271 |   |   | $ | 12,844,382 |   |

----

|                                          |   | March 31, |       |
|-----------------------------------------------|--------|-----------|------------|
|                                          |   | 2011      |       |   | 2010 |   |
| Beginning balance – January 1 |   | $         | 3,033,091  |   |   | $ | 2,493,232 |   |
| Rebates paid                                  |   |      | (2,538,766 | )    |   |   | (2,096,942 | ) |
| Rebates accrued                               |   |      | 2,033,670  |   |   |   | 1,947,867 |   |
| Ending balance – March 31     |   | $         | 2,527,995  |   |   | $ | 2,344,157 |   |

|           |   | Quarter Ended March 31, |       |   | Variance |   |
|----------------|--------|----------------------------------------|------------|--------|----------|--------|
|           |   | 2011                                   |       |   | 2010     |   |   |   |   |
| Net Sales      |   | $                                      | 14,371,271 |   |     | $      | 12,844,382 |   |   | $ | 1,526,889 |   |   |   | 11.9 | % |
| Cost of sales  |   |                                   | 9,942,889  |   |     |   | 8,854,482 |   |   |   | 1,088,407 |   |   |   | 12.3 | % |
| Gross Profit   |   | $                                      | 4,428,382  |   |     | $      | 3,989,900 |   |   | $ | 438,482 |   |   |   | 11.0 | % |
| Gross Profit % |   |                                   | 30.8       | %      |     |   | 31.1 | % |   |   |   |   |   |   |   |   |

----

|                       |   | Quarter Ended March 31, |      |   | Variance |   |
|----------------------------|--------|----------------------------------------|-----------|--------|----------|--------|
|                       |   | 2011                                   |      |   | 2010     |   |   |   |   |
| Distribution               |   | $                                      | 465,312   |   |     | $      | 451,426 |   |   | $ | 13,886 |   |   |   | 3.1 | % |
| Marketing                  |   |                                   | 426,340   |   |     |   | 328,082 |   |   |   | 98,258 |   |   |   | 30.0 | % |
| Sales                      |   |                                   | 1,837,212 |   |     |   | 1,458,427 |   |   |   | 378,785 |   |   |   | 26.0 | % |
| General and administrative |   |                                   | 2,009,155 |   |     |   | 1,949,810 |   |   |   |  59,345 |   |   |   | 3.0 | % |
| Total                      |   | $                                      | 4,738,019 |   |     | $      | 4,187,745 |   |   | $ | 550,274 |   |   |   | 13.1 | % |

----

----

----

|   | 1. | Assuming the existing resources in place are generating the expected return, we will continue to expand our worldwide investment in sales and marketing resources in support of our higher margined advanced wound care products.  In February 2010, we in-licensed the worldwide rights to Medihoney.  This will serve as the catalyst for the expansion of our international business.  We have established a direct presence in Europe and, ultimately, will serve other areas of the world employing a direct presence or distributor model as the basis for conducting business, as circumstances dictate. |
|--------|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 2. | While the commercial launch of DSC127 is estimated to be three to four years away (assuming successful completion of the Phase III trial), we believe the market potential for this product for diabetic foot ulcers and the other indications that we have the rights to are significant.  The final results of the Phase II trial for diabetic foot ulcers will determine the efficacy and safety of the product and further refine its market potential.  The cost of the Phase III trial and bringing the product to market are expected to be in the range of $30 to $40 million.  Should we decide to proceed with the DSC127 development plan for diabetic foot ulcers after completion of Phase II, we plan to fund the additional development costs via a joint venture, out of available cash flow and/or the sale of equity.  Alternatively, we may determine to sublicense or sell the rights to the compound. |
|--------|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 3. | The first aid products business represents a growth opportunity.  In addition to its core business opportunities, the first aid products business will serve as a platform for introducing our existing advanced and traditional wound care products to new customers and markets, especially the retail market. |
|--------|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| Item 4. | CONTROLS AND PROCEDURES |
|---------|-------------------------|

----

| Item 1A. | Risk Factors |
|----------|--------------|

| Year   |   | Low    |   |   | High   |   |
|--------|--------|--------|--------|--------|--------|--------|
|   |   |   |   |   |   |   |
| 2006   |   | $      | 3.60   |   |   | $      | 7.20 |   |
| 2007   |   | $      | 4.64   |   |   | $      | 11.20 |   |
| 2008   |   | $      | 1.60   |   |   | $      | 10.80 |   |
| 2009   |   | $      | 1.92   |   |   | $      | 6.80 |   |
| 2010   |   | $      | 4.40   |   |   | $      | 9.00 |   |
| 2011 * |   | $      | 4.55   |   |   | $      | 12.60 |   |

|   | • | Quarter to quarter variations in our operating results; |
|--------|---------|---------------------------------------------------------|

|   | • | Changes in earnings estimates by securities analysts; |
|--------|---------|-------------------------------------------------------|

|   | • | Changes in interest rates or other general economic conditions; |
|--------|---------|-----------------------------------------------------------------|

|   | • | Changes in market conditions in the wound care industry; |
|--------|---------|----------------------------------------------------------|

|   | • | Fluctuations in stock market prices and trading volumes of similar companies; |
|--------|---------|-------------------------------------------------------------------------------|

|   | • | Discussion of us or our stock price by the financial and scientific press and in online investor communities; |
|--------|---------|---------------------------------------------------------------------------------------------------------------|

|   | • | Additions or departures of key personnel; |
|--------|---------|-------------------------------------------|

|   | • | Changes in third party reimbursement policies; |
|--------|---------|------------------------------------------------|

|   | • | The introduction of new products either by us or by our competitors; and |
|--------|---------|--------------------------------------------------------------------------|

----

|   | • | The loss of a major customer. |
|--------|---------|-------------------------------|

| Exhibit |         | Description                                                                                                                                           |
|---------|--------------|-------------------------------------------------------------------------------------------------------------------------------------------------------|
|    |         |                                                                                                                                                  |
| 31.1    |         | Certification of the Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                            |
| 31.2    |         | Certification of the Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                            |
| 32.1    |         | Certification of the Principal Executive Officer pursuant to U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
| 32.2    |    | Certification of the Principal Financial Officer pursuant to U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |

|                           | DERMA SCIENCES, INC. |                    |
|--------------------------------|----------------------|-------------------------|
|                           |                 |                    |   |
| Dated:  May 10, 2011 | By:                  | /s/ John E. Yetter      |   |
|                           |                 | John E. Yetter, CPA     |   |
|                           |                 | Chief Financial Officer |   |

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