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                       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              March 31, 1999
                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:  March 31, 1999            Class:  Common Stock, par value $.01 per share
                                 Shares Outstanding:  6,235,789




<PAGE>

                              DERMA SCIENCES, INC.

                                   FORM 10-QSB

                                      INDEX

Description

Part I - Financial Information

     Item 1.  Consolidated Financial Statements

          Balance Sheet - March 31, 1999...................................... 2

          Statements of Operations - Three months ended March 31, 1999
             and March 31, 1998............................................... 3

          Statements of Cash Flows - Three months ended March 31, 1999
             and March 31, 1998............................................... 4

          Notes to Consolidated Financial Statements.......................... 5

     Item 2.  Management's Discussion and Analysis of Financial Condition
             and Results of Operations........................................ 8

Part II - Other Information

     Item 1.  Legal Proceedings...............................................10

     Item 6.  Exhibits and Reports on Form 8-K................................10


<PAGE>

                              DERMA SCIENCES, INC.
                           CONSOLIDATED BALANCE SHEET
                                 March 31, 1999
                                   (Unaudited)


                                     ASSETS
                                                                  
                                                                  
CURRENT ASSETS
   Cash and cash equivalents                                       $2,039,975 
   Accounts receivable, net                                         1,855,870 
   Inventories                                                      1,602,018 
   Current portion of officers' notes receivable                       19,330 
   Prepaid expenses and other current assets                          249,477 
                                                                   ----------
      Total Current Assets                                          5,766,670 

PROPERTY AND EQUIPMENT, NET                                           387,552 

OTHER ASSETS
   Officers' notes receivable                                          76,034 
   Goodwill and other intangibles, net                              1,639,054 
   Other                                                               17,508 
                                                                   -----------

     Total Assets                                                  $7,886,818 
                                                                   ===========

                      LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES
   Bank line of credit                                             $1,000,000 
   Accounts payable                                                   920,542 
   Accrued expenses and other current liabilities                     969,266 
                                                                   -----------
      Total Current Liabilities                                     2,889,808 
                                                                   -----------


SHAREHOLDERS' EQUITY
   Common stock, $.01 par value; 15,000,000 shares
      authorized; issued and outstanding: 6,235,789 shares             62,357 
   Convertible preferred stock, $.01 par value; 5,083,333
      shares authorized; issued and outstanding: 5,070,833
      shares                                                           50,709 
   Additional paid-in capital                                      10,695,973 
   Accumulated deficit                                             (5,812,029) 
                                                                   -----------
      Total Shareholders' Equity                                    4,997,010 
                                                                   -----------

           Total Liabilities and Shareholders' Equity              $7,886,818 
                                                                   ===========



See Notes to Consolidated Financial Statements.


                                       2

<PAGE>

                              DERMA SCIENCES, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                  (UNAUDITED)


                                                          THREE MONTHS ENDED
                                                               MARCH 31,
                                                        1999            1998
                                                     ----------      -----------
NET SALES                                            $2,583,818      $2,203,710
                                                                     
COST OF SALES                                           898,962         533,218
                                                     ----------      -----------
                                                                     
GROSS PROFIT                                          1,684,856       1,670,492
                                                     ----------      -----------
                                                                     
Selling, general and administrative expenses          2,163,384       1,592,982
Other income and expense, net                            (9,587)        (10,981)
                                                     ----------      -----------
                                                      2,153,797       1,582,001
                                                     ----------      -----------
                                                                     
(Loss) income before provision for income taxes        (468,941)         88,491
Provision for income taxes                                    0          16,880
                                                     ----------      -----------
                                                                     
NET (LOSS) INCOME                                    $ (468,941)        $71,611
                                                     ==========      ===========
                                                                     
                                                                     
(LOSS) INCOME PER COMMON SHARE

Basic and diluted                                        ($0.08)          $0.01
                                                     ==========      ===========
                                                                     
Shares used in computing (loss) income
 per common share                                     6,235,789       6,248,971
                                                     ==========      ===========
                                                                     
                                                                     
                                                                     
See Notes to Consolidated Financial Statements.                       

                                       3

<PAGE>

                              DERMA SCIENCES, INC.
                      CONSOLIDATED STATEMENT OF CASH FLOWS
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                     THREE MONTHS ENDED
                                                                          MARCH 31,
                                                                   1999                1998
                                                               -----------         -----------
<S>                                                            <C>                 <C>
OPERATING ACTIVITIES                                                               
   Net (loss) income                                           $ (468,941)         $   71,611
   Adjustments to reconcile net (loss) income to net cash                                   
     used in operating activities                                                  
       Depreciation and amortization                               78,413              62,260
       Medicaid rebate adjustments                                      0            (150,000)
       Provision for bad debts                                     13,400                   0
       Changes in operating assets and liabilities                                 
           Accounts receivable                                   (491,051)            (18,647)
           Inventories                                             43,538            (143,635)
           Prepaid expenses and other current assets              (33,016)           (147,343)
           Other assets                                              (861)               (210)
           Accounts payable                                      (113,873)           (161,710)
           Accrued expenses and other current liabilities            (921)           (245,927)
                                                               -----------         -----------
             Net Cash Used in Operating Activities               (973,312)           (733,601)
                                                               -----------         -----------
                                                                                   
INVESTING ACTIVITIES                                                               
   Purchases of property and equipment, net                       (24,247)             (7,006)
                                                               -----------         -----------
             Net Cash Used In Investing Activities                (24,247)             (7,006)
                                                               -----------         -----------
                                                                                   
FINANCING ACTIVITIES                                                               
   Net change in bank line of credit                              700,000             139,367
   Principal payments on long term debt                                 0              (1,470)
   Purchase and retirement of treasury stock                       (1,018)         
                                                               -----------         -----------
             Net Cash Provided by Financing Activities            698,982             137,897
                                                               -----------         -----------
                                                                                   
NET DECREASE  IN CASH AND                                                          
   CASH EQUIVALENTS                                              (298,577)           (602,710)
                                                                                   
CASH AND CASH EQUIVALENTS AT THE                                                   
   BEGINNING OF THE PERIOD                                      2,338,552           2,514,559
                                                               -----------         -----------
                                                                                   
CASH AND CASH EQUIVALENTS AT THE                               
   END OF THE PERIOD                                           $2,039,975          $1,911,849
                                                               ===========         ===========   
                                                                                    
See Notes to Consolidated Financial Statements.
</TABLE>

                                       4

<PAGE>


                              DERMA SCIENCES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

NOTE 1 - THE COMPANY

           Derma Sciences, Inc. and Subsidiaries (the "Company") is a full line
provider of advanced wound and skin care products. The Company markets its
products principally through independent distributors servicing the long-term
care, home health and acute care markets in the United States and select
international markets.

           On September 9, 1998 the Company acquired Genetic Laboratories Wound
Care, Inc. ("Genetic Labs"), in a business combination accounted for as a
pooling of interests. Genetic Labs markets proprietary wound care products,
primarily wound closure strips, specialty fasteners and net dressings. Sales are
made primarily to medical supply distributors throughout the United States and
in foreign countries, mainly Europe, utilizing independent sales
representatives.

           On October 29, 1998 the Company acquired all of the issued and
outstanding stock of Sunshine Products, Inc. ("Sunshine Products"), in a
business combination accounted for as a purchase. Sunshine Products is a
manufacturer of general purpose and specialized skincare products for hospitals,
nursing homes and other institutional facilities.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

           The consolidated financial statements include the accounts of Derma
Sciences, Inc. and its wholly owned subsidiaries Genetic Laboratories Wound
Care, Inc. and Sunshine Products, Inc. All significant intercompany accounts and
transactions have been eliminated in consolidation.

           The preparation of consolidated financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amount of assets and
liabilities and disclosure of contingent assets and liabilities as of the date
of the consolidated financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from those
estimates.

           For purposes of presenting cash flows, the Company considers cash and
cash equivalents as amounts on hand, on deposit in financial institutions and
highly liquid investments purchased with an original maturity of three months or
less.

                                       5

<PAGE>


                              DERMA SCIENCES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

NOTE 3 - BASIS OF PRESENTATION

           The accompanying unaudited condensed consolidated 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 three-month
period ended March 31, 1999, are not necessarily indicative of the results that
may be expected for the year ending December 31, 1999. For further information,
refer to the financial statements and footnotes thereto for the year ended
December 31, 1998, included in Form 10-KSB, as amended, filed with the
Securities and Exchange Commission.

NOTE 4 - INCOME TAXES

           The Company accounts for income taxes under the liability method.
Under this method, deferred tax assets and liabilities are determined based on
differences between financial reporting and tax bases of assets and liabilities
and are measured using the enacted tax rates and laws that will be in effect
when the differences are expected to reverse.

           At December 31, 1998, the Company has net operating loss
carryforwards of approximately $4,780,000 for federal tax purposes that begin to
expire in years 2011 through 2018. For state tax purposes, the Company has net
operating loss carryforwards of $3,750,000 that expire in years 2004 through
2008. During 1998 the Company had a change in control as defined by the Internal
Revenue Code Section 382. Consequently, certain limitations may apply to limit
the timing and amount of such net operating loss carryforwards. Accordingly, no
provision for income taxes has been included in the accompanying financial
statements.

NOTE 5 - THE NASDAQ STOCK MARKET LISTING

           The Company is not in compliance with the Nasdaq SmallCap Market
("SmallCap Market") listing requirement relative to maintenance of a minimum bid
price per share of $1.00. The Company intends to formulate and implement plans
for achieving compliance with the SmallCap Market's minimum bid price
requirements so as to maintain the Company's SmallCap Market listing.

           The Company's failure to maintain a minimum bid price per share of
$1.00 would ultimately result in the Company's common stock being delisted from
the SmallCap Market. Were this to occur, the common stock would trade
exclusively on the Nasdaq Bulletin Board, the Boston Stock Exchange and the
Pacific Exchange. Delisting of the Company's common stock

                                       6

<PAGE>


                              DERMA SCIENCES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

from the SmallCap Market could make it more difficult for the Company's
shareholders to sell their shares and could also make it more difficult for the
Company to secure additional financing.

NOTE 6 - YEAR 2000 COMPATIBILITY

           The year 2000 issue is the result of computer programs being written
using two digits rather than four to define the applicable year. In other words,
date sensitive software may recognize a date using"00" as the year 1900 rather
than the year 2000. This could result (for non-compliant systems) in system
failures or miscalculations causing disruptions of operations, including, among
others, a temporary inability to process transactions and information or engage
in similar normal business activities.

           The Company has conducted in depth examinations of its computer
systems, and those of its vendors and suppliers, with a view to ascertaining the
compliance of these systems with the year 2000. The Company has requested
assurances from all vendors from which it has purchased, or from which it may
purchase, software that such software will correctly process all date
information at all times. The Company has also requested that its suppliers and
contractors furnish assurances that their computer systems will correctly
process date information relative to the year 2000. The Company, in each of the
foregoing cases, has received assurances satisfactory to it relative to the year
2000 issue.

           During 1998 and during the first quarter, 1999, the Company expended
$25,000 and $20,000, respectively, in the conduct of the foregoing year 2000
examinations. Based upon these examinations, the Company believes that: (1) its
computer systems, and those of its suppliers, are year 2000 compliant, (2) costs
associated with addressing the year 2000 issue have not had, and will not have,
a material adverse impact on the Company's financial position, and (3) no
further examinations relative to the year 2000 issue are warranted.

                                       7

<PAGE>

                              DERMA SCIENCES, INC.
                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS


QUARTER ENDED MARCH 31, 1999 COMPARED TO QUARTER ENDED MARCH 31, 1998

RESULTS OF OPERATIONS

Net Sales and Gross Profit

           Net sales for the first quarter, 1999 increased $380,108, or 17%, to
$2,583,818 from $2,203,710 in the first quarter, 1998. The increase in net sales
is the result of the addition of Sunshine Products net sales of $693,000 offset
by decreases in Derma Sciences and Genetic Labs net sales of $294,892 and
$18,000, respectively.

           Medicaid rebates incurred by the Company are reflected as a reduction
to sales. The quarter ended March 31, 1999 included Medicaid rebates of $64,042
while the quarter ended March 31, 1998 had net Medicaid rebate adjustments which
resulted in an increase to sales of $150,000.

           Cost of sales, expressed as a percentage of net sales, increased from
21% in the first quarter, 1998 to 35% in the first quarter, 1999. Aggregate cost
of sales increased $365,744, or 69%, to $898,962 in the first quarter, 1999 from
$533,218 in the first quarter, 1998. This increase is attributable to the sales
mix, primarily the addition of the Sunshine Products skin care line, which has a
higher cost of sales.

           Gross profit, expressed as a percentage of net sales, decreased from
76% in the first quarter, 1998 to 65% in the first quarter, 1999. This decrease
is attributable to the sales mix, primarily the addition of the Sunshine
Products skin care line, which has a higher cost of sales. Aggregate gross
profit increased $14,364, or less than 1%, to $1,684,856 in the first quarter,
1999 from $1,670,492 in the first quarter, 1998. The increase in the aggregate
gross profit is the net result of the previously mentioned increase in net sales
offset by the higher cost of sales of the Sunshine Product skin care line.

Operating Expenses

           Operating expenses increased $571,796, or 36%, from $1,582,001 in the
first quarter, 1998 to $2,153,797 in the first quarter, 1999. This increase is
primarily attributable to the addition of Sunshine Products and its
manufacturing operations, plus the addition of twenty direct sales
representatives, which increased wages and travel costs.

                                       8

<PAGE>


Net (Loss) Income

           The Company generated a loss of $468,941, or $0.08 per share, for the
first quarter, 1999 compared to income of $71,611, or $0.01 per share, for the
first quarter, 1998.

LIQUIDITY AND CAPITAL RESOURCES

           The Company's cash, cash equivalents and short-term investments at
March 31, 1999 increased $119,614, or 6%, to $2,039,975 from $1,920,361 at March
31, 1998. The Company's working capital at March 31, 1999 increased $194,966, or
7%, to $2,876,862 from $2,681,896 at March 31, 1998.

           On November 19, 1997, the Company successfully closed on its
$1,800,000 securities offering (exclusive of commissions and related expenses).
On November 24, 1997, $400,000 of such securities were converted directly into
common stock and warrants. The remaining $1,400,000 of the securities were
converted to preferred stock and warrants, effective as of December 31, 1997.
The proceeds of the convertible securities were invested in short term,
investment grade commercial paper having an aggregate market value of $1,808,000
on December 31, 1997.

           Further, on July 14, 1998, the Company successfully closed a private
placement of convertible securities ("Class B Securities") in which an aggregate
of $4.0 million was raised (net proceeds were $3,955,000 after related costs).
Terms of the Class B Securities required that upon approval by the Company's
shareholders of at least 3,333,400 additional shares of preferred stock, the
Class B securities automatically convert into Class B Units at the rate of $1.20
per Unit. Each Class B Unit consists of one share of preferred stock convertible
into one share of common stock ("Class B Preferred") and one warrant to purchase
one share of common stock exercisable at $1.35 per share ("Class B Warrants").
The Class B Securities at year-end have been classified as preferred stock.
Class B Warrants issued in connection with this offering totaled 3,333,400.

           The Company has a short-term line of credit facility for $1,000,000,
which $1,000,000 was outstanding at March 31, 1999, at a fluctuating rate per
annum equal to the prime rate minus 1%, (6.75% at March 31, 1999). This line of
credit is secured by cash on deposit with the bank.

           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,

                                       9

<PAGE>


product development, commercialization or technological delays or difficulties,
and trade, legal, social, financial and economic risks.


                           PART II - OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

           The Company and Hyperion Medical, Inc. ("Hyperion"), on or about
March 23, 1999, entered into a Settlement Agreement and stipulated to the entry
of a Final Judgment (collectively, "Agreement and Judgment") in the case of
Derma Sciences, Inc. vs. Hyperion Medical, Inc. (the "Action"). The Action was
instituted by the Company against Hyperion on June 8, 1998 to enjoin Hyperion
from infringing the Company's U.S. Patent No. 4,847,083 relative to Dermagran
Spray and Dermagran Ointment and to recover damages relative to such
infringement.

           The Agreement and Judgment provides as follows: (1) Hyperion admits
that U.S. Patent No. 4,847,083 (the "Patent") is valid and enforceable; (2)
Hyperion is permanently enjoined from infringing or inducing the infringement of
the Patent; (3) the Action is dismissed; and (4) the Company and Hyperion bear
their own costs in connection with the Action.

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 31, 1999, are incorporated herein by
reference.

          Item           Description
          ----           -----------
           27            Financial Data Schedule (filed electronically with the
                         U. S. Securities and Exchange Commission only)

(B) REPORTS ON FORM 8-K. On January 11, 1999 and February 11, 1999 the Company
filed amended current reports on Form 8-K relative to its acquisition of
Sunshine Products, Inc.




<PAGE>


           Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.


                                            DERMA SCIENCES, INC.



Dated:  May 14, 1999                        By:  /s/ Stephen T. Wills
                                               ----------------------
                                               Stephen T. Wills, CPA, MST
                                               Vice President and
                                               Chief Financial Officer






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