Derma Sciences Reports Record Revenues and Net Income For the Second Quarter 2006; Sales Increase an Adjusted 45%; Six Month Gross Profit Margin Reaches 37%.

PRINCETON, N.J. -- Derma Sciences, Inc. (OTCBB: DSCI), a manufacturer and full line supplier of wound and skin care products, today reported its results for the three and six months ended June 30, 2006.

For the second quarter 2006, the Company reported net sales of $7.4 million and net income of $330,790, or $0.02 per share basic and $0.01 per share diluted, compared to net sales of $6.9 million and net income of $158,184 or $0.01 per share basic and diluted for the second quarter of 2005. The net sales increase of $0.5 million reflects strong 2006 sales growth partially offset by the non-recurrence of a $1.8 million one-time sales benefit in the second quarter 2005 related to the implementation of the Company's exclusive distribution agreement in Canada. Sales in the second quarter 2006 benefited from the addition of incremental sales of $1.3 million associated with the Western Medical acquisition in April 2006, $0.6 million related to strong private label sales growth and favorable exchange. Excluding the effects of the 2005 sales benefit, sales in the second quarter 2006 increased 45%.

Gross profit margin increased to 36.8% in the second quarter 2006 versus 32.3% in the second quarter of 2005. This improvement stems from the combined effects of higher sales, favorable product mix, and lower product costs.

The Company reported net sales of $13.1 million and net income of $388,510, or $0.02 per share basic and diluted for the first six months of 2006 compared to net sales of $11.8 million and a net loss of $54,868 in 2005. Gross profit margin for the first six months of 2006 was 37.4% compared to 31.4% in 2005. Adjusted for the 2005 one-time sales benefit and foreign exchange, sales grew 15% in the first six months of 2006 versus 2005. As expected, the Company continues to realize the benefit of its ongoing manufacturing and sourcing initiatives while closely monitoring operating expenses.

In accordance with SFAS 123R, net income for the first six months of 2006 includes equity-based compensation expense of $98,337 related to employee stock option and restricted common stock grants. Excluding these expenses, net income for the first six months would have been $486,847, or $0.03 per share basic and $0.02 per share diluted.

Edward J. Quilty, Chairman, President and CEO of Derma Sciences commented, "The second quarter of 2006 was our best quarter ever. We believe this serves as a clear example that our financial performance to date is validating the company's growth strategy. Our recent acquisition of Western Medical has paid immediate dividends. Not only did we generate an additional $1.3 million in revenue from the acquisition, but more importantly, we were able to integrate these sales using our existing infrastructure. Thus we were able to drop the bulk of the gross margin on these sales to the bottom line. This is exactly what we told the investment community we would do when we completed the acquisition in April of this year and I'm proud that were able to deliver on that promise so quickly. Year-to-date we have generated nearly $500,000 in net income after adjusting for equity based compensation expenses. Cash flow is excellent and we are keeping a tight rein on expenses. To that end, our on-going cost savings programs continue to identify opportunities for us to reduce our expenses and increase our profit margin."

"Looking ahead," Quilty continued, "Our private label business continues to drive our wound care sales and we expect growth of this business will accelerate as the existing business grows and we add new customers. As a Company, we are focusing on new products and we are excited about some near-term opportunities. We hope to introduce two new products in the second half of 2006, and we have a number of follow-on products slated for launch in 2007. Our strategy continues to focus on improving revenues and earnings through a combination of organic growth, new products as well as synergistic and accretive acquisitions. We believe that our results this quarter provide strong evidence of our commitment to deliver on this strategy."

Derma Sciences will hold a conference call at 11:00 a.m. EDT today to discuss these results. Interested parties should call 800.638.4930 (domestic) or 617.614.3944 (international), with passcode 24215828 to access the call. You may also access this call via the Internet at: http://phx.corporate-ir.net/playerlink.zhtml?c=107533&s=wm&e=1366652

For those who are unavailable to listen to the live broadcast, a replay will be available through August 22, 2006 and can be accessed by dialing 888-286-8010 (domestic), and 617-801-6888 (international). The pass code is 11037412.

About Derma Sciences, Inc.

Derma Sciences, Inc. provides a full range of skin care; wound management and specialty securement devices that are used primarily in the professional markets, specifically hospitals, nursing homes and home care settings. For more information about Derma Sciences, Inc., visit its home page on the Internet at http://www.dermasciences.com.

Forward-looking Statements 

Statements contained in this release that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the generality of the foregoing, words such as "may," "will," "expect," "believe," "anticipate," "intend," "could," "estimate" or "continue" are intended to identify forward-looking statements. Readers are cautioned, that certain important factors may affect the Company's actual results and could cause such results to differ materially from any forward-looking statements which may be made in this release or which are otherwise made by or on behalf of the Company. Factors which may affect the Company's results include, but are not limited to, product demand, market acceptance, impact of competitive products and prices, product development, completion of an acquisition, commercialization or technological difficulties, the success or failure of negotiations and trade, legal, social and economic risks. Additional factors that could cause or contribute to differences between the Company's actual results and forward-looking statements Include but are not limited to, those discussed in the Company's filings with the Securities and Exchange Commission.

DERMA SCIENCES, INC AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF OPERATIONS
                               UNAUDITED

                                                 Three months ended
                                                      June 30,
                                                   2006        2005
----------------------------------------------------------------------
Net sales                                     $ 7,386,681 $ 6,934,218
Cost of sales                                   4,669,119   4,693,456
----------------------------------------------------------------------
Gross Profit                                    2,717,562   2,240,762
----------------------------------------------------------------------
Operating expenses                              2,254,712   1,968,312
Interest expense, net                             110,145      95,269
Other expense, net                                 21,915      18,997
----------------------------------------------------------------------
Total Expenses                                  2,386,772   2,082,578
----------------------------------------------------------------------
Income before provision for income taxes          330,790     158,184
Provision for income taxes                              -           -
----------------------------------------------------------------------
Net Income                                    $   330,790 $   158,184
----------------------------------------------------------------------
Income per common share - basic               $      0.02 $      0.01
----------------------------------------------------------------------
Income per common share - diluted             $      0.01 $      0.01
----------------------------------------------------------------------
Shares used in computing income per common
 share - basic                                 20,805,423  12,284,007
----------------------------------------------------------------------
Shares used in computing income per common
 share -diluted                                25,207,546  14,745,538
----------------------------------------------------------------------

                                                   Six months ended
                                                       June 30,
                                                   2006        2005
----------------------------------------------------------------------
Net sales                                     $13,143,595 $11,827,665
Cost of sales                                   8,234,032   8,116,059
----------------------------------------------------------------------
Gross Profit                                    4,909,563   3,711,606
----------------------------------------------------------------------
Operating expenses                              4,376,464   3,732,825

Interest expense, net                             192,195     179,853
Other income, net                                 (47,606)   (146,204)
----------------------------------------------------------------------
Total Expenses                                  4,521,053   3,766,474
----------------------------------------------------------------------
Income (loss) before provision for
 income taxes                                     388,510     (54,868)
Provision for income taxes                              -           -
----------------------------------------------------------------------
Net Income (Loss)                             $   388,510 $   (54,868)
----------------------------------------------------------------------
Income (loss) per common share - basic        $      0.02 $      0.00
----------------------------------------------------------------------
Income (loss) per common share -diluted       $      0.02 $      0.00
----------------------------------------------------------------------
Shares used in computing income (loss) per
 common share - basic                          16,569,131  12,147,841
----------------------------------------------------------------------
Shares used in computing income (loss) per
 common share - diluted                        20,455,906  12,147,841
----------------------------------------------------------------------