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Item 1.01 Entry into a Material Definitive Agreement

On December 30, 2005, the board of directors of Derma Sciences, Inc. (the “Company”) approved the acceleration of vesting of unvested stock options held by officers, directors and employees of the Company. The vesting of options to purchase 828,533 shares of common stock, with exercise prices ranging from $0.37 to $1.70 per share and with a weighted average exercise price of $0.80 per share, was accelerated. Of the options whose vesting was accelerated, options to purchase 262,500 shares of common stock are held by executive officers of the Company. The vesting of options to purchase 613,750 shares of common stock whose vesting is based upon the attainment of various performance criteria, 525,000 of which are held by executive officers, was not accelerated.

Of the 828,533 options whose vesting was accelerated, 116,250 options were “in the money” at a per share price of $0.43, i.e. the closing price of the Company’s common stock on December 29, 2005. Of the “in the money” options, 11,250 are held by executive officers of the Company and 105,000 are held by members of the Company’s board of directors.

The Company will be required to apply the expense recognition provisions of Statement of Financial Accounting Standard No. 123(R), “Share Based Payment” (“FAS 123(R)”) beginning in the first quarter, 2006. The decision to accelerate the vesting of the foregoing options was made primarily to reduce non-cash compensation expense of approximately $443,000 that would otherwise have been recorded in future periods in compliance with FAS 123(R).

The acceleration of vesting of the foregoing “in the money” options is not expected to result in an expense to the Company as all of these options, in the opinion of the Company’s management, would have ultimately vested pursuant to the options’ original vesting schedules. The acceleration of vesting of “out of the money” options does not result in compensation expense under FASB Interpretation No. 44 (as amended) “Accounting for Certain Transactions Involving Stock Compensation – An Interpretation of APB Opinion No. 25.”

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        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.

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