Business News

Media Sciences Reports Fiscal 2010 Annual Financial Results

Monday 04. October 2010 - Media Sciences International, Inc. (Pink Sheets: MSII), a leading independent manufacturer of color toner cartridges and solid inks for color business printers, today announced its annual financial results for the period ended June 30, 2010.

Financial results for the year ended June 30, 2010 include:

Net Revenues were $21.9 million up 1% from fiscal 2009’s $21.7 million
Gross margin of 39.2% was down 180 basis points from fiscal 2009’s 41.0%
Operating loss of $1.4 million, an improvement from fiscal 2009’s $1.5 million operating loss
Net loss of $3.6 million increased from fiscal 2009’s net loss of $1.7 million due to establishment of $1.9 million non-cash deferred tax valuation allowance
Cash flow generated by operating activities was $0.7 million compared with $0.4 million in 2009
CEO’s Comments

Michael Levin, Media Sciences’ President and Chief Executive Officer, stated, “Fiscal 2010 was both a rewarding and challenging year. With the leaner organization resulting from our fiscal 2009 right-sizing efforts, we made significant progress in pursuing a solution to address our supply chain and product development goals culminating with the signing of the Master Ink purchase agreement, and in growing our European, U.S. office product channel and industrial ink sales. We shipped our 10 millionth solid ink stick, and reduced our inventories by an additional $900,000 while reducing our customer backorders. In our litigation with Xerox, the court issued a ruling that we view as highly favorable. Our financial results however, were tempered by declines in our sales through internet partners, continued elevated warranty expenses, the impact of a stronger dollar in the latter half of the year, and significant costs associated with the acquisition of Master Ink.”

Levin continued, “As we progress in fiscal 2011, our opportunities are clear. Upon completion of the Master Ink acquisition we must leverage and capitalize on the resulting capability to drive new and expanded revenues. The ability to reduce our time to market, reduce our product costs and to customize products for certain customers and/or channels, should allow us to do so. We believe with a continued vigilance on our operating costs we will improve our operating and financial performance in fiscal 2011.”

Revenues

For fiscal 2010, consolidated net revenues increased by $224,000, or 1%, to $21,942,000. Fiscal 2010 sales of color toner cartridges increased by approximately 6.6% over fiscal 2009 while sales of solid inks contracted by approximately 5.9%. Overall, our net revenue growth in fiscal 2010 was driven primarily by sales from new products introduced over the year, and to a lesser extent, an increase in market share for some of our existing products, and continued growth of the installed base of color business printers for which we manufacture products. The currency impact on net sales was negligible for fiscal 2010.

Gross Profit

For fiscal 2010, consolidated gross profit decreased by $287,000, or 3%, to $8,608,000 from $8,895,000 in fiscal 2009. In fiscal 2010, the gross margin was 39.2% of net revenues compared with 41.0% of net revenues in fiscal 2009. The gross margins were also affected by year-over-year increases in our warranty costs, and production product mix offset by a decrease in depreciation.

Selling, General and Administrative Expense

For fiscal 2010, selling, general and administrative expense, exclusive of depreciation and amortization, decreased by$711,000, or 8%, over fiscal 2009. This decrease was primarily driven by a cessation of start-up activities in China and a reduction in compensation as a result of reductions imposed in the 2009 fiscal year. These were offset by increases in travel and acquisition costs associated with the purchase of Master Ink. Realized foreign exchange losses increased by $42,000 to $252,000 during the fiscal year ended June 2010.

Interest Expense, net

For fiscal 2010, net interest expense was $498,000, inclusive of $146,000 of non-cash debt discount amortization, versus net interest expense of $355,000 in fiscal 2009. The year-over-year increase in net interest expense was due to increases in the level of borrowing and a higher interest rate on the revolver as well as a full year of debt amortization associated with$1,250,000 convertible debt issuance completed in fiscal 2009.

Income Taxes

For the year ended June 30, 2010, we recorded a provision for income taxes of $1,936,000 associated with the establishment of a valuation allowance for the previously recorded deferred tax assets as it was deemed more likely than not that the Company’s Federal net operating loss carry forwards and other future deductible temporary differences will not be realized.

Net Loss

For the year ended June 30, 2010, a net loss of $3,619,000, or $0.30 per share basic and fully diluted, was recorded, compared with the year ended June 30, 2009, when a net loss of $1,675,000, or $0.14 per share basic and fully diluted, was recorded.