MSII Media Sciences International Inc. (MM)

OAKLAND, N.J., Sept. 24 /PRNewswire-FirstCall/ -- Media Sciences International, Inc. (NASDAQ:MSII), the 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, 2009. The Company will host an investor conference call tomorrow morning at 8:45 a.m. ET to discuss its fiscal 2009 results. (Logo: http://www.newscom.com/cgi-bin/prnh/20020604/NYTU016LOGO ) Financial results for the year ended June 30, 2009 include: -- Net revenues of $21.7 million, a 10% decrease over fiscal 2008 -- Gross margins of 41%, a 500 basis point decline over fiscal 2008 -- Net loss of $1.68 million versus a net loss of $1.82 million in 2008 -- Per share loss of $0.14 versus $0.16 in 2008 (basic and diluted) -- Cash flow generated by operating activities $0.4 million versus $3.3 million used by operations in 2008 Results for the year reflected the broader economic climate and sales activity consistent with an economic recession as well as the turbulence experienced in the world currency markets through the year. Our 2009 results were impacted by and include the following significant cash and non-cash items: -- Impairment Charge. Non-cash charges totaling $1,009,000 (about $666,000 after tax or about $0.06 per share) were recognized primarily related to closure of the Company's not yet operational manufacturing facility in China. -- Business Formation and Start-up Costs. We recognized about $891,000 (about $588,000 after tax or about $0.05 per share) of expenses associated with formation and start-up of our manufacturing operations in China, prior to closure. -- Foreign Currency Devaluation. US dollar translated revenues were adversely affected by devaluation of the British pound and euro. All told, the devaluation of the pound and euro adversely impacted our reported revenues and gross profits by about $800,000 and operating pretax results by about $1,010,000 (about $667,000 after tax or about $0.06 per share). -- Litigation. We incurred $436,000 of expense associated with our litigation with Xerox (about $288,000 after tax or about $0.02 per share). This was offset by a $1,500,000 litigation settlement we received related to litigation with our former insurance broker (about $990,000 after tax or about $0.08 per share). -- Valuation Allowance. We established a valuation allowance in the amount of $532,000 for state deferred tax assets. This non-cash adjustment reduced our net income by $532,000 or about $0.05 per share. -- SFAS No. 123(R) Non-cash Expense. Our operating results include $777,000 of pretax non-cash stock-based compensation expense ($502,000 after tax or about $0.04 per share). -- Product Warranty. We increased our product warranty reserves by $238,000. This non-cash charge reduced our gross profits and pretax results by $238,000 (about $157,000 after tax or about $0.01 per share). -- Inventory Reserves. We increased our inventory reserves by $212,000. This non-cash charge reduced our gross profits and pretax results by $212,000 (about $140,000 or about $0.01 per share). CEO's Comments Michael W. Levin, President and CEO of Media Sciences International, Inc. commented on the past fiscal year. "We took decisive action in fiscal 2009 to right-size our overhead and operating costs with our revenues. These cost reduction initiatives helped us realize over the year about $4,800,000 of annual run-rate savings versus our cost structure existing in our prior fiscal year ended June 30, 2008. These cost savings were achieved through a 27% reduction in our headcount, temporary company-wide compensation concessions, closure of our start-up manufacturing operations in China, and a concerted initiative to reduce our other operating costs. As a result of our actions, we generated positive cash from operations for two consecutive quarters, and generated a nominal operating profit in our fourth quarter." Mr. Levin continued, "Despite the significant cost reductions initiatives put into place, we continued to execute on building the business. We introduced six new products, achieved important catalog listings in the office products channels, commercialized a new solid ink for an OEM partner and grew our Media Sciences branded revenues. These achievements along with a leaner organization provide us with a platform to return to top-line growth and profitability. " Fiscal 2009 Results Revenues Consolidated net revenues decreased by $2,520,000 or 10% to $21,718,000, from $24,238,000 in fiscal 2008. Sales of color toner cartridges increased by about 2% over fiscal 2008 while sales of solid inks contracted by about 11%. Revenues associated with initial placements of printers under our discontinued INKlusive program decreased by approximately $508,000 or 71%, year-over-year, as we focused on our core consumable business. The most significant drivers of the 10% decrease in net revenues were an increase in the year-over-year level of customer rebates and the effect of European currency devaluation against the US dollar. We ended the 2009 fiscal year with an order backlog of $241,000 versus $200,000 at June 30, 2008. Gross Margin Consolidated gross profit decreased by $2,209,000 or 20% to $8,895,000 from $11,104,000 in 2008. In fiscal 2009, our gross margin was 41% of net revenues as compared with 46% of net revenues in 2008. Virtually all of this 500 basis point decrease in margins is attributable to our increased year-over-year level of rebates and the impact of currency devaluation. Our gross margins were also affected by year-over-year increases in our warranty costs, offset by realized reductions in our product costs. Research and Development In 2009, research and development spending decreased by $498,000 or 27% over 2008. The decline in our fiscal 2009 research and development spending was the result of our broad-based initiatives to reduce our operating costs. Selling, General and Administrative Expense In 2009, selling, general and administrative expense, exclusive of depreciation and amortization, decreased by $2,752,000 or 23% over 2008. This decrease was primarily driven by our broad-based efforts to reduce our operating costs, in particular, lower compensation and benefits, professional, advertising, and travel and entertainment costs. Our 2009 selling, general and administrative expense, exclusive of depreciation and amortization, includes several significant expenses that were unusual or of a non-recurring in nature. These items include: (1) $891,000 of costs associated with the start-up activities for our operations in China, which have ceased; (2) $210,000 of realized currency exchange losses; and (3) $436,000 of litigation costs. Net Loss For the year ended June 30, 2009, we lost $1,675,000 from operations or $0.14 per share basic and fully diluted, as compared to the year ended June 30, 2008, where we lost $1,824,000 from operations or $0.16 per share basic and fully diluted. As discussed above, our fiscal 2009 and 2008 results were adversely impacted by a number of significant cash and non-cash items, some of which were non-recurring in nature. In 2009, these items included the $1,500,000 litigation settlement we received and the $1,009,000 impairment charge we recognized. Inventory For the year ended June 30, 2009 we achieved a $2.8 million or about 31% decrease in our inventory levels to $6.4 million from $9.2 million as a result of execution on our inventory management initiative. Based on these year-end inventory levels, which include raw materials, we achieved an 84 day or 29% reduction in our days in inventory from 292 days last year to 208 days this year. Conference Call Note Media Sciences International, Inc. will hold a conference call to discuss annual results on Friday, September 25, 2009, at 8:45 a.m. Eastern Time. The call will be webcast live by Thomson/CCBN and may be accessed through Media Sciences' web site at http://www.mediasciences.com/. Investors and other interested parties in the United States may access the teleconference by calling 866.700.0161. International callers may dial 617.213.8832. The passcode for the teleconference is 16428750. For more information on Media Sciences or its SEC filings, please visit the investor relations section of the Company's website at http://www.mediasciences.com/. About Media Sciences International, Inc. (NASDAQ:MSII): Media Sciences International, Inc. (NASDAQ:MSII), the leading independent manufacturer of solid inks and color toner cartridges for office color printers, has a strong reputation for being the informed customer's choice. As the premium quality price alternative to the printer manufacturer's brand, Media Sciences' newly manufactured color toner and solid ink products for use in Brother , Dell , Epson , Konica Minolta , OKI , Ricoh , Samsung , and Xerox office color printers deliver over 30% in savings when compared to the printer manufacturer's brand. Behind every Media Sciences product is The Science of Color --the company's proprietary process for delivering high quality products at the very best price, including its commitment to exceptional, highly responsive technical support and its longstanding, industry-leading warranty. For more information on the Company, its products, and its programs, visit http://www.mediasciences.com/, E-mail , or call 201.677.9311. Brand names are used for descriptive purposes only and are the properties of their respective owners. Forward Looking Statements This press release contains certain forward-looking statements about our goals and prospects within the meaning of the Private Securities Litigation Reform Act. These statements are based on management's current beliefs and expectations and are subject to risks and uncertainties. Actual results may differ materially from those included in these statements due to a variety of factors, including those factors identified in our Annual Report on Form 10-K for the year ended June 30, 2008, on file with the Securities and Exchange Commission. Any forward-looking statements contained in this release speak only as of the time made and we assume no duty to update them, whether as a result of new information, unexpected events, future changes, or otherwise. Non-GAAP Financial Measures The Company's financial results are reported in accordance with generally accepted accounting principles (GAAP). Management finds it useful at times to provide adjustments to its GAAP numbers. This news release contains the non-GAAP financial measure of EBITDA, defined as Earnings Before Interest, Taxes, Depreciation and Amortization, which are adjusted from results based on GAAP to exclude certain expenses. These non-GAAP financial measures should not be construed as being more important than comparable GAAP measures. They are presented because the Company's management uses this information when evaluating current results of operations and cash flow, and believes that this information provides the users of the financial statements with an additional and useful comparison of the Company's current results of operations and cash flows with past and future periods. This adjusted financial information should not be construed as an alternative to our reported results determined in accordance with GAAP. Further, our definition of this adjusted financial information may differ from similarly title measures used by other companies. Reconciliation of Non-GAAP Three Months Ended Measures 6/30/2009 3/31/2009 6/30/2008 --------- --------- --------- Reported income (loss) from operations 242 (1,582,997) (1,079,516) Depreciation & amortization 241,449 242,853 230,211 ------- ------- ------- EBITDA 241,691 (1,340,144) (849,305) Add-back of non-cash expenses: Increase (decrease) in inventory reserves 172,144 (28,131) 93,423 Increase (decrease) in warranty reserves 120,000 129,344 (20,481) Impairment charge (112,313) 1,121,401 - Stock-based compensation 196,512 217,086 148,209 Other non-cash items (56,131) 18,754 (38,022) ------- ------ ------- 320,212 1,458,454 183,129 Cash EBITDA 561,903 118,310 (666,176) Add-back of non-recurring items: Litigation costs 9,417 164,094 390,796 Litigation settlement recovery - - - Foreign currency transaction losses (gains) (163,679) 86,452 9,076 Business start-up costs - 247,650 376,333 ------- ------- ------- (154,262) 498,196 776,205 Normalized Cash EBITDA 407,641 616,506 110,029 ---------------------- ------- ------- ------- Weighted Avg. Common Share Outstanding 11,746,732 11,723,716 11,707,964 - Cash EBITDA / Share - Basic $0.05 $0.01 ($0.06) - Normalized EBITDA / Share - Basic $0.03 $0.05 $0.01 Adjusted Weighted Avg. Shares Outstanding 11,746,732 11,723,716 11,707,964 - Cash EBITDA / Share - Diluted $0.05 $0.01 ($0.06) - Normalized EBITDA / Share - Diluted $0.03 $0.05 $0.01 Reconciliation of Non-GAAP Year Ended Measures 6/30/2009 6/30/2008 --------- --------- Reported income (loss) from operations (1,495,924) (3,042,858) Depreciation & amortization 955,410 992,241 ------- ------- EBITDA (540,514) (2,050,617) Add-back of non-cash expenses: Increase (decrease) in inventory reserves 211,623 133,801 Increase (decrease) in warranty reserves 237,912 5,959 Impairment charge 1,009,088 - Stock-based compensation 777,014 475,822 Other non-cash items 5,946 (69,052) ----- ------- 2,241,583 546,530 Cash EBITDA 1,701,069 (1,504,087) Add-back of non-recurring items: Litigation costs 436,465 1,688,865 Litigation settlement recovery (1,500,000) - Foreign currency transaction losses (gains) 209,529 (20,684) Business start-up costs 890,762 885,112 ------- ------- 36,756 2,553,293 Normalized Cash EBITDA 1,737,825 1,049,206 ---------------------- --------- --------- Weighted Avg. Common Share Outstanding 11,727,175 11,610,128 - Cash EBITDA / Share - Basic $0.15 ($0.13) - Normalized EBITDA / Share - Basic $0.15 $0.09 Adjusted Weighted Avg. Shares Outstanding 11,727,175 11,610,128 - Cash EBITDA / Share - Diluted $0.15 ($0.13) - Normalized EBITDA / Share - Diluted $0.15 $0.09 MEDIA SCIENCES INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS Year Ended June 30, 2009 2008 ---- ---- NET REVENUES $21,718,141 $24,237,566 COST OF GOODS SOLD: Cost of goods sold, excluding depreciation and amortization, product warranty, and shipping and freight 10,162,977 11,159,459 Depreciation and amortization 537,471 568,837 Product warranty 1,561,785 877,442 Shipping and freight 561,018 528,228 ------- ------- Total cost of goods sold 12,823,251 13,133,966 GROSS PROFIT 8,894,890 11,103,600 OTHER COSTS AND EXPENSES: Research and development 1,359,270 1,857,044 Selling, general and administrative, excluding depreciation and amortization 9,163,416 11,914,987 Depreciation and amortization 359,040 374,427 Impairment charge 1,009,088 - Litigation settlement (1,500,000) - ---------- ---------- Total other costs and expenses 10,390,814 14,146,458 LOSS FROM OPERATIONS (1,495,924) (3,042,858) Interest expense (273,169) (119,358) Interest income 3,039 25,918 Amortization of debt discount on convertible debt (84,785) - ------- ---------- LOSS BEFORE INCOME TAXES (1,850,839) (3,136,298) Benefit for income taxes (175,566) (1,312,091) -------- ---------- NET LOSS $(1,675,273) $(1,824,207) ============ ============ LOSS PER SHARE Basic $(0.14) $( 0.16) ======= ======== Diluted $(0.14) $( 0.16) ======= ======== WEIGHTED AVERAGE SHARES USED TO COMPUTE LOSS PER SHARE Basic and diluted 11,727,175 11,610,128 The above results of operations and following Balance Sheet and Statement of Cash Flows, as reported under U.S. Generally Accepted Accounting Principles (U.S. GAAP), will be presented in the Company's 10-K for the year ended June 30, 2009. We encourage you to review the accompanying notes to these consolidated statements, found in that filing. MEDIA SCIENCES INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS As of June 30, 2009 2008 ---- ---- CURRENT ASSETS: Cash and cash equivalents $550,602 $236,571 Accounts receivable, net 3,427,550 3,082,516 Inventories, net 6,392,441 9,216,439 Taxes receivable 20,257 70,282 Deferred tax assets 830,447 772,288 Prepaid expenses and other current assets 541,153 285,241 ------- ------- Total Current Assets 11,762,450 13,663,337 PROPERTY AND EQUIPMENT, NET 2,096,986 2,472,570 OTHER ASSETS: Goodwill and other intangible assets, net 3,584,231 3,584,231 Deferred tax assets 279,486 260,292 Other assets 75,159 124,359 ------ ------- Total Other Assets 3,938,876 3,968,882 TOTAL ASSETS $17,798,312 $20,104,789 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable 1,128,187 3,046,563 Accrued compensation and benefits 690,948 731,744 Other accrued expenses and current liabilities 1,151,325 1,829,919 Short-term capital lease obligation 69,815 - Income taxes payable - 12,606 Accrued product warranty costs 436,578 198,666 Deferred revenue 209,079 519,139 ------- ------- Total Current Liabilities 3,685,932 6,338,637 OTHER LIABILITIES: Long-term debt, less current maturities 2,749,132 2,594,209 Deferred rent liability 121,873 166,969 Convertible debt, net of discount of $401,830 in 2009 848,170 - Deferred revenue, less current portion 38,708 148,553 ------ ------- Total Other Liabilities 3,757,883 2,909,731 TOTAL LIABILITIES 7,443,815 9,248,368 --------- --------- COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' EQUITY: Preferred Stock, $.001 par value Authorized 5,000,000 shares; none issued - - Common Stock, $.001 par value 25,000,000 shares authorized; issued and outstanding, respectively, 12,413,292 and 11,771,966 shares in 2009 and 11,794,101 and 11,708,964 shares in 2008 11,772 11,709 Additional paid-in capital 13,000,680 11,798,443 Accumulated other comprehensive income 216 29,167 Accumulated deficit (2,658,171) (982,898) ---------- -------- Total Shareholders' Equity 10,354,497 10,856,421 ---------- ---------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $17,798,312 $20,104,789 ============ ============ MEDIA SCIENCES INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended June 30, 2009 2008 ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $(1,675,273) $(1,824,207) Adjustments to reconcile net loss to net cash provided (used) by operating activities: Depreciation and amortization 955,410 992,241 Stock-based compensation expense 777,014 475,822 Deferred income taxes (141,308) (1,254,415) Impairment charge 1,009,088 - Provision for inventory obsolescence 211,623 133,801 Provision for product warranties 237,912 5,959 Recovery of allowance for returns and doubtful accounts (78,839) (69,052) Amortization of debt discount on convertible debt 84,785 - Changes in operating assets and liabilities : Accounts receivable (256,139) (835,778) Inventories 2,615,001 (3,546,952) Current and long-term income taxes receivable/payable 37,419 297,468 Prepaid expenses and other assets (65,811) (89,095) Accounts payable (1,916,378) 1,618,851 Accrued compensation and benefits (39,149) (26,016) Other accrued expenses and current liabilities (889,779) 1,107,643 Deferred rent liability (45,096) (67,409) Deferred revenue (419,905) (176,435) -------- -------- Net cash provided (used) by operating activities 400,575 (3,257,574) ------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment (948,242) (712,588) Proceeds from disposition of property and equipment 92,895 - ------ -------- Net cash used in investing activities (855,347) (712,588) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Increase in restricted cash (140,901) - Bank line of credit, net of repayments 154,923 1,094,209 Bank term loan repayments - (471,083) Bank term loan proceeds - 1,500,000 Capital lease obligation repayments (458,673) - Proceeds from issuance of subordinated convertible debt 1,250,000 - Proceeds from issuance of common stock, net - 260,933 ------- ------- Net cash provided by financing activities 805,349 2,384,059 ------- --------- Effect of exchange rate changes on cash and cash equivalents (36,546) 14,389 ------- ------ NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 314,031 (1,571,714) CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 236,571 1,808,285 ------- --------- CASH AND CASH EQUIVALENTS, END OF YEAR $550,602 $236,571 ============ ============ SUPPLEMENTAL CASH FLOW INFORMATION: Interest paid $239,473 $100,956 Income taxes refunded $(91,764) $(355,144) SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS: Capital lease additions $528,488 $- http://www.newscom.com/cgi-bin/prnh/20020604/NYTU016LOGO http://photoarchive.ap.org/ DATASOURCE: Media Sciences International, Inc. CONTACT: Investor Contact: Kevan D. Bloomgren, Chief Financial Officer, , +1-201-677-9311, ext. 213, or Media Contact: Bill Besold, Marketing Communications Director, , +1-201-677-9311, ext. 299, both of Media Sciences International, Inc. Web Site: http://www.mediasciences.com/

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