OAKLAND, N.J., May 14 NJ-MediaSciences-erns
OAKLAND, N.J., May 14 /PRNewswire-FirstCall/ -- Media Sciences
International, Inc. (Nasdaq: MSII), the leading independent manufacturer of
color toner cartridges and solid ink sticks for color business printers, today
announced its financial results for its third fiscal quarter ended March 31,
2008. The Company will host an investor conference call tomorrow morning at
8:45 a.m. ET to discuss its quarterly results.
(Logo: http://www.newscom.com/cgi-bin/prnh/20020604/NYTU016LOGO )
Financial results for the quarter ended March 31, 2008 include:
* Record net revenues of $6.5 million, an increase of $1.2 million or 22%
year-over-year and 14% versus the prior quarter.
* Gross margin at 47.4% of net revenues:
-- a 750 basis point decrease, year-over-year and
-- a 160 basis point improvement over the prior quarter.
* Net loss of $0.49 million versus net income of $0.03 million
year-over-year.
* EPS loss of $0.04 basic and fully diluted.
Results for the quarter were impacted by the following expense items:
* Litigation costs totaling $705,000 (about $423,000 after tax or about
$0.04 per diluted share) primarily associated with discovery activities
relating to the Company's antitrust claims against Xerox which the U.S.
District Court ruled in September 2007 should be heard as part of the
patent infringement lawsuit filed by Xerox in 2006. Discovery on the
Company's antitrust claims closed on April 7, 2008.
* Business start-up costs associated with Asian manufacturing operations
of $162,000 (about $97,000 after tax or $0.01 per diluted share).
* Non-cash stock-based compensation expense recognized during the quarter
totaled $111,000 (about $71,000 after tax or about $0.01 per share).
Collectively, these expense items reduced the Company's pretax income by
$978,000 and reported net income by about $563,000, or about $0.05 per diluted
share.
Revenues
Net revenues for the three months ended March 31, 2008 compared to the
same period last year, increased by $1,168,000, or 22%, from $5,306,000 to
$6,474,000, a record for the Company. For the three months ended March 31,
2008 as compared to the same period in 2007, sales of color toner cartridges
increased by about 71%, while sales of solid ink sticks decreased
approximately 6%. For the nine months ended March 31, 2008 as compared to the
same period in 2007, sales of color toner cartridges increased by about 56%,
while sales of solid ink sticks decreased approximately 15%.
At March 31, 2008 the Company's backlog of orders was $179,000, down
slightly from $235,000 at the end of the preceding quarter. These backorders
were predominately for the Company's newer toner-based products.
Gross Margin
For the three months ended March 31, 2008, the Company's gross margin was
47.4% of net revenues as compared with 54.9% of net revenues for the year ago
period.
The 750 basis point decrease in margin is attributed to: (1) our sales mix
(ink to toner and mix within the toner product line); and a combination of (2)
higher year-over-year production and shipping costs; and (3) lower effective
average selling prices (ASPs) for some of our products.
The 47.4% gross margin for the quarter ended March 31, 2008 was slightly
improved from the 45.8% achieved in the prior quarter ended December 31, 2007.
On a sequential basis, the Company experienced a less favorable (ink to toner)
sales mix during the quarter ended March 31, 2008. However, this was offset
by about an 800 basis point improvement in our toner-based margins that was
primarily driven by lower inbound freight costs. Also contributing to our
toner-based product margin improvement was our 37% sequential increase in
toner-based product volumes. The quarter-over-quarter increase in volumes
resulted in some noticeable economies to toner margins with respect to our
related fixed costs.
The Company expects its China based manufacturing operations to be ready
for production sometime during the summer of 2008. In its second phase, these
operations should provide the Company with the potential to improve its
toner-based product margins by an additional 700 to 1,100 basis points. The
Company anticipates achieving these economies on a gradual and progressive
basis late in our Fiscal 2009.
Research and Development
Research and development spending for the three months ended March 31,
2008 compared to the same period last year, increased slightly to $467,000
from $466,000. In the prior quarter, research and development spending
totaled $469,000.
Selling, General and Administrative
Selling, general, and administrative expense, exclusive of depreciation
and amortization, for the three months ended March 31, 2008 compared to the
same period last year, increased by $956,000 or 40% to $3,298,000 from
$2,342,000. The increase in selling, general, and administrative expense was
primarily driven by greater year-over-year compensation and benefits costs and
greater year-over-year litigation costs.
For the three and nine months ended March 31, 2008 as compared to the same
period in 2007, compensation and benefit costs, including sales commissions,
increased by about $305,000 and $1,401,000, respectively. This increase was
driven by the hiring of additional: (1) sales and marketing personnel; (2)
management personnel associated with the start-up of our operations in China;
and (3) some operation, finance, and IT personnel. For the three and nine
months ended March 31, 2008, start-up costs associated with our toner-based
manufacturing operations in China totaling about $162,000 and $509,000,
respectively (compensation and benefits costs representing $104,000 and
$369,000, respectively, of these costs). In the comparative year ago period,
there were no start-up expenses.
Most of the Company's increase in legal fees was attributed to costs
associated with the Xerox litigation; for the three and nine months ended
March 31, 2008 litigation costs totaled $705,000 and $1,298,000, respectively.
In the prior fiscal year, litigation costs totaled $397,000 for the three
months and $656,000 for the nine months ended March 31, 2007, respectively.
As compared with the prior quarter, selling, general, and administrative
expense for the three months ended March 31, 2008, increased by $421,000, or
15%, to $3,298,000 from $2,877,000. This increase was primarily driven by
greater litigation costs and greater advertising and marketing costs. These
increases were partially offset by lower travel and entertainment costs, lower
compensation and benefits costs, and lower non-legal professional fees. Legal
fees associated with our Xerox litigation increased by $353,000 or 100%, to
$705,000 for the three months ended March 31, 2008 from $352,000 in the prior
fiscal quarter.
Net Income (Loss)
For the three and nine months ended March 31, 2008, the Company lost
$488,000 ($0.04 per share basic and diluted) and $1,160,000 ($0.10 per share
basic and diluted), respectively. This compares with net income of $26,000
($0.00 per share basic and diluted) and $1,194,000 ($0.11 per share basic and
$0.10 per share diluted), respectively, generated in the prior year for the
three and nine months ended March 31, 2007.
Effective Tax Rate
For the three and nine months ended March 31, 2008, the effective tax
benefits were 42.0% and 42.1%, respectively. This compares with effective tax
benefits of 28.1% and 33.5%, respectively, for the three and nine months ended
March 31, 2007. The Company's effective blended state and federal tax rate
varies due to the magnitude of various permanent timing differences between
reported pretax income and what is recognized as taxable income by various
taxing authorities. The availability of tax credits associated with
manufacturing and research and development activities, as well as exclusions,
such as the Extraterritorial Income Exclusion, can result in an effective rate
that is lower than the statutory rate.
CEO's Comments
On the extraordinary litigation expenses, Mr. Levin commented "The
significant litigation expenses incurred this quarter were in support of our
antitrust claims against Xerox. We firmly believe that Xerox's loyalty
rebates, which make significant rebates to its dealers and distributors
contingent upon those entities not selling non-Xerox solid inks, are
exclusionary and a violation of the U.S. antitrust laws. Since Xerox
initiated these rebates to distributors, we have seen our solid ink revenue
growth slow, and then start to contract. Our expenditures this quarter reflect
the significant discovery required to mount a strong antitrust case, including
engagement of various experts including economists, an distribution industry
expert and a design engineer. We made these investments with the expectation
that we will prevail, see a termination of the loyalty rebate programs, and as
a result, return to solid ink revenue growth."
Mr. Levin, commenting on the trends reflected in the Company's results
noted "The 71% year-over-year growth in toner cartridge revenue is in line
with our expectations. Our growth in toner cartridge revenues will continue
to outpace that of solid ink revenues, as the market for color toner
cartridges represents more than 90% of the business color printer supply
market. As a result of this market dynamic and Xerox's limited introduction of
new printers based on solid ink technology, our development efforts and new
product introductions have been and will continue to be primarily directed
toward the substantial remainder of the business color printer market which we
have yet to address and that is dominated by toner-based products."
Commenting on the Company's inventory growth and level of backorders
during the quarter, Mr. Levin commented: "While we are pleased by the 71%
year-over-year growth of toner-based product revenues, we are not pleased by
the continued growth of our inventories or our continued level of backorders.
Both of these conditions are symptoms of our current dependency on contract
manufacturers. Our toner-based manufacturing operations in China are expected
to address these challenges. We expect to see a meaningful reduction in
inventories soon after production starts this summer, while simultaneously
increasing our ability to meet customer demands."
COO Retirement
The Company also announced that its Chief Operating Officer, Larry
Anderson, will retire in July. In a planned succession, Robert Ward,
currently Managing Director of Media Sciences Asia, will assume the role of
Media Sciences' Chief Operating Officer. Marc Durand, recently joined Media
Science to replace Robert Ward as Managing Director of Media Sciences Asia.
Mr. Levin comments on the change. "Larry came out of retirement to join
Media Sciences and has been a tremendous asset to the company, and will be
missed by Media Sciences, its customers and vendors. When Robert joined us a
year ago to start Media Sciences Asia, it was planned that he would take over
the COO position upon Larry's retirement. I expect Media Sciences to benefit
from Robert's ascension to the position as COO."
Conference Call Note
Media Sciences International, Inc. will hold a conference call to discuss
annual results on Thursday, May 15, 2008, 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 www.mediasciences.com. Investors and other interested
parties in the United States may access the teleconference by calling
866.271.0675. International callers may dial 617.213.8892. The pass-code for
the teleconference is 91303698.
For more information on Media Sciences or its SEC filings, please visit
the investor relations section of the Company's website at
www.mediasciences.com.
About Media Sciences International, Inc. (NASDAQ: MSII): Media Sciences
International, Inc. (NASDAQ: MSII), the leading independent manufacturer of
solid ink 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(R),
Dell(R), Epson(R), Konica Minolta(TM)/Minolta QMS(R), OKI(R), Ricoh(R),
Samsung(R), Tektronix(R), and Xerox(R) office color printers deliver up to and
over 30% in savings when compared to the printer manufacturer's brand. Behind
every Media Sciences product is The Science of Color(TM) -- 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 www.mediasciences.com,
E-mail info@mediasciences.com, 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-KSB for the year ended June 30, 2007, 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
Three Months EndedNine Months Ended
3/31/2008 12/31/2007 3/31/2007 3/31/2008 3/31/2007
Reported income
(loss) from
operations(487,980) (485,159) 26,362 (1,160,297) 1,194,250
Depreciation &
amortization253,753 260,168 239,532 762,028 681,974
EBITDA (234,227) (224,991) 265,894(398,269) 1,876,224
Add-back of
non-cash
expenses:
Increases
(decreases)
to inventory
reserves 31,897(18,904) 50,615 40,378 164,944
Stock-based
compensation110,916 136,725 38,641 327,613 435,382
142,813 117,821 89,256 367,991 600,326
Cash EBITDA (91,414) (107,170) 355,150 (30,278) 2,476,550
Add-back of
non-recurring
items:
Litigation
Cost704,784 352,032 396,691 1,298,324 656,167
Normalized
EBITDA 613,370 244,862 751,841 1,268,046 3,132,717
Weighted Avg.
Common Share
Outstanding11,687,517 11,576,357 11,286,046 11,578,459 11,215,096
- Cash
EBITDA /
Share -
Basic ($0.01) ($0.01) $0.03 ($0.00) $0.22
- Normalized
EBITDA /
Share -
Basic$0.05 $0.02 $0.07 $0.11 $0.28
Adjusted
Weighted Avg.
Shares
Outstanding11,687,517 11,576,357 11,799,710 11,578,459 11,704,985
- Cash
EBITDA /
Share -
Diluted ($0.01) ($0.01) $0.03 ($0.00) $0.21
- Normalized
EBITDA /
Share -
Diluted $0.05 $0.02 $0.06 $0.11 $0.27
MEDIA SCIENCES INTERNATIONAL, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of OPERATIONS
(UNAUDITED)
Three Months Ended Nine Months Ended
March 31, March 31,
2008 20072008 2007
NET REVENUES$6,473,997 $5,306,044 $18,590,364 $17,008,133
COST OF GOODS SOLD:
Cost of goods sold,
excluding
depreciation
and amortization,
product warranty,
shipping and
freight 2,877,042 1,887,7138,403,6516,082,652
Depreciation and
amortization 150,040 149,926 450,340 454,332
Product warranty260,754 232,233 672,106 552,405
Shipping and freight120,707 125,089 451,414 353,139
Total cost of
goods sold3,408,543 2,394,9619,977,5117,442,528
GROSS PROFIT 3,065,454 2,911,0838,612,8539,565,605
OTHER COSTS AND EXPENSES:
Research and
development467,031 466,0801,433,3101,258,100
Selling, general and
administrative,
excluding
depreciation and
amortization 3,298,070 2,341,9038,866,8926,342,073
Depreciation and
amortization91,437 84,506 275,993 221,990
Total other
cost and
expenses 3,856,538 2,892,489 10,576,1957,822,163
INCOME (LOSS) FROM
OPERATIONS (791,084) 18,594 (1,963,342) 1,743,442
Interest (expense)
income, net (50,444) 18,806 (41,402) 51,134
INCOME (LOSS) BEFORE
INCOME TAXES (841,528) 36,680 (2,004,744) 1,794,576
Provision (benefit)
for income taxes (353,548) 10,318 (844,447) 600,326
NET INCOME (LOSS)$(487,980)$26,362 (1,160,297) 1,194,250
EARNINGS (LOSS) PER SHARE
Basic$(0.04) $0.00 $(0.10) $0.11
Diluted $(0.04) $0.00 $(0.10) $0.10
WEIGHTED AVERAGE SHARES
USED TO COMPUTE EARNINGS
PER SHARE
Basic 11,687,517 11,286,046 11,578,459 11,215,096
Diluted 11,687,517 11,799,710 11,578,459 11,704,985
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-Q for the
quarter ended March 31, 2008. We encourage you to review the accompanying
notes to these consolidated statements, found in that filing.
MEDIA SCIENCES INTERNATIONAL, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
March 31,June 30,
2008 2007
ASSETS (Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $797,489$1,808,285
Accounts receivable, net 3,540,875 2,164,826
Inventories 8,934,232 5,801,526
Taxes receivable 105,000 566,967
Deferred tax assets727,349 727,349
Prepaid expenses and other
current assets367,559 253,387
Total Current Assets14,472,50411,322,340
PROPERTY AND EQUIPMENT, NET 2,312,417 2,752,223
OTHER ASSETS:
Goodwill and other intangible
assets, net 3,584,231 3,584,231
Other assets 114,85965,672
Total Other Assets 3,699,090 3,649,903
TOTAL ASSETS $20,484,011 $17,724,466
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term
debt- 147,118
Accounts payable 2,395,675 1,428,379
Accrued compensation and benefits 594,946 757,116
Other accrued expenses and
current liabilities 1,740,361 722,725
Income taxes payable48,000 -
Accrued product warranty costs 219,147 192,707
Deferred revenue 561,377 603,234
Total Current Liabilities5,559,506 3,851,279
OTHER LIABILITIES:
Bank line of credit 1,542,369 -
Long-term debt, less current
maturities 1,500,000 323,965
Deferred rent liability184,006 234,378
Deferred revenue, less current
portion 172,019 240,893
Other tax obligations- 589,298
Deferred tax liabilities85,431 463,590
Total Other Liabilities 3,483,825 1,852,124
TOTAL LIABILITIES9,043,331 5,703,403
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Series A Convertible Preferred
Stock, $.001 par value
Authorized 1,000,000 shares;
none issued - -
Common Stock, $.001 par value
Authorized 25,000,000 shares;
issued and outstanding
11,697,365 shares in March
and 11,435,354 shares in June 11,69711,435
Additional paid-in capital 11,725,49011,136,505
Accumulated other comprehensive
income 22,481 -
Retained earnings (deficit) (318,988) 873,123
Total Shareholders' Equity 11,440,68012,021,063
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY$20,484,011 $17,724,466
MEDIA SCIENCES INTERNATIONAL, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(UNAUDITED)
Nine Months Ended
March 31,
20082007
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $(1,160,297) $1,194,250
Adjustments to reconcile net income
(loss) to net cash provided (used)
by operating activities:
Depreciation and amortization762,030 681,974
Deferred income taxes (378,159)126,031
Provision for inventory obsolescence 40,378 -
Provision (recovery) of bad debts (4,515) 8,772
Stock-based compensation expense 327,613 435,383
Excess tax benefits from stock-based
compensation -(209,595)
Changes in operating assets and
liabilities :
Accounts receivable(1,371,534)143,553
Inventories(3,169,823) (1,533,907)
Income taxes (111,144)(52,335)
Prepaid expenses and other current
assets (163,359)221,581
Accounts payable 967,296 239,675
Accrued compensation and benefits(162,170) (233,229)
Other accrued expenses and
current liabilities1,044,076 195,524
Deferred rent liability (50,372)(48,976)
Deferred revenue (110,731) (225,936)
Net cash provided (used)
by operating activities(3,540,711)942,765
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment(322,227) (857,565)
Net cash used in
investing activities (322,227) (857,565)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from bank credit line, net of
repayments 1,542,369 -
Bank term loan repayments (471,083) (107,236)
Bank term loan proceeds 1,500,000
Excess tax benefits from stock-based
compensation - 209,595
Proceeds from issuance of common stock 258,375 224,708
Net cash provided by
financing activities2,829,661 327,067
Effect of exchange rate changes
on cash and cash equivalents22,481 -
NET (DECREASE) INCREASE IN CASH (1,010,796)412,267
CASH, BEGINNING OF PERIOD 1,808,285 1,485,399
CASH, END OF PERIOD $797,489 $1,897,666
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid $57,366 $37,004
Income taxes paid (refunded) $(364,635) $599,279
SOURCE Media Sciences International, Inc.
