10-Q: MEDIA SCIENCES INTERNATIONAL INC
(Menafn - EDGAR Online via COMTEX) --ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD LOOKING STATEMENTS
Our disclosure and analysis in this report contain forward-looking information, within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, about our financial results and estimates, business prospects and products in development that involve substantial risks and uncertainties. You can identify these statements by the fact that they do not relate strictly to historic or current facts. These forward-looking statements use terms such as "believes," "expects," "may", "will," "should," "anticipates," "estimate," "project," "plan," or "forecast" or other words of similar meaning relating to future operating or financial performance or by discussions of strategy that involve risks and uncertainties. From time to time, we also may make oral or written forward-looking statements in other materials we release to the public. These forward-looking statements are based on many assumptions and factors, and are subject to many conditions, including, but not limited to, our continuing ability to obtain additional financing, dependence on contracts with suppliers and major customers, competitive pricing for our products, demand for our products, changing technology, our introduction of new products, industry conditions, anticipated future revenues and results of operations, retention of key officers, management or employees, prospective business ventures or combinations and their potential effects on our business. Our actual results, performance or achievements could differ materially from the results expressed in, or implied by, these forward-looking statements. Forward-looking statements are made based upon management's current expectations and beliefs concerning future developments and their potential effects upon our business.
We cannot guarantee that any forward-looking statement will be realized, although we believe we have been prudent in our plans and assumptions. We cannot predict whether future developments affecting us will be those anticipated by management, and there are a number of factors that could adversely affect our future operating results or cause our actual results to differ materially from the estimates or expectations reflected in such forward-looking statements.
Media Sciences International, Inc. was a manufacturer of color toner cartridges and solid inks for use in business color printers. Our products were distributed through an international network of dealers and distributors. Through two unrelated transactions in the year ending June 30, 2011, we sold one of our product lines and exited the other. On November 8, 2010, the Company sold substantially all of its toner assets to Katun Corporation and discontinued selling toner based products. On April 22, 2011, and unrelated to the Katun transaction, the Company entered into an agreement with Xerox settling a patent infringement lawsuit, after which the Company ceased manufacturing its inks for use in Xerox color printers and effectively exited the ink business. As a result, we currently have no substantive operations and the Board of Directors is reviewing a proposal for a plan of liquidation to be presented to the shareholders and voted on at the Company's next annual meeting presently scheduled for March 8, 2012.
RESULTS OF OPERATIONS
Selling, General and Administrative. Selling, general and administrative expense, exclusive of depreciation and amortization, for the three months ended December 31, 2011, compared to the same period last year, decreased by 1,451,000 or 84% to 283,000 from 1,734,000. For the six months ended December 31, 2011, selling, general and administrative expense, exclusive of depreciation and amortization, as compared to the same period last year, decreased by 1,663,000 or 72% to 657,000 from 2,320,000. This decrease is primarily related to the decrease in compensation expenses related to the change in corporate structure.
Depreciation and Amortization. Non-manufacturing depreciation and amortization expense for the three months ended December 31, 2011 compared to the same period last year, decreased by 9,000 or 93% to 1,000 from 10,000. For the six months ended December 31, 2011, compared to the same period in 2010, non-manufacturing depreciation and amortization expense decreased by 11,000 or 64% to 6,000 from 17,000. The decrease in non-manufacturing depreciation and amortization expense reflects the decline in our non-manufacturing fixed asset additions over the comparative periods.
Interest Expense. For the three and six months ended December 31, 2011, we earned interest income of 100 and 200, respectively. This compares with interest expense net of interest income of 57,000 and 133,000, respectively, for the prior year's three and six months ended December 31, 2010. These changes were the result of year-over-year decreases in the Company's level of debt.
Discontinued Operations. Discontinued operations are related to the toner product line that was sold to Katun as well as the industrial ink product line that was transferred to Xerox and the phaser ink product line that was exited as a result of the settlement of the lawsuit with Xerox. For the three and six months ended December 31, 2011, we had a loss from discontinued operations, net of taxes, of 141,000 and 474,000, respectively. For the three and six months ended December 31, 2010, we had income from discontinued operations, net of taxes, of 3,300,000 and 3,329,000, respectively.
Income Taxes. For the three and six months ended December 31, 2011, we recorded income tax expense of 2,000 and 3,000 from continuing operations. This represents the minimum state taxes due. For the three and six months ended December 31, 2010, we recorded an income tax benefit of 936,922 and 896,922, respectively. As a result of the sale of the toner business and the settlement of the lawsuit with Xerox, the Company no longer needed to provide for the exposure related to its indefinitely lived intangibles and adjusted its deferred taxes accordingly. Additionally, the Company reduced certain of its valuation allowances resulting in a tax benefit.
Net Loss. For the three and six months ended December 31, 2011, we incurred a net loss of 426,000 (0.03 per share basic and diluted) and 1,139,000 (0.08 per share basic and diluted), respectively. This compares with a net income of 2,191,000 (0.17 per share basic and diluted) and 1,506,000 (0.12 per share basic and diluted), respectively, for the three and six months ended December 31, 2010. The difference results from the items previously mentioned above as well as the gain, net of taxes, of approximately 2.87 million from the sale of the toner business.
CRITICAL ACCOUNTING POLICIES
For a description of our critical accounting policies see Management's Discussion and Analysis of Financial Condition and Results of Operations and Note 1 to the audited financial statements included in our Form 10-K for the year ended June 30, 2011 filed October 12, 2011. There were no significant changes in our critical accounting policies during the six months ended December 31, 2011.
LIQUIDITY AND CAPITAL RESOURCES
During the six months ended December 31, 2011, our cash and equivalents decreased by 1,928,000 to 2,184,000. Operating activities used 2,036,000 while investing activities provided 69,000 and financing activities provided 56,000. Net cash provided in investing activities of 69,000 included the proceeds from the sale of plant equipment and tooling.
We utilized 2,036,000 of cash in our operating activities for the six months ended December 31, 2011 as compared to utilizing 2,128,000 during the comparative six months ended December 31, 2010. The 2,036,000 of cash used by operating activities during the six months ended December 31, 2011 resulted from a 1,139,000 loss from operations, non-cash charges totaling 69,000 and 966,000 of cash utilized as a result of an increase in our non-cash working capital (current assets less cash and cash equivalents net of current liabilities). The most significant drivers behind the 966,000 decrease in our non-cash working capital include: (1) a 1,042,000 decrease in our trade obligations and other accrued expenses; (2) a 127,000 decrease in our accounts receivable; (3) a 62,000 decrease in accrued compensation and benefits; and (4) a decrease in our prepaid expenses and other current assets of 36,000.
SOME SIGNIFICANT FACTORS AFFECTING FUTURE LIQUIDITY
Our liquidity could be significantly affected by future legal fees and other costs as the Company currently does not have any material ongoing operations.
FUTURE FINANCING REQUIREMENTS
Management believes that cash on hand will be sufficient to meet the Company's obligations and fund its day-to-day operations for the next twelve months.
We currently do not plan to invest in any material capital expenditures over the next twelve months.
Historically, we have not experienced significant seasonality in our business.
Feb 14, 2012
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