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<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: center"><B><FONT
size=2>As filed with the Securities and Exchange Commission on September 8,
2006</FONT></B></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: right"><B><FONT
size=2>Registration No. 333-_________</FONT></B></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: center"><B><FONT
size=2>UNITED STATES</FONT></B></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: center"><B><FONT
size=2>SECURITIES AND EXCHANGE COMMISSION</FONT></B></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: center"><B><FONT
size=2>Washington, D.C. 20549</FONT></B></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: center"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: center"><B><FONT
size=2>FORM S-8</FONT></B></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: center"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: center"><B><FONT
size=2>REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933</FONT></B></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: center"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: center"><B><FONT
size=2>MEDIA SCIENCES INTERNATIONAL, INC.</FONT></B></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: center"><FONT
size=2>(Exact name of registrant as specified in its charter)</FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<TABLE style="BORDER-COLLAPSE: collapse" cellSpacing=0 cellPadding=0 width="100%" border=0>

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    vAlign=top width="53%">
      <P
      style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; TEXT-ALIGN: center"><B><FONT
      size=2>DELAWARE</FONT></B></P></TD>
    <TD
    style="PADDING-RIGHT: 5.4pt; PADDING-LEFT: 5.4pt; PADDING-BOTTOM: 0in; PADDING-TOP: 0in"
    vAlign=top width="46%">
      <P
      style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; TEXT-ALIGN: center"><B><FONT
      size=2>87-0475073</FONT></B></P></TD></TR>
  <TR>
    <TD
    style="PADDING-RIGHT: 5.4pt; PADDING-LEFT: 5.4pt; PADDING-BOTTOM: 0in; PADDING-TOP: 0in"
    vAlign=top width="53%">
      <P
      style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; TEXT-ALIGN: center"><FONT
      size=2>(State or other jurisdiction of incorporation)</FONT></P></TD>
    <TD
    style="PADDING-RIGHT: 5.4pt; PADDING-LEFT: 5.4pt; PADDING-BOTTOM: 0in; PADDING-TOP: 0in"
    vAlign=top width="46%">
      <P
      style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; TEXT-ALIGN: center"><FONT
      size=2>(IRS Employer Identification No.)</FONT></P></TD></TR></TABLE>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<TABLE style="BORDER-COLLAPSE: collapse" cellSpacing=0 cellPadding=0 width="100%" border=0>

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    <TD
    style="PADDING-RIGHT: 5.4pt; PADDING-LEFT: 5.4pt; PADDING-BOTTOM: 0in; PADDING-TOP: 0in"
    vAlign=top width="53%">
      <P
      style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; TEXT-ALIGN: center"><B><FONT
      size=2>8 Allerman Road, Oakland, New Jersey</FONT></B></P></TD>
    <TD
    style="PADDING-RIGHT: 5.4pt; PADDING-LEFT: 5.4pt; PADDING-BOTTOM: 0in; PADDING-TOP: 0in"
    vAlign=top width="46%">
      <P
      style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; TEXT-ALIGN: center"><B><FONT
      size=2>07436</FONT></B></P></TD></TR>
  <TR>
    <TD
    style="PADDING-RIGHT: 5.4pt; PADDING-LEFT: 5.4pt; PADDING-BOTTOM: 0in; PADDING-TOP: 0in"
    vAlign=top width="53%">
      <P
      style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; TEXT-ALIGN: center"><FONT
      size=2>(Address of Principal Executive Offices)</FONT></P></TD>
    <TD
    style="PADDING-RIGHT: 5.4pt; PADDING-LEFT: 5.4pt; PADDING-BOTTOM: 0in; PADDING-TOP: 0in"
    vAlign=top width="46%">
      <P
      style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; TEXT-ALIGN: center"><FONT
      size=2>(Zip Code)</FONT></P></TD></TR></TABLE>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: center"><B><FONT
size=2>Nonincentive Stock Option Agreement with Lawrence Anderson</FONT></B></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: center"><B><FONT
size=2>Nonincentive Stock Option Agreement with Donald Gunn, as
amended</FONT></B></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: center"><B><FONT
size=2>by Separation Agreement with Donald Gunn</FONT></B></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: center"><FONT
size=2>(Full Title of Plan)</FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: center"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: center"><FONT
size=2>Michael W. Levin</FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: center"><FONT
size=2>Chairman, President and Chief Executive Officer</FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: center"><FONT
size=2>8 Allerman Road</FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: center"><FONT
size=2>Oakland, New Jersey 07436</FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: center"><FONT
size=2>(Name and address of agent for service)</FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: center"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: center"><FONT
size=2>(201) 677-9311</FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: center"><FONT
size=2>(Telephone number, including area code, of agent for service)</FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: center"><FONT
size=2>CALCULATION OF REGISTRATION FEE</FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<TABLE style="BORDER-COLLAPSE: collapse" cellSpacing=0 cellPadding=0 width="100%" border=0>

  <TR style="HEIGHT: 1pt">
    <TD
    style="PADDING-RIGHT: 5.4pt; PADDING-LEFT: 5.4pt; PADDING-BOTTOM: 0in; PADDING-TOP: 0in; HEIGHT: 1pt"
    vAlign=top width="27%">
      <P
      style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; TEXT-ALIGN: left"><FONT
      size=1></FONT>&nbsp;</P>
      <P
      style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; TEXT-ALIGN: left"><FONT
      size=2>Title of securities</FONT></P>
      <P
      style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; TEXT-ALIGN: left"><U><FONT
      size=2>to be registered (1)</FONT></U></P></TD>
    <TD
    style="PADDING-RIGHT: 5.4pt; PADDING-LEFT: 5.4pt; PADDING-BOTTOM: 0in; PADDING-TOP: 0in; HEIGHT: 1pt"
    vAlign=top width="14%">
      <P       style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; TEXT-ALIGN: left"><FONT       size=1></FONT>&nbsp;</P>      <P       style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; TEXT-ALIGN: left"><FONT       size=2>Amount to be</FONT></P>      <P       style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; TEXT-ALIGN: left"><U><FONT       size=2>Registered (2)&nbsp;&nbsp;&nbsp;</FONT></U></P></TD>
    <TD
    style="PADDING-RIGHT: 5.4pt; PADDING-LEFT: 5.4pt; PADDING-BOTTOM: 0in; PADDING-TOP: 0in; HEIGHT: 1pt"
    vAlign=top width="20%">
      <P       style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; TEXT-ALIGN: left"><FONT       size=2>Proposed maximum</FONT></P>      <P       style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; TEXT-ALIGN: left"><FONT       size=2>offering price</FONT></P>      <P       style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; TEXT-ALIGN: left"><U><FONT       size=2>per share (3)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></U><U></U></P></TD>
    <TD
    style="PADDING-RIGHT: 5.4pt; PADDING-LEFT: 5.4pt; PADDING-BOTTOM: 0in; PADDING-TOP: 0in; HEIGHT: 1pt"
    vAlign=top width="20%">
      <P       style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; TEXT-ALIGN: left"><FONT       size=2>Proposed maximum</FONT></P>      <P       style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; TEXT-ALIGN: left"><FONT       size=2>aggregate offering</FONT></P>      <P       style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; TEXT-ALIGN: left"><U><FONT       size=2>price&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></U><U></U></P></TD>
    <TD
    style="PADDING-RIGHT: 5.4pt; PADDING-LEFT: 5.4pt; PADDING-BOTTOM: 0in; PADDING-TOP: 0in; HEIGHT: 1pt"
    vAlign=top width="16%">
      <P       style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; TEXT-ALIGN: left"><FONT       size=1></FONT>&nbsp;</P>      <P       style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; TEXT-ALIGN: left"><FONT       size=2>Amount of</FONT></P>      <P       style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; TEXT-ALIGN: left"><U><FONT       size=2>registration fee</FONT></U><U></U></P></TD></TR>
  <TR>
    <TD
    style="PADDING-RIGHT: 5.4pt; PADDING-LEFT: 5.4pt; PADDING-BOTTOM: 0in; PADDING-TOP: 0in"
    vAlign=top width="27%">
      <P
      style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; TEXT-ALIGN: left"><FONT
      size=1></FONT>&nbsp;</P></TD>
    <TD
    style="PADDING-RIGHT: 5.4pt; PADDING-LEFT: 5.4pt; PADDING-BOTTOM: 0in; PADDING-TOP: 0in"
    vAlign=top width="14%">
      <P
      style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; TEXT-ALIGN: right"><FONT
      size=1></FONT>&nbsp;</P></TD>
    <TD
    style="PADDING-RIGHT: 5.4pt; PADDING-LEFT: 5.4pt; PADDING-BOTTOM: 0in; PADDING-TOP: 0in"
    vAlign=top width="20%">
      <P
      style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; TEXT-ALIGN: right"><FONT
      size=1></FONT>&nbsp;</P></TD>
    <TD
    style="PADDING-RIGHT: 5.4pt; PADDING-LEFT: 5.4pt; PADDING-BOTTOM: 0in; PADDING-TOP: 0in"
    vAlign=top width="20%">
      <P
      style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; TEXT-ALIGN: right"><FONT
      size=1></FONT>&nbsp;</P></TD>
    <TD
    style="PADDING-RIGHT: 5.4pt; PADDING-LEFT: 5.4pt; PADDING-BOTTOM: 0in; PADDING-TOP: 0in"
    vAlign=top width="16%">
      <P
      style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; TEXT-ALIGN: right"><FONT
      size=1></FONT>&nbsp;</P></TD></TR>
  <TR>
    <TD
    style="PADDING-RIGHT: 5.4pt; PADDING-LEFT: 5.4pt; PADDING-BOTTOM: 0in; PADDING-TOP: 0in"
    vAlign=top width="27%">
      <P
      style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; TEXT-ALIGN: left"><FONT
      size=2>Common stock,</FONT></P>
      <P
      style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0pt; TEXT-INDENT: 7.5pt; TEXT-ALIGN: left"><FONT
      size=2>$0.001 par value </FONT></P></TD>
    <TD
    style="PADDING-RIGHT: 5.4pt; PADDING-LEFT: 5.4pt; PADDING-BOTTOM: 0in; PADDING-TOP: 0in"
    vAlign=top width="14%">
      <P
      style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; TEXT-ALIGN: center"><FONT
      size=2>150,000</FONT></P></TD>
    <TD
    style="PADDING-RIGHT: 5.4pt; PADDING-LEFT: 5.4pt; PADDING-BOTTOM: 0in; PADDING-TOP: 0in"
    vAlign=top width="20%">
      <P
      style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; TEXT-ALIGN: center"><FONT
      size=2>$4.675</FONT></P></TD>
    <TD
    style="PADDING-RIGHT: 5.4pt; PADDING-LEFT: 5.4pt; PADDING-BOTTOM: 0in; PADDING-TOP: 0in"
    vAlign=top width="20%">
      <P
      style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; TEXT-ALIGN: center"><FONT
      size=2>$701,250</FONT></P></TD>
    <TD
    style="PADDING-RIGHT: 5.4pt; PADDING-LEFT: 5.4pt; PADDING-BOTTOM: 0in; PADDING-TOP: 0in"
    vAlign=top width="16%">
      <P
      style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; TEXT-ALIGN: center"><FONT
      size=2>$75.04</FONT></P></TD></TR>
  <TR>
    <TD
    style="PADDING-RIGHT: 5.4pt; PADDING-LEFT: 5.4pt; PADDING-BOTTOM: 0in; PADDING-TOP: 0in"
    vAlign=top width="27%">
      <P
      style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; TEXT-ALIGN: left"><FONT
      size=1></FONT>&nbsp;</P></TD>
    <TD
    style="PADDING-RIGHT: 5.4pt; PADDING-LEFT: 5.4pt; PADDING-BOTTOM: 0in; PADDING-TOP: 0in"
    vAlign=top width="14%">
      <P
      style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; TEXT-ALIGN: center"><FONT
      size=1></FONT>&nbsp;</P></TD>
    <TD
    style="PADDING-RIGHT: 5.4pt; PADDING-LEFT: 5.4pt; PADDING-BOTTOM: 0in; PADDING-TOP: 0in"
    vAlign=top width="20%">
      <P
      style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; TEXT-ALIGN: center"><FONT
      size=1></FONT>&nbsp;</P></TD>
    <TD
    style="PADDING-RIGHT: 5.4pt; PADDING-LEFT: 5.4pt; PADDING-BOTTOM: 0in; PADDING-TOP: 0in"
    vAlign=top width="20%">
      <P
      style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; TEXT-ALIGN: center"><FONT
      size=1></FONT>&nbsp;</P></TD>
    <TD
    style="PADDING-RIGHT: 5.4pt; PADDING-LEFT: 5.4pt; PADDING-BOTTOM: 0in; PADDING-TOP: 0in"
    vAlign=top width="16%">
      <P
      style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; TEXT-ALIGN: center"><FONT
      size=1></FONT>&nbsp;</P></TD></TR>
  <TR>
    <TD
    style="PADDING-RIGHT: 5.4pt; PADDING-LEFT: 5.4pt; PADDING-BOTTOM: 0in; PADDING-TOP: 0in"
    vAlign=top width="27%">
      <P
      style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; TEXT-ALIGN: left"><FONT
      size=2>TOTAL</FONT></P></TD>
    <TD
    style="PADDING-RIGHT: 5.4pt; PADDING-LEFT: 5.4pt; PADDING-BOTTOM: 0in; PADDING-TOP: 0in"
    vAlign=top width="14%">
      <P
      style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; TEXT-ALIGN: center"><FONT
      size=2>150,000</FONT></P></TD>
    <TD
    style="PADDING-RIGHT: 5.4pt; PADDING-LEFT: 5.4pt; PADDING-BOTTOM: 0in; PADDING-TOP: 0in"
    vAlign=top width="20%">
      <P
      style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; TEXT-ALIGN: center"><FONT
      size=1></FONT>&nbsp;</P></TD>
    <TD
    style="PADDING-RIGHT: 5.4pt; PADDING-LEFT: 5.4pt; PADDING-BOTTOM: 0in; PADDING-TOP: 0in"
    vAlign=top width="20%">
      <P
      style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; TEXT-ALIGN: center"><FONT
      size=2>$701,250</FONT></P></TD>
    <TD
    style="PADDING-RIGHT: 5.4pt; PADDING-LEFT: 5.4pt; PADDING-BOTTOM: 0in; PADDING-TOP: 0in"
    vAlign=top width="16%">
      <P
      style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; TEXT-ALIGN: center"><FONT
      size=2>$75.04</FONT></P></TD></TR></TABLE>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<TABLE style="BORDER-COLLAPSE: collapse" cellSpacing=0 cellPadding=0 border=0>

  <TR>
    <TD vAlign=top width="7%">
      <P
      style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; TEXT-ALIGN: left"><FONT
      size=2>(1)</FONT></P></TD>
    <TD vAlign=top>
      <P
      style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; TEXT-ALIGN: left"><FONT
      size=2>Represents shares subject to two nonincentive stock option
      agreements granted by the registrant to employees. </FONT></P></TD></TR>
  <TR>
    <TD vAlign=top width="7%">
      <P
      style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; TEXT-ALIGN: left"><FONT
      size=2>(2)</FONT></P></TD>
    <TD vAlign=top>
      <P
      style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; TEXT-ALIGN: left"><FONT
      size=2>Pursuant to Rule 416(a), this registration statement also covers
      any additional securities that may be offered or issued in connection with
      any stock split, stock dividend or similar transaction.</FONT></P></TD></TR>
  <TR>
    <TD vAlign=top width="7%">
      <P       style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; TEXT-ALIGN: left"><FONT       size=2>(3)</FONT></P></TD>
    <TD vAlign=top>
      <P
      style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; TEXT-ALIGN: left"><FONT
      size=2>As estimated solely for the purpose of computing the registration
      fee pursuant to Rule 457(h) and Rule 457(c) under the Securities Act. The
      proposed maximum offering price per share is based upon the average of the
      high and low prices for a share of common stock of the registrant, as
      reported on the American Stock Exchange on September 1, 2006.
    </FONT></P></TD></TR></TABLE>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P><BR>
<HR align=center width="100%" noShade SIZE=2>

<P style="PAGE-BREAK-BEFORE: always"></P>
<PAGE>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: center"><B><FONT
size=2>EXPLANATORY NOTE</FONT></B></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT size=2>This Registration Statement on Form S-8 relates to the issuance of up to
150,000 shares of the Registrant&#146;s common stock upon the exercise of stock
options granted to Messrs. Gunn and Anderson pursuant to their respective
nonincentive stock option agreements, as amended by a separation agreement in
the case of Mr. Gunn.</FONT></P>
<P
style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-INDENT: 0.5in; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2>Under cover of this Form S-8 is a Reoffer Prospectus prepared in
accordance with the requirements of Part I of the Form S-3. The Reoffer
Prospectus may be utilized for reofferings of common stock acquired by the
selling stockholders through exercise of stock options granted pursuant to their
respective nonincentive stock option agreements. </FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P><BR>
<HR align=center width="100%" noShade SIZE=2>

<P style="PAGE-BREAK-BEFORE: always"></P>
<PAGE>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: center"><B><FONT
size=2>REOFFER PROSPECTUS</FONT></B></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: center"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: center"><B><FONT
size=2>MEDIA SCIENCES INTERNATIONAL, INC.</FONT></B></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: center"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: center"><B><FONT
size=2>150,000 Shares of Common Stock underlying Stock Options</FONT></B></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: center"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2>This prospectus relates to the reoffer and resale by two selling
stockholders of a total of up to 150,000 shares of common stock of Media
Sciences International, Inc., a Delaware corporation, underlying stock options
that were issued to them pursuant to their respective nonincentive stock option
agreements, as amended, that were entered into in connection with the employment
of the two selling stockholders.</FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2>The shares may be reoffered and resold for the account of the selling
stockholders, and we will not receive any of the proceeds from the resale of the
shares of common stock, but we will receive the exercise price upon the exercise
of any stock options held by the selling stockholders. The selling stockholders
will pay all brokerage fees and commissions and similar sale-related expenses.
We are paying expenses relating to the registration of the shares with the
Securities and Exchange Commission.</FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2>The shares may be offered and sold, from time to time, by the selling
stockholders. The selling stockholders may from time to time sell their shares
of common stock directly to other purchasers or through agents, in ordinary
brokerage transactions, in negotiated transactions or otherwise, at market
prices prevailing at the time of sale, at prices related to the then-prevailing
market price or at negotiated prices.</FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2>Our common stock is quoted on the American Stock Exchange under the
symbol &#147;GFX&#148;. On September 1, 2006, the last reported sale price for a share of
our common stock on the American Stock Exchange was $4.65.</FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><B><FONT
size=2>See &#147;Risk Factors&#148; beginning on page 3 for a discussion of certain
factors that should be considered by prospective investors. </FONT></B></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><B><FONT
size=2>NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.</FONT></B></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: center"><FONT
size=2>The date of this prospectus is September 8, 2006</FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: center"><FONT
size=2>1</FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P><BR>
<HR align=center width="100%" noShade SIZE=2>

<P style="PAGE-BREAK-BEFORE: always"></P>
<PAGE>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: center"><B><FONT
size=2>TABLE OF CONTENTS</FONT></B></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<TABLE style="BORDER-COLLAPSE: collapse" cellSpacing=0 cellPadding=0 width="92%" border=0>

  <TR>
    <TD style="PADDING-RIGHT: 5.4pt; PADDING-LEFT: 5.4pt; PADDING-BOTTOM: 0in; PADDING-TOP: 0in"     vAlign=top width="91%">
      <P       style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; TEXT-ALIGN: left"><FONT       size=1></FONT>&nbsp;</P></TD>
    <TD style="PADDING-RIGHT: 5.4pt; PADDING-LEFT: 5.4pt; PADDING-BOTTOM: 0in; PADDING-TOP: 0in"     vAlign=top width="8%">
      <P       style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; TEXT-ALIGN: center"><U><FONT       size=2>Page</FONT></U><U></U></P></TD></TR>
  <TR>
    <TD     style="PADDING-RIGHT: 5.4pt; PADDING-LEFT: 5.4pt; PADDING-BOTTOM: 0in; PADDING-TOP: 0in"     vAlign=top width="91%">
      <P       style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; TEXT-ALIGN: left"><FONT       size=1></FONT>&nbsp;</P></TD>
    <TD     style="PADDING-RIGHT: 5.4pt; PADDING-LEFT: 5.4pt; PADDING-BOTTOM: 0in; PADDING-TOP: 0in"     vAlign=top width="8%">
      <P       style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; TEXT-ALIGN: center"><FONT       size=1></FONT>&nbsp;</P></TD></TR>
  <TR>
    <TD     style="PADDING-RIGHT: 5.4pt; PADDING-LEFT: 5.4pt; PADDING-BOTTOM: 0in; PADDING-TOP: 0in"     vAlign=top width="91%">
      <P       style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; TEXT-ALIGN: left"><FONT       size=2>The Company</FONT></P></TD>
    <TD     style="PADDING-RIGHT: 5.4pt; PADDING-LEFT: 5.4pt; PADDING-BOTTOM: 0in; PADDING-TOP: 0in"     vAlign=top width="8%">
      <P       style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; TEXT-ALIGN: center"><FONT       size=2>3</FONT></P></TD></TR>
  <TR>
    <TD     style="PADDING-RIGHT: 5.4pt; PADDING-LEFT: 5.4pt; PADDING-BOTTOM: 0in; PADDING-TOP: 0in"     vAlign=top width="91%">
      <P       style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; TEXT-ALIGN: left"><FONT       size=2>Risk Factors</FONT></P></TD>
    <TD     style="PADDING-RIGHT: 5.4pt; PADDING-LEFT: 5.4pt; PADDING-BOTTOM: 0in; PADDING-TOP: 0in"     vAlign=top width="8%">
      <P       style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; TEXT-ALIGN: center"><FONT       size=2>3</FONT></P></TD></TR>
  <TR>
    <TD     style="PADDING-RIGHT: 5.4pt; PADDING-LEFT: 5.4pt; PADDING-BOTTOM: 0in; PADDING-TOP: 0in"     vAlign=top width="91%">
      <P       style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; TEXT-ALIGN: left"><FONT       size=2>Use of Proceeds</FONT></P></TD>
    <TD     style="PADDING-RIGHT: 5.4pt; PADDING-LEFT: 5.4pt; PADDING-BOTTOM: 0in; PADDING-TOP: 0in"     vAlign=top width="8%">
      <P       style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; TEXT-ALIGN: center"><FONT       size=2>20</FONT></P></TD></TR>
  <TR>
    <TD     style="PADDING-RIGHT: 5.4pt; PADDING-LEFT: 5.4pt; PADDING-BOTTOM: 0in; PADDING-TOP: 0in"     vAlign=top width="91%">
      <P       style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; TEXT-ALIGN: left"><FONT       size=2>Selling Stockholders</FONT></P></TD>
    <TD     style="PADDING-RIGHT: 5.4pt; PADDING-LEFT: 5.4pt; PADDING-BOTTOM: 0in; PADDING-TOP: 0in"     vAlign=top width="8%">
      <P       style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; TEXT-ALIGN: center"><FONT       size=2>20</FONT></P></TD></TR>
  <TR>
    <TD     style="PADDING-RIGHT: 5.4pt; PADDING-LEFT: 5.4pt; PADDING-BOTTOM: 0in; PADDING-TOP: 0in"     vAlign=top width="91%">
      <P       style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; TEXT-ALIGN: left"><FONT       size=2>Plan of Distribution</FONT></P></TD>
    <TD     style="PADDING-RIGHT: 5.4pt; PADDING-LEFT: 5.4pt; PADDING-BOTTOM: 0in; PADDING-TOP: 0in"     vAlign=top width="8%">
      <P       style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; TEXT-ALIGN: center"><FONT       size=2>21</FONT></P></TD></TR>
  <TR>
    <TD     style="PADDING-RIGHT: 5.4pt; PADDING-LEFT: 5.4pt; PADDING-BOTTOM: 0in; PADDING-TOP: 0in"     vAlign=top width="91%">
      <P       style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; TEXT-ALIGN: left"><FONT       size=2>Legal Matters</FONT></P></TD>
    <TD     style="PADDING-RIGHT: 5.4pt; PADDING-LEFT: 5.4pt; PADDING-BOTTOM: 0in; PADDING-TOP: 0in"     vAlign=top width="8%">
      <P       style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; TEXT-ALIGN: center"><FONT       size=2>22</FONT></P></TD></TR>
  <TR>
    <TD     style="PADDING-RIGHT: 5.4pt; PADDING-LEFT: 5.4pt; PADDING-BOTTOM: 0in; PADDING-TOP: 0in"     vAlign=top width="91%">
      <P       style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; TEXT-ALIGN: left"><FONT       size=2>Experts</FONT></P></TD>
    <TD     style="PADDING-RIGHT: 5.4pt; PADDING-LEFT: 5.4pt; PADDING-BOTTOM: 0in; PADDING-TOP: 0in"     vAlign=top width="8%">
      <P       style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; TEXT-ALIGN: center"><FONT       size=2>22</FONT></P></TD></TR>
  <TR>
    <TD     style="PADDING-RIGHT: 5.4pt; PADDING-LEFT: 5.4pt; PADDING-BOTTOM: 0in; PADDING-TOP: 0in"     vAlign=top width="91%">
      <P       style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; TEXT-ALIGN: left"><FONT       size=2>Indemnification</FONT></P></TD>
    <TD     style="PADDING-RIGHT: 5.4pt; PADDING-LEFT: 5.4pt; PADDING-BOTTOM: 0in; PADDING-TOP: 0in"     vAlign=top width="8%">
      <P       style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; TEXT-ALIGN: center"><FONT       size=2>22</FONT></P></TD></TR>
  <TR>
    <TD     style="PADDING-RIGHT: 5.4pt; PADDING-LEFT: 5.4pt; PADDING-BOTTOM: 0in; PADDING-TOP: 0in"     vAlign=top width="91%">
      <P       style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; TEXT-ALIGN: left"><FONT       size=2>Documents Incorporated by Reference</FONT></P></TD>
    <TD     style="PADDING-RIGHT: 5.4pt; PADDING-LEFT: 5.4pt; PADDING-BOTTOM: 0in; PADDING-TOP: 0in"     vAlign=top width="8%">
      <P       style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; TEXT-ALIGN: center"><FONT       size=2>23</FONT></P></TD></TR>
  <TR style="HEIGHT: 4pt">
    <TD     style="PADDING-RIGHT: 5.4pt; PADDING-LEFT: 5.4pt; PADDING-BOTTOM: 0in; PADDING-TOP: 0in; HEIGHT: 4pt"     vAlign=top width="91%">
      <P       style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; TEXT-ALIGN: left"><FONT       size=2>Where You Can Find More Information</FONT></P></TD>
    <TD     style="PADDING-RIGHT: 5.4pt; PADDING-LEFT: 5.4pt; PADDING-BOTTOM: 0in; PADDING-TOP: 0in; HEIGHT: 4pt"     vAlign=top width="8%">
      <P       style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; TEXT-ALIGN: center"><FONT       size=2>23</FONT></P></TD></TR>
  <TR>
    <TD     style="PADDING-RIGHT: 5.4pt; PADDING-LEFT: 5.4pt; PADDING-BOTTOM: 0in; PADDING-TOP: 0in"     vAlign=top width="91%">
      <P       style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; TEXT-ALIGN: left"><FONT       size=1></FONT>&nbsp;</P></TD>
    <TD     style="PADDING-RIGHT: 5.4pt; PADDING-LEFT: 5.4pt; PADDING-BOTTOM: 0in; PADDING-TOP: 0in"     vAlign=top width="8%">
      <P       style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; TEXT-ALIGN: center"><FONT       size=1></FONT>&nbsp;</P></TD></TR>
  <TR>
    <TD     style="PADDING-RIGHT: 5.4pt; PADDING-LEFT: 5.4pt; PADDING-BOTTOM: 0in; PADDING-TOP: 0in"     vAlign=top width="91%">
      <P       style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; TEXT-ALIGN: left"><FONT       size=1></FONT>&nbsp;</P></TD>
    <TD     style="PADDING-RIGHT: 5.4pt; PADDING-LEFT: 5.4pt; PADDING-BOTTOM: 0in; PADDING-TOP: 0in"     vAlign=top width="8%">
      <P       style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; TEXT-ALIGN: center"><FONT       size=1></FONT>&nbsp;</P></TD></TR></TABLE>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: center"><FONT
size=2>2</FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P><BR>
<HR align=center width="100%" noShade SIZE=2>

<P style="PAGE-BREAK-BEFORE: always"></P>
<PAGE>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: center"><B><FONT
size=2>THE COMPANY</FONT></B></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: center"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT size=2>We
are a manufacturer of supplies for business color printers and industrial coders
(printers). We operate in one business segment through two wholly-owned
subsidiaries. </FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2>Our wholly-owned subsidiary, Media Sciences, Inc., manufactures and
distributes printer supplies, including solid ink sticks and toner cartridges
for use in Tektronix, Xerox, QMS-Minolta, Epson, Ricoh, Oki and other color
printers. We intend to grow this business through an expansion of our product
line, expansion of our distribution channels, through our INKlusive free color
printer program and through demand creation marketing activities. While we
primarily sell our supplies through an international distribution channel, we
also sell supplies directly to certain end users through our INKlusive program.
</FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2>Our wholly-owned subsidiary, Cadapult Graphic Systems, Inc., sells
supplies directly to certain end users through our INKlusive color printer
program and to those with whom we have a historical relationship. </FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT size=2>We
are a Delaware corporation. Our principal corporate office is located at 8
Allerman Road, Allendale, New Jersey 07436. Our telephone number is
201-677-9311. Our web site address is www.mediasciences.com.</FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: center"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: center"><B><FONT
size=2>RISK FACTORS</FONT></B></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT size=2>An
investment in the shares being offered by this prospectus involves a high degree
of risk. You should carefully consider the risks described below before making
an investment. If any of the following risks occurs, our actual results could
differ significantly, and the trading price of our common stock could decline,
and you may lose all or part of your investment. You should also keep these risk
factors in mind when you read forward-looking statements. The important factors
that could affect forward-looking statements are subject to change, and we
disclaim any obligation or duty to update or modify any forward-looking
statements. We have identified the material risks which we believe may affect
our business and the principal ways in which we anticipate that they may affect
our business or financial condition.</FONT><I><FONT size=2> </FONT></I><FONT
size=2></FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><U><B><FONT
size=2>RISKS RELATED TO OUR CORE BUSINESS OPERATIONS </FONT></B></U><FONT
size=2>&nbsp;</FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><B><FONT
size=2>We are at a competitive disadvantage because we operate in a market that
is dominated by companies that are the original manufacturers of printers for
which we supply products. If we do not effectively compete with new and existing
competitors, our revenues and operating margins will decline. </FONT></B></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2>The printer consumable industry is highly competitive on both a worldwide
basis and a regional geographic basis. Our competitors and potential competitors
range from large international original equipment printer manufacturers to
numerous large and small providers of discounted remanufactured product. Our
most formidable competition in the color workgroup printer space is the
incumbent original equipment printer manufacturer (OEM). Our OEM competitors
include Xerox, Oki, Konica Minolta, and Epson. In most cases, these OEMs enjoy
market shares well in excess of 95%; some with shares as high as 99%. These OEMs
have certain inherent advantages due to the fact that they manufacturer the
subject printers for which we produce competing solid ink and toner consumables.
These OEM competitors also have much greater financial, technical, marketing,
name recognition, and other resources. In addition, the OEMs can influence
dealer, distributor, and ultimately customer choice through incentive and other
programs that discourage sale or purchase of non-OEM products. We expect
competition to increase in the future from existing competitors and a number of
companies that may enter our existing or future markets. Increased competition
could adversely affect our revenue and profitability through price reductions
and loss of market share.</FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2>The principal competitive factors in our products include: product
performance and quality, time to market, marketing and access to distribution
channels, product warranty, customer services, and product design and price. If
we do not sufficiently differentiate our products on these factors, our
business, operating results and financial condition will suffer. Some of our
current and potential competitors have substantially greater financial,
technical, sales and marketing resources than we have. We may not be able to
continue to compete successfully with our existing competitors or with new
competitors.</FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: center"><FONT
size=2>3</FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P><BR>
<HR align=center width="100%" noShade SIZE=2>

<P style="PAGE-BREAK-BEFORE: always"></P>
<PAGE>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT size=2>In
addition, current and potential competitors may make strategic acquisitions or
establish cooperative relationships among themselves or with third parties,
thereby increasing the ability of their products to address the needs of their
current and prospective customers. Accordingly, it is possible that new
competitors or alliances among current and new competitors may emerge and
rapidly gain significant market share and production economies. Such competition
could materially adversely affect our ability to sell our products on terms
favorable to us. Further, competitive pressures and functionally competitive
products could require us to reduce the price of our products, which could
materially adversely affect our business, operating results and financial
condition. We may not be able to compete successfully against current and future
competitors and any failure to do so would have a material adverse effect on our
business, operating results and financial condition. </FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><B><FONT
size=2>We may need to change our pricing models to compete successfully.
</FONT></B></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2>The highly competitive markets in which we compete can put pressure on us
to reduce the prices of our products. As a result, we may not be able to
maintain our historical prices and margins, which could adversely affect our
business, results of operations and financial condition. We believe that
competition will increase in the future, which could require us to reduce
prices, increase advertising expenditures or take other actions which may have
an adverse effect on our operating results. Decreasing prices resulting from
competition and technological changes require us to sell a greater number of
products to achieve the same level of net revenues and gross profit. If this
occurs and we are unable to attract new customers and sell increased quantities
of products, our revenue growth and profitability could be adversely affected.
Any broadly-based changes to our prices and pricing policies could cause our
revenues to decline or be delayed as our sales force implements and our
customers adjust to the new pricing policies. Some of our competitors may bundle
products for promotional purposes or as a long-term pricing strategy or provide
guarantees of prices and product implementations. These practices could, over
time, significantly constrain the prices that we can charge for our products.
</FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><B><FONT
size=2>We rely on a small number of suppliers to provide key components for our
products.</FONT></B><FONT size=2> </FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2>Our manufacturing process requires a high volume of quality raw materials
and components from third-party suppliers. Defective products received from
these suppliers could reduce product reliability and harm our reputation. Our
reliance on suppliers may result in product delays or price increases. We use
some components that are not common to the rest of the personal computer and
consumer electronics industries. Further, a number of our products utilize
custom components. Some key components and raw materials (including certain
toners and electronic chips), may be obtained only from a single supplier or a
limited group of suppliers, either because alternative sources are not available
or the relationship is advantageous due to performance, quality, support,
delivery, capacity, or price considerations. </FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT size=2>We
generally purchase raw materials, components and products using purchase orders
and have no guaranteed supply arrangements with the suppliers. From time to
time, vendors may cease to do business with us for various reasons, or change
our terms and conditions. Any such termination or the implementation of such
changes could have a material adverse impact on our financial results. The loss
of, or change in, business relationship with key suppliers, could negatively
impact our competitive position. Additionally, a merger or consolidation among
our suppliers could result in price increases which would adversely impact our
results of operations.</FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2>Even where alternative sources of supply may be available, qualification
of the alternative suppliers and establishment of reliable supplies could result
in delays and a possible loss of sales, which could have a material adverse
affect on our financial performance. Moreover, if actual demand for our products
is different than expected, we may purchase more/fewer parts than necessary or
incur costs for canceling, postponing or expediting delivery of products. Any or
all of these factors could materially and adversely affect our business,
financial condition and results of operations. </FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: center"><FONT
size=2>4</FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P><BR>
<HR align=center width="100%" noShade SIZE=2>

<P style="PAGE-BREAK-BEFORE: always"></P>
<PAGE>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><B><FONT
size=2>We rely on indirect distribution channels and major distributors that we
do not control. </FONT></B></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT size=2>We
rely significantly on independent distributors and resellers to market and
distribute our products. We do not control our distributors and resellers.
Additionally, our distributors and resellers are not obligated to buy our
products and could also represent other lines of products. Some of our
distributors and resellers maintain inventories of our products for resale to
their customers. If distributors and resellers reduce their inventory of our
products, our business could be adversely affected. Further, we could maintain
individually significant accounts receivable balances with certain distributors.
The financial condition of our distributors could deteriorate and distributors
could significantly delay or default on their payment obligations. Any
significant delays or defaults could have a material adverse effect on our
business, results of operations and financial condition. </FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><B><FONT
size=2>Any failure to maintain on-going sales through distribution channels
could result in lower revenues. </FONT></B></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT size=2>To
date, we have sold our products principally through distributors and resellers.
Our ability to achieve revenue growth in the future will depend in large part on
our success in maintaining existing relationships and further establishing and
expanding relationships with new distributors and resellers. It is possible that
we will not be able to successfully expand our distribution channels, secure
business with additional distributors and resellers on commercially reasonable
terms or at all, and otherwise adequately continue to develop and maintain our
existing distribution relationships. Moreover, even if we succeed in these
endeavors, it still may not increase our revenues. We need to carefully monitor
the development and scope of our indirect sales channels and create appropriate
pricing, sales force compensation and other distribution parameters. If we
invest resources in these types of expansion and our overall revenues do not
correspondingly increase, our business, results of operations and financial
condition will be materially and adversely affected. Additionally, as we attempt
to attract and penetrate additional distributors and resellers, we may need to
increase corporate branding and marketing activities, which could increase our
operating expenses. Accordingly, these efforts, if not sufficiently effective,
may actually reduce our profits.</FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><B><FONT
size=2>We are dependent on commercial delivery services for supply of raw
materials and finished goods as well as delivery of our products to
customers</FONT></B><FONT size=2>. </FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT size=2>We
generally ship our products in from our suppliers and to our customers by common
carrier, including, but not limited to Concordia, DHL, FedEx, and United Parcel
Service. If we are unable to pass on to our customers future increases in the
costs of our commercial delivery services, our profitability could be adversely
affected. Additionally, strikes or other service interruptions by such shippers
could adversely affect our ability to deliver products on a timely
basis.</FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><B><FONT
size=2>Product Concentration &#150; Our business derives revenues from a single group
of similar and related products. </FONT></B></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2>Our revenues are derived primarily from a single group of similar and
related products, and a decline in demand or prices for these products or
services could substantially adversely affect our operating
results.</FONT><I><B><FONT size=2> </FONT></B></I><FONT size=2>We currently
derive the majority of our revenues from the sale of solid ink sticks and toner
consumables for color work group printers. We expect these products to continue
to account for the majority of our revenues in the future. As a result, factors
adversely affecting the pricing of or demand for such products, including
difficult economic conditions, future terrorist activities or military actions,
any decline in overall market demand, competition, product performance or
technological change, could have a material adverse effect on our business and
consolidated results of operations and financial condition. </FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2>Our future growth is expected to be achieved through the development and
introduction of new products, increasing market penetration of our existing
products, and continuation of the trend in growth of color printing. There are
substantial risks that we will be unable to realize any or all of this expected
growth. Nor can we provide any assurance that new products we introduce will be
successful in the market. All of our new product initiatives have substantial,
entrenched OEM competitors with greater resources and experience in these
product areas. There can be no assurances that all or any of these new products
will be successful and contribute to profitability or growth. </FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: center"><FONT
size=2>5</FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P><BR>
<HR align=center width="100%" noShade SIZE=2>

<P style="PAGE-BREAK-BEFORE: always"></P>
<PAGE>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><B><FONT
size=2>Customer Concentration &#150; Historically, a few customers have accounted for
a large percentage of our revenues. The loss of a significant customer would
significantly reduce our revenues.</FONT></B></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2>Our customer base is relatively highly concentrated. Presently, three
customers account for about 35% of our entire net revenues. For the foreseeable
future, we expect to continue to have a relatively highly concentrated customer
base. In addition, the mix and type of customers, and sales to any single
customer, may vary significantly from quarter to quarter and from year to year.
If customers do not place orders, or delay or cancel orders, we may not be able
to replace the business. Any changing, rescheduling or canceling orders by these
customers may result in a significant decline in our revenues and profitability.
Major customers may also seek and on occasion receive pricing, payment terms or
other conditions that are less favorable to us. In addition, certain customers
may form strategic alliances or collaborative efforts that could result in
additional complexities in managing individual customer relationships and
transactions. These factors could have a material adverse effect on our
business, financial condition and results of operations. </FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><B><FONT
size=2>Product Warranty &#150; Because we offer a liberal product warranty, expenses
associated with the program could harm our revenues and substantially increase
our costs. </FONT></B></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT size=2>We
provide warranties for our products as to suitability for use in the intended
printer models and that our products are free of defects that could cause damage
to these printers. Costs covered under the product warranty include customary
charges for the repair or replacement of the printer with an equivalent new or
refurbished printer, at our sole discretion. We believe that our product
warranty is relatively liberal, providing in most cases, broader and more
complete coverage than that provided by the original equipment printer
manufacturer. </FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2>Some of the products we offer are internally complex and, despite
extensive testing and quality control, may contain defects. We may need to
recall defective products if these defects are not discovered until after
commercial shipments have been made, issue credits to customers, impair and
dispose of substantial inventories, and may incur substantial product warranty
and service costs if our products damage customer printers. Any product defects
could also cause damage to our reputation and result in loss of revenues,
product returns or order cancellations, lack of market acceptance of our
products, as well as increase our product warranty or service costs.
Accordingly, any product defects could have a material and adverse effect on our
business, results of operations and financial condition.</FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT size=2>In
2002, we conducted a product recall after manufacturing defects in certain solid
ink sticks caused damage to some customer print heads. The recall and related
warranty expense cost the company approximately $5.0 million. Since then, the
Company has made substantial improvements in its testing and quality control
processes. We cannot guarantee that the testing and quality control improvements
we have implemented will be effective in preventing future recalls and similar
or more substantial material adverse effects on our business and results of
operations.</FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><B><FONT
size=2>We are exposed to inventory risks. </FONT></B></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT size=2>We
are exposed to inventory risks as a result of the rapid technological changes
that affect the market and pricing for the products we sell. We seek to minimize
our inventory exposure through a variety of inventory management procedures and
policies. However, if there were unforeseen product developments that created
more rapid obsolescence or if vendors were to change their terms and conditions,
our inventory risks could increase. We also periodically take advantage of cost
savings associated with certain opportunistic bulk inventory purchases offered
by our vendors. These bulk purchases could increase our exposure to inventory
obsolescence. We cannot guarantee that we will be successful in our efforts to
mitigate our inventory risk and, in fact, many of the competitive and
technological factors that drive this risk are beyond our control. </FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: center"><FONT
size=2>6</FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P><BR>
<HR align=center width="100%" noShade SIZE=2>

<P style="PAGE-BREAK-BEFORE: always"></P>
<PAGE>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><B><FONT
size=2>We are, and may become, involved in litigation, which could materially
harm our business. </FONT></B></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT size=2>We
are a party to legal proceedings that arise from time to time, involving our
business, products or operations. We do not believe that any currently pending
or threatened litigation, based on our assessment of merit, will have a material
adverse effect on our financial condition. However, the litigation process is
inherently expensive, uncertain and includes the risk of an unexpected,
unfavorable result. Accordingly, it is possible in the future that the eventual
outcome of litigation could materially and adversely affect our results of
operations.</FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><B><FONT
size=2>If we are unable to finance our INKlusive program, we may be required to
use alternative sources of financing or attempt to self-finance these
activities. </FONT></B></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT size=2>We
depend on our current third-party financing sources to fund our INKlusive
program. If either of our third-party financing vendors is unable to access the
capital markets, ceases to operate as a finance company, or chooses not to
participate in the financing of the INKlusive program, we may have to cease or
scale-back our INKlusive program to the extent we are unable to self-finance the
program. As a result, our revenues and operating results could be adversely
affected. </FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><B><FONT
size=2>Covenants in our debt instruments could trigger a default adversely
affecting our ability to execute our business plan, our ability to obtain
further financing, and potentially adversely affect the ownership of our
assets.</FONT></B></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2>Upon the occurrence of an event of default under any of our loan
agreements, the lenders or trustees could elect to declare all amounts
outstanding there under to be immediately due and payable and terminate all
commitments to extend further debt. If the lenders or trustees accelerate the
repayment of borrowings, we cannot provide assurance that we will have
sufficient assets to repay our debt facilities and our other indebtedness or be
able to implement our business plan. If we are unable to repay our outstanding
indebtedness, the bank could foreclose on all of our assets. Accordingly, the
occurrence of an event of default could have a material adverse affect on our
financial position, results of operations, and our viability.</FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2>Our bank debt agreements contain financial and other covenants. Although
we believe none of these covenants are presently restrictive to our operations,
our ability to meet the financial covenants can be affected by events beyond our
control, and we cannot provide assurance that we will meet those tests. A breach
of any of these covenants could result in a default under our debt agreements.
We have a revolving line of credit with a financial institution, whereby we can
borrow funds, subject to availability of collateral. Borrowings under the credit
line are collateralized by all of our assets. Although we currently have no
outstanding balances under this line, we have several term notes with the same
lender that are cross collateralized and contain cross default provisions with
the revolving line-of-credit.</FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><B><FONT
size=2>If we do not generate sufficient cash flow from operations in the future,
we may not be able to fund our product development, potential acquisitions, or
fulfill our future obligations.</FONT></B></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2>Our ability to generate sufficient cash flow from operations to fund our
operations and product development, including the payment of cash consideration
in any potential acquisitions and the payment of our other obligations, depends
on a range of economic, competitive and business factors, many of which are
outside our control. We cannot assure you that our business will generate
sufficient cash flow from operations, or that we will be able to sell assets or
raise equity or debt financings when needed or desirable. An inability to fund
our operations or fulfill outstanding obligations could have a material adverse
effect on our business, financial condition and results of operations.
</FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: center"><FONT
size=2>7</FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P><BR>
<HR align=center width="100%" noShade SIZE=2>

<P style="PAGE-BREAK-BEFORE: always"></P>
<PAGE>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><B><FONT
size=2>RISKS RELATED TO OUR INTERNATIONAL BUSINESS AND SENSITIVITY TO ECONOMIC
CONDITIONS</FONT></B></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><B><FONT
size=2>Commodity price fluctuations may increase our cost of goods and adversely
affect our results. </FONT></B></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT size=2>A
large percentage of our products utilize petroleum, flax and soybean-based
materials and paper and corrugated packaging. Volatility in the prices of these
commodities could increase the costs of our products, which we may not be able
to pass on to our customers, and thereby adversely effect our results of
operations and cash flows. </FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><B><FONT
size=2>Our international operations expose us to greater management,
collections, currency, export licensing, intellectual property, tax, regulatory
and other risks. Expansion into international markets is important to our
long-term success, and our inexperience in the operation of our business outside
the U.S. increases the risk that our international expansion efforts will not be
successful.</FONT></B></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2>Net revenue outside the U.S.&nbsp;accounted for approximately 18% of our
consolidated net revenue in fiscal 2006. These non-U.S. sales are primarily
concentrated in Western Europe and are expected to grow at a rate faster than
our U.S. business. We opened our first office outside the U.S. in January 2005,
and have only limited experience with operations outside the U.S. Expansion into
international markets requires management attention and resources. These risks
could harm our international expansion efforts, which would in turn harm our
business and operating results. </FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2>Our international business is subject to a number of risks, including
unexpected changes in regulatory practices and tariffs, longer collection
cycles, seasonality, potential changes in export licensing and tax laws, and
greater difficulty in protecting intellectual property rights. Also, the impact
of fluctuating exchange rates between the U.S. dollar and foreign currencies in
markets where we do business may significantly impact our revenues. For example,
a strengthening of the U.S. dollar could have an unexpected adverse impact on
our international revenue. If the value of the U.S. dollar relative to the
European currencies were to significantly increase, it could have an unexpected
adverse impact on our revenues, profits and other operating results. General
economic and political conditions in these foreign markets, including the
military action in the Middle East, geopolitical instabilities on the Korean
peninsula and other parts of Asia and a backlash against U.S. based companies
may also impact our international revenues, as such conditions may cause
decreases in demand or impact our ability to collect payment from our customers.
There can be no assurances that these factors and other factors will not have a
material adverse effect on our future international revenues and consequently on
our business and consolidated financial condition and results of operations.
</FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2>Currently, all of our toner-based products are sourced and assembled in
foreign locations, particularly Japan, China, and Taiwan, which subject us to a
number of economic and other risks. </FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><B><FONT
size=2>Local laws in effect or that may be enacted in foreign jurisdictions may
afford less protection to holders of our securities than those in effect in the
United States. </FONT></B></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT size=2>We
presently have one non-U.S. subsidiary, Media Sciences U.K. Limited, and we may
have others in the future. These foreign subsidiaries are organized under the
laws of their respective jurisdictions. Thus, holders of our securities should
not conclude that assets and interests held by such foreign subsidiaries are
subject to the same protections afforded similar entities incorporated in a
United States jurisdiction. </FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><B><FONT
size=2>Our earnings and growth rate could be adversely affected by changes in
general economic conditions and uncertain geopolitical conditions.
</FONT></B></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2>Weak general economic conditions, along with uncertainties in
geopolitical conditions, could adversely impact our revenue and growth rate and
impair the value of our assets. In addition, our revenue, gross margin and
earnings could deteriorate in the future as a result of unfavorable economic or
political conditions.</FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: center"><FONT
size=2>8</FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P><BR>
<HR align=center width="100%" noShade SIZE=2>

<P style="PAGE-BREAK-BEFORE: always"></P>
<PAGE>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><B><FONT
size=2>RISKS RELATED TO OUR TECHNOLOGY AND THE NATURE OF OUR
PRODUCTS</FONT></B></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><B><FONT
size=2>We operate in an industry characterized by increasingly rapid
technological changes and our sales are dependent on the continued development
of new technologies and products.</FONT></B><FONT size=2> </FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2>The markets for our products and services are characterized by: rapid
technological change; increasing technical complexity of the products (i.e., new
chemical toners, use of new smart chips, etc.); evolving industry standards;
fluctuations in customer demand; changes in customer requirements; and frequent
new product and service introductions and enhancements. </FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2>Our future success depends on our ability to continually enhance our
current products and develop and introduce new products and services that our
customers choose to buy. The timely availability of marketable new products is
critical to our future success. We cannot guarantee that we will be successful
in this effort. Our future success could be hindered by: delays in our
introduction of new products and services; delays in market acceptance of new
products and services or new releases of our current products and services; and
our, or a competitor&#146;s, announcement of new product or service enhancements or
technologies that could replace or shorten the life cycle of our existing
product and service offerings.</FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><B><FONT
size=2>Execution risks associated with product development and introduction are
significant and could reduce the demand for our products and the profitability
of our operations.</FONT></B><FONT size=2> </FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2>Continuing improvements in technology mean frequent new product
introductions, short product life cycles, and improvement in product performance
characteristics. New product introductions present execution challenges and
risks for us. If we are unable to effectively manage a product introduction, our
business and results of operations could be unfavorably affected.</FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2>Our success is subject to many risks, including, but not limited to, our
ability to timely and cost-effectively: (1)&nbsp;develop and market new products
and price products appropriately; (2)&nbsp;improve existing products and
increase market share in its existing markets; (3)&nbsp;expand into or develop
related and new markets for its technology; (4)&nbsp;achieve market acceptance
of, and accurately forecast demand and meet production schedules for, its
products; (5)&nbsp;achieve cost efficiencies across product offerings;
(6)&nbsp;adapt to technology changes in related markets; (7)&nbsp;adapt to
changes in value offered by companies in different parts of the supply chain;
(8)&nbsp;qualify products for volume manufacturing with its customers; and
(9)&nbsp;successfully implement improvements in its manufacturing process.
Furthermore, new or improved products may involve higher costs and reduced
efficiencies compared to our more established products and could adversely
affect our gross margins. In addition, we must successfully implement changes in
our design engineering methodology, including changes that result in:
significant decreases in material costs and cycle time; greater commonality of
components and types of parts used in different products; and effective product
life cycle management. If we do not successfully manage these challenges, our
business, financial condition and results of operations could be materially and
adversely affected.</FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT size=2>We
cannot guarantee that our products will achieve the broad market acceptance by
our channel and entities with which we have a technology relationship, customers
and prospective customers necessary to generate significant revenue. In
addition, we cannot guarantee that we will be able to respond effectively to
technological changes or new product announcements by others. If we experience
material delays or sales shortfalls with respect to our new products and
services or new releases of our current products and services, those delays or
shortfalls could have a material adverse effect on our business, results of
operations and financial condition. </FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left">&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: center"><FONT
size=2>9</FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P><BR>
<HR align=center width="100%" noShade SIZE=2>

<P style="PAGE-BREAK-BEFORE: always"></P>
<PAGE>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><B><FONT
size=2>Our intellectual property and other proprietary rights could offer only
limited protection. Competitors may use our technology, which could weaken our
competitive position, reduce our revenues and increase our costs.
</FONT></B></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2>Our success depends, to a large extent, on our ability to protect our
proprietary technology. We rely on a combination of patent, copyright,
trademark, service mark, trade secret rights, and confidentiality procedures to
establish and protect our proprietary rights. As part of our confidentiality
procedures, we generally enter into non-disclosure agreements with our
employees, distributors and corporate partners with respect to our documentation
and other proprietary information. Despite precautions we may take to protect
our intellectual property, we cannot assure you that third parties will not try
to challenge, invalidate or circumvent these safeguards. It is possible that
other companies could successfully challenge the validity or scope of our
current or future patents or that our competitors may independently develop
similar technology, duplicate our products, or design around patents and other
intellectual property rights that we hold. We also cannot assure you that the
rights granted under our patents or attendant to our other intellectual property
will provide us with any competitive advantages, or that patents will be issued
on any of our pending applications, or that future patents will be sufficiently
broad to protect our technology. Furthermore, the laws of foreign countries may
not protect our proprietary rights in those countries to the same extent as
applicable law protects these rights in the United States. Failure to protect
our intellectual property could materially adversely affect our business,
operating results and financial condition. </FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><B><FONT
size=2>Existing and future claims of intellectual property infringement against
us could seriously harm our business because it could inhibit our ability to use
certain technologies, divert our management efforts, result in costly
litigation, and subject us to significant uncertainty regarding the ultimate
outcome.</FONT></B></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT size=2>We
are subject to legal proceedings and claims that arise in the ordinary course of
our business, that our products infringe certain patent or other intellectual
property rights. It is possible that third parties, including competitors,
technology partners, and other technology companies, could successfully claim
that our current or future products, whether developed internally or acquired,
infringe their rights, including their trade secret, copyright and patent
rights. These types of claims, with or without merit, can cause costly
litigation that absorbs significant management time, as well as impede our sales
efforts due to any uncertainty as to the outcome, all of which could materially
adversely affect our business, operating results and financial condition. These
types of claims, with or without merit, could also cause us to pay substantial
damages or settlement amounts, cease offering of any subject technology or
products altogether, require us to enter into royalty or license agreements, and
damage our ability to sell products due to any uncertainty generated as to
intellectual property ownership. Under certain circumstances our suppliers may
be contractually obligated to indemnify us against certain expenses, however
those suppliers may ultimately be unable to meet their obligations. Further, by
successfully challenging the validity of patents or other intellectual property,
we may make it easier for other competitors to enter the market.</FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2>Because of technological changes in its industry, current extensive
patent coverage, and the rapid rate of issuance of new patents, it is possible
certain of the Company&#146;s products, including products obtained through
acquisitions, components, and business methods may unknowingly infringe existing
patents of others. We attempt to ensure that products we develop or acquire and
our processes do not infringe upon third party patents and other proprietary
rights. The Company typically conducts as many as three independent intellectual
property reviews as an integral part of its product development process: an
extensive in-house review, a review by external council, and our key suppliers
conduct their own review. Before product launch, these independent reviews are
compared and reconciled. Despite these efforts, we cannot guarantee that this
process will be effective in preventing the Company from infringing the patent
rights of others.</FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT size=2>We
do not believe that any currently pending or threatened litigation, based on our
assessment of merit, will have a material adverse effect on our financial
condition. However, the litigation process is inherently expensive, uncertain
and includes the risk of an unexpected, unfavorable result. Accordingly, it is
possible in the future that the eventual outcome of litigation could materially
and adversely affect our financial position and results of
operations.</FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: center"><FONT
size=2>10</FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P><BR>
<HR align=center width="100%" noShade SIZE=2>

<P style="PAGE-BREAK-BEFORE: always"></P>
<PAGE>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT size=2>On
June 23, 2006, Xerox Corporation filed a lawsuit against the Company alleging
Media Sciences&#146; solid ink sticks for use in the Xerox&reg; Phaser&reg;
8500/8550 8500/8550 printers infringe, actively induces others to infringe, and/or contributorily
infringes four patents held by Xerox concerning solid ink stick shape. Xerox
seeks a preliminary and permanent injunction, a finding of willful infringement,
damages (including treble damages), and costs. In August 2006, Media Sciences
answered the complaint and counterclaimed for declaratory judgment of
non-infringement and invalidity. Media Sciences believes the filing of this
action by Xerox violates an agreement between the companies that was reached in
resolution of similar litigation in 2001. The Company believes it has
meritorious defenses and counterclaims and intends to pursue them vigorously.
There can be no assurance, however, that the Company will be successful in our
defense of this action. The loss of all or a part of this lawsuit could have a
material adverse affect on our operations. </FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><B><FONT
size=2>OTHER BUSINESS RISKS</FONT></B></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><B><FONT
size=2>Challenges of Growth &#151; If we fail to manage our operations and grow
revenues or fail to continue to effectively control expenses, our future
operating results could be adversely affected. </FONT></B></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2>The scope of our operations, the number of our employees and the
geographic area of our operations and our revenues have grown rapidly. Our
growth could place a significant strain on our managerial, operational and
financial resources. To manage our current growth and any future growth
effectively, we need to continue to implement and improve additional management
and financial systems and controls. We may not be able to manage the current
scope of our operations or future growth effectively and still exploit market
opportunities for our products and services in a timely and cost-effective
way.</FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT size=2>We
attribute most of our growth during recent years to the introduction of new
products and general growth of the color work group printer market. We cannot
assure you that this market we serve will continue to grow. We cannot assure you
that we will be successful in developing and introducing new products or that
any new products we may introduce will actually increase our revenue growth
rate. </FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT size=2>If
we experience a shortfall in revenue in any given quarter, due to the fixed
nature of many of our expenses, we may not be able to further reduce operating
expenses quickly in response. Any significant shortfall in revenue therefore
could immediately and adversely affect our results of operations for that
quarter. Accordingly, our revenue growth, profitability and cash flows from
operating activities could be lower than in recent years. </FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><B><FONT
size=2>If we are unable to attract and retain key executive and management
personnel, we may not be able to manage and execute our business
plan.</FONT></B></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2>Our success depends, in large part, upon the services of a number of key
employees. Other than our founder and CEO, Michael W. Levin, who has an
employment agreement and for whom we maintain a key-person life insurance
policy, our executive officers and key employees are at-will employees and are
not covered by key-person life insurance policies. Competition for these types
of employees is intense, and it is possible that we will not be able to retain
our key employees and that we will not be successful in attracting, assimilating
and retaining qualified candidates in the future. </FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2>Further, we may have difficultly attracting and retaining qualified board
members and executive officers, which would adversely affect our business.
Recently enacted and proposed changes in the laws and regulations affecting
public companies, including the provisions of the Sarbanes-Oxley Act of 2002,
mandate, among other things, that companies adopt new corporate governance
measures and impose comprehensive reporting and disclosure requirements, set
stricter independence and financial expertise standards for audit committee
members and impose increased civil and criminal penalties for companies, their
chief executive officers and chief financial officers and directors for
securities law violations. In addition, regulations adopted by stock exchanges
require comprehensive rules and regulations relating to corporate governance.
These laws, rules and regulations have increased and will make it more difficult
and more expensive for us to obtain director and officer (D&amp;O) liability
insurance in the future. Further, our board members, Chief Executive Officer and
Chief Financial Officer could face an increased risk of personal liability in
connection with the performance of their duties that cannot be addressed with
D&amp;O insurance. </FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: center"><FONT
size=2>11</FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P><BR>
<HR align=center width="100%" noShade SIZE=2>

<P style="PAGE-BREAK-BEFORE: always"></P>
<PAGE>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><B><FONT
size=2>If we lose key personnel or cannot hire enough qualified employees, it
will adversely affect our ability to manage our business, develop, acquire new
products and increase revenue. </FONT></B></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2>The effective management of our growth could depend upon our ability to
retain our highly skilled technical, managerial, finance and marketing
personnel. If any of those employees leave, we will need to attract and retain
replacements for them. To achieve our growth objectives, we also need to add key
personnel in the future. The market for these qualified employees is
competitive. We could find it difficult to successfully attract, assimilate or
retain sufficiently qualified personnel in sufficient numbers. We might not
attract and retain enough qualified personnel to support our anticipated
domestic or international growth and our increasingly complex product
offerings.</FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2>Furthermore, we may need to hire additional personnel to develop new
products, product enhancements and technologies. If we cannot add the necessary
staff and resources, our ability to develop future products could be delayed.
Similarly, we may need to hire key personnel in connection with potential future
acquisitions. If we cannot retain and add the necessary staff and resources for
these acquired businesses, our ability to develop acquired products, markets and
customers could be delayed. Any such delays could have a material adverse effect
on our business, results of operations and financial condition. </FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><B><FONT
size=2>We may incur substantial additional costs to motivate, attract, and
retain key employees</FONT></B></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT size=2>As
a result of our adoption of Statement of Financial Accounting Standards, or
SFAS, No.&nbsp;123(R), &#147;Share-Based Payments,&#148; which begins in our first quarter
of fiscal 2007 (ending September 30, 2006), we will record a charge to earnings for
equity-based compensation, such as stock options and restricted stock awards.
This requirement reduces the attractiveness of granting equity-based
compensation as the expense associated with these grants will decrease our
profitability. If we do not successfully attract, retain and motivate key
employees as a result of these or other factors, our operating results and
ability to capitalize on its opportunities may be materially and adversely
affected.</FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT size=2>In
addition, regulations adopted by AMEX and certain other exchanges require
stockholder approval for new equity compensation plans and significant
amendments to existing plans, including increases in shares available for
issuance under such plans, and prohibit member organizations from giving a proxy
to vote on equity compensation plans unless the beneficial owner of the shares
has given voting instructions. These regulations could make it more difficult
for us to grant equity compensation to employees in the future. To the extent
that these regulations make it more difficult or expensive to grant equity
compensation to employees, we may incur increased compensation costs or find it
difficult to attract, retain and motivate employees, which could materially and
adversely affect our business. </FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><B><FONT
size=2>If we become subject to unfair hiring claims, we could be prevented from
hiring needed employees, incur</FONT></B><FONT size=2>&nbsp;</FONT><B><FONT
size=2>liability for damages and incur substantial litigation costs in defending
ourselves. </FONT></B></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2>Companies in our industry whose employees accept positions with
competitors frequently claim that those competitors have engaged in unfair
hiring practices or that the employment of these persons would involve the
disclosure or use of trade secrets. These claims could prevent us from hiring
employees or cause us to incur liability for damages. We could also incur
substantial costs in defending ourselves or our employees against these claims,
regardless of their merits. Defending ourselves from these claims could also
divert the attention of our management away from our operations. </FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><B><FONT
size=2>Disruption of our operations at our corporate headquarters could
negatively impact our results of operations. </FONT></B></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2>Although we have multiple sales office locations in the United
States and an office in Western Europe, essentially all of our computer equipment,
intellectual property resources and personnel, including critical resources
dedicated to research and development, manufacturing and administrative support
functions, are presently located at our corporate headquarters in Oakland, New
Jersey. The occurrence of a natural disaster or other unanticipated catastrophes
could cause interruptions in our operations. Extensive or multiple interruptions
in our operations due to natural disasters or unanticipated catastrophes could
severely disrupt our operations and have a material adverse effect on our
results of operations. </FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: center"><FONT
size=2>12</FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P><BR>
<HR align=center width="100%" noShade SIZE=2>

<P style="PAGE-BREAK-BEFORE: always"></P>
<PAGE>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><U><B><FONT
size=2>RISKS RELATED WITH OUR INFORMATION TECHNOLOGY</FONT></B></U></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><B><FONT
size=2>Because our business relies upon a variety of computer systems to operate
effectively, the failure or disruption of, or latent defects in, these systems
could have a material adverse effect on our business. </FONT></B><FONT
size=2>&nbsp;&nbsp; </FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT size=2>We
depend on our information technology and manufacturing infrastructure to achieve
our business objectives. The effectiveness and efficiency of our operations
depend on a variety of information systems, including e-mail, enterprise
resource planning, electronic data interchange, customer resource management and
e-commerce systems, and financial accounting. Disruption in the operation of
these systems, or difficulties in maintaining or upgrading these systems, could
have a material adverse effect on our business. An infrastructure disruption
could cause us to lose customers and revenue, and could require us to incur
significant expense to eliminate these problems and address related security
concerns. The harm to our business could be even greater if it occurs during a
period of disproportionately heavy demand. Difficulties that we have
encountered, or may encounter, in connection with our implementation and use of
our computer systems, including human error or our reliance on, or a failure or
disruption of, or latent defects in, such systems, could adversely affect our
order management and fulfillment, financial reporting and supply chain
management processes, and any such difficulties could have a material adverse
effect on our business. </FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><B><FONT
size=2>The success of our business depends on the continuing development,
maintenance and operation of our information technology systems.</FONT></B><FONT
size=2> </FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2>Our success is dependent on the accuracy, proper utilization and
continuing development of our information technology systems, including our
business application systems, Web servers and telecommunications network. The
quality and our utilization of the information generated by our information
technology systems, and our success in implementing new systems and upgrades,
affects, among other things, our ability to:</FONT></P><br>


<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 WIDTH=100%>
<TR VALIGN=Bottom>
     <TH></TH>
     <TH></TH></TR>
<TR VALIGN=Bottom>
     <TD WIDTH=5% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>o</FONT></TD>
     <TD WIDTH=95% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>conduct business with our customers;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>o</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>manage our inventory and accounts receivable;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>o</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>purchase, sell, ship and invoice our products efficiently and on a timely basis; and</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>o</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>maintain our cost-efficient operating model.</FONT></TD></TR>
</TABLE>
<br>

<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2>The integrity of our information technology systems is vulnerable to
certain forms of disaster including, but not limited to, natural disasters such
as tornadoes. While we have taken steps to protect our information technology
systems from a variety of threats, including computer viruses and malicious
hackers, there can be no guarantee that those steps will be effective.
Furthermore, although we have redundant systems at a separate location to back
up our primary application systems, there can be no assurance that these
redundant systems will operate properly if and when required. Any disruption to
or infiltration of our information technology systems could significantly harm
our business and results of operations.</FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT size=2>We
have operations, clients, and vendors throughout the world. Our operations are
dependent upon the connectivity of our operations throughout the world.
Activities that interfere with our international connectivity, such as computer
&#147;hacking&#148; or the introduction of a virus into our computer systems, could
significantly interfere with our business operations. </FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><U><B><FONT
size=2>RISKS RELATED TO ACQUISITIONS AND ALLIANCES</FONT></B></U></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><B><FONT
size=2>We are exposed to risks associated with acquisitions. </FONT></B></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2>From our inception in May 1987, we have made a number of strategic
acquisitions. In connection with acquisitions completed prior to June 30, 2006,
we recorded approximately $4.9 million as intangible assets and goodwill, of
which approximately $0.4 million had been amortized and $0.9 million written
off. We intend to continue to address the need to develop new products and
enhance existing products through acquisitions of other companies, product lines
and/or technologies. Our growth is dependent upon market growth, growth in
market share, our ability to enhance existing products and services, and our
ability to introduce new products on a timely basis. </FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: center"><FONT
size=2>13</FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P><BR>
<HR align=center width="100%" noShade SIZE=2>

<P style="PAGE-BREAK-BEFORE: always"></P>
<PAGE>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT size=2>In
the future we expect to acquire, or make significant investments in, businesses
to achieve our strategic objectives. While we expect to carefully analyze each
potential acquisition before committing to the transaction, we may not be able
to integrate and manage acquired products and businesses effectively. We cannot
assure anyone that our previous acquisitions or any future acquisitions will be
successful in helping us reach our financial and strategic goals either for that
acquisition or for us generally. Acquisitions involve numerous risks, including
but not limited to: (1)&nbsp;diversion of management&#146;s attention from other
operational matters; (2)&nbsp;inability to complete acquisitions as anticipated
or at all; (3)&nbsp;inability to realize synergies expected to result from an
acquisition; (4)&nbsp;failure to commercialize purchased technologies;
(5)&nbsp;ineffectiveness of an acquired company&#146;s internal controls;
(6)&nbsp;impairment of acquired assets as a result of technological advancements
or worse-than-expected performance of the acquired company or its product
offerings; (7)&nbsp;unknown, underestimated and/or undisclosed commitments or
liabilities, including those related to an acquired company&#146;s product quality or
unauthorized use of a third-party&#146;s intellectual property; (8)&nbsp;substantial
unanticipated costs; (9) material product liability or intellectual property
liability associated with the sale of the acquired company&#146;s products; (10)
failure to integrate and retain key employees; and (11)&nbsp;ineffective
integration of operations. Mergers and acquisitions are inherently subject to
significant risks, and the inability to effectively manage these risks could
materially and adversely affect our business, financial condition and results of
operations. </FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT size=2>In
addition, acquisitions also expose us to the risk of claims by terminated
employees, shareholders of the acquired companies or other third parties related
to the transaction. If we undertake future acquisitions, we may issue dilutive
securities, assume or incur additional debt obligations, incur large one-time
expenses, utilize substantial portions of our cash, and acquire intangible
assets that would result in significant future amortization expense. In a number
of our acquisitions, we have agreed to make future payments, or earnouts, based
on the performance of the businesses we acquired. The performance goals pursuant
to which these future payments may be made generally relate to achievement by
the acquired business of certain specified bookings, revenue, product
proliferation, product development or employee retention goals during a
specified period following completion of the applicable acquisition. Future
acquisitions may involve issuances of stock as payment of the purchase price for
the acquired business, grants of incentive stock or options to employees of the
acquired businesses (which may be dilutive to existing stockholders),
expenditure of substantial cash resources or the incurrence of material amounts
of debt. Any of these events could have a material adverse effect on our
business, operating results and financial condition. </FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><B><FONT
size=2>If we determine that any of our goodwill or intangible assets, including
technology purchased in acquisitions, are impaired, we would be required to take
a charge to earnings, which could have a material adverse effect on our results
of operations. </FONT></B></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT size=2>On
June&nbsp;29, 2001, the FASB pronounced under Statement of Financial Accounting
Standards No.&nbsp;142, </FONT><I><FONT size=2>&#147;Goodwill and Other Intangible
Assets&#148; </FONT></I><FONT size=2>(&#147;FAS&nbsp;142&#148;) that purchased goodwill should
not be amortized, but rather, should be periodically reviewed for impairment.
Such impairment could be caused by internal factors as well as external factors
beyond our control. The FASB has further determined that at the time goodwill is
considered impaired, an amount equal to the impairment loss should be charged as
an operating expense in the statement of operations. The timing of such an
impairment (if any) of goodwill acquired in past and future transactions is
uncertain and difficult to predict. Our results of operations in periods
following any such impairment could be materially adversely affected. We are
required to determine whether goodwill and any assets acquired in past
acquisitions have been impaired in accordance with FAS&nbsp;142 and, if so,
charge such impairment as an expense. In the quarter ended June 30, 2005, we
took an asset impairment charge of $0.9 million related to past acquisitions. We
have remaining net goodwill and net acquired intangible assets of approximately
$3.6 million at June 30, 2006, so if we are required to take such additional
impairment charges, or if financial analysts or investors believe we may need to
take such action in the future, our stock price and operating results could be
materially adversely affected.</FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT size=2>We
review for impairment annually, or sooner if events or changes in circumstances
indicate that the carrying amount could exceed fair value. Due to uncertain
market conditions and potential changes in our strategy and product portfolio,
it is possible that the forecasts we use to support our goodwill and other
intangible assets could change in the future. Significant judgments are required
to estimate the fair value of goodwill and intangible assets, including
estimating future cash flows, determining appropriate discount rates, estimating
the applicable tax rates, foreign exchange rates and interest rates, projecting
the future industry trends and market conditions, and making other assumptions.
Changes in these estimates and assumptions, including changes in our reporting
structure, could materially affect our determinations of fair value. </FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: center"><FONT
size=2>14</FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P><BR>
<HR align=center width="100%" noShade SIZE=2>

<P style="PAGE-BREAK-BEFORE: always"></P>
<PAGE>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><U><B><FONT
size=2>REGULATORY RISKS</FONT></B></U></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><B><FONT
size=2>We cannot provide any assurance that current laws, or any laws enacted in
the future, will not have a material adverse effect on our business.
</FONT></B><FONT size=2>&nbsp;&nbsp; </FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2>Our operations are subject to laws, rules, regulations, including
environmental regulations, government policies and other requirements in each of
the jurisdictions in which we conduct business. Changes in and compliance with
such laws, rules, regulations, policies or requirements could result in
increased costs, the need to modify our products and could affect the demand for
our products, which may have an adverse impact on our future operating results.
If we do not comply with applicable laws, rules&nbsp;and regulations, we could
be subject to costs and liabilities and its business may be adversely impacted.
</FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><B><FONT
size=2>Our operating results could be adversely affected as a result of changes
in our effective tax rates. </FONT></B></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT size=2>As
a U.S. based multinational company, we are subject to taxation in the United
States and various other countries. Significant judgment is required to
determine and estimate worldwide tax liabilities. Our future tax rates could be
affected by changes in the following:</FONT></P>

<br>
<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 WIDTH=100%>
<TR VALIGN=Bottom>
     <TH></TH>
     <TH></TH></TR>
<TR VALIGN=Top>
     <TD WIDTH=3% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>o</FONT></TD>
     <TD WIDTH=97% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Earnings being lower than anticipated in countries where we are taxed at lower rates as compared to the United States statutory tax rate;</FONT></TD></TR>
<TR VALIGN=Top>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>o</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>An increase in expenses not deductible for tax purposes, including certain stock compensation, write-offs of acquired in-process research and development and impairment of goodwill;</FONT></TD></TR>
<TR VALIGN=Top>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>o</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Changes in the valuation of our deferred tax assets and liabilities;</FONT></TD></TR>
<TR VALIGN=Top>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>o</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Changes in tax laws or the interpretation of such tax laws; or</FONT></TD></TR>
<TR VALIGN=Top>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>o</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>New accounting standards or interpretations of such standards.</FONT></TD></TR>
</TABLE>
<br>

<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2>Any significant change in our future effective tax rates could adversely
impact our results of operations for future periods. Accordingly, forecasting
our estimated annual effective tax rate is complex and subject to uncertainty,
and material differences between forecasted and actual tax rates could have a
material impact on our results of&nbsp;operations.</FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2>Significant judgment is required in determining our provision for income
taxes. The calculation of our tax liabilities involves dealing with
uncertainties in the application of complex tax regulations. In determining the
adequacy of our provision for income taxes, we regularly assess the likelihood
of adverse outcomes resulting from tax examinations. We provide for tax
liabilities on our Consolidated Balance Sheets unless we consider it probable
that additional taxes will not be due. However, the ultimate outcome of tax
examinations cannot be predicted with certainty, including the total amount
payable or the timing of any such payments upon resolution of such issues. In
addition, we cannot assure you that such amounts will not be materially
different than that which is reflected in our historical income tax provisions
and accruals. Should the IRS or other tax authorities assess additional taxes as
a result of a current or a future examination, we may be required to record
charges to operations in future periods that could have a material impact on the
results of operations, financial position or cash flows in the applicable period
or periods recorded. </FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><B><FONT
size=2>Changes in accounting regulations and related interpretations and
policies, could cause us to recognize lower revenue and profits. </FONT></B></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2>Policies, guidelines and interpretations related to revenue recognition,
accounting for acquisitions, income taxes, facilities consolidation charges,
allowances for doubtful accounts and other financial reporting matters require
difficult judgments on complex matters that are often subject to multiple
sources of authoritative guidance. To the extent that management&#146;s judgment is
incorrect, it could result in an adverse impact on the Company&#146;s financial
statements. Some of these matters are also among topics currently under
re-examination by accounting standard setters and regulators. These standard
setters and regulators could promulgate interpretations and guidance that could
result in material and potentially adverse changes to our accounting policies.
</FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left">&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: center"><FONT
size=2>15</FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P><BR>
<HR align=center width="100%" noShade SIZE=2>

<P style="PAGE-BREAK-BEFORE: always"></P>
<PAGE>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><B><FONT
size=2>If we are required to remit significant payroll taxes, it will have an
adverse impact on our future financial results. </FONT></B></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2>When our employees exercise certain stock options, we are subject to
employer payroll taxes on the difference between the price of our common stock
on the date of exercise and the exercise price. These payroll taxes are
determined by the tax rates in effect in the employee&#146;s taxing jurisdiction and
are treated as an expense in the period in which the exercise occurs. During a
particular period, these payroll taxes could be material, in particular if an
increase in our stock price causes a significant number of employees to exercise
their options. However, because we are unable to predict our stock price, the
number of exercises, or the country of exercise during any particular period, we
cannot predict the amount, if any, of employer payroll tax expense that will be
recorded in a future period or the impact on our future financial results. Stock
price increases make it more likely that option holders will exercise their
options and, accordingly, that we would incur higher payroll taxes. </FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><B><FONT
size=2>Changes in financial accounting standards related to share-based payments
are expected to have an adverse impact on our reported results of operations.
</FONT></B></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-INDENT: 0.03in; TEXT-ALIGN: left"><FONT
size=2>In December 2004, the Financial Accounting Standards Board issued SFAS
No.&nbsp;123R, </FONT><I><FONT size=2>Share-Based Payment</FONT></I><FONT
size=2>. SFAS No.&nbsp;123R is a very complex accounting standard that requires
companies to expense the fair value of employee stock options and similar awards
and is effective as of July&nbsp;1, 2006 for us. The adoption of the new
standard is expected to have an adverse impact on our reported results of
operations for periods after its implementation. SFAS No.&nbsp;123R also
requires the benefits of tax deductions in excess of recognized compensation
cost to be reported as a financing cash flow, rather than as an operating cash
flow as required under current financial accounting standards. This requirement
will reduce our net operating cash flows and increase net financing cash flows
in periods after implementation of the new standard. Additionally, SFAS
No.&nbsp;123R could adversely impact our ability to provide accurate financial
guidance concerning our expected results of operations on a GAAP basis for
periods after its effectiveness due to the variability of the factors used to
estimate the values of share-based payments. As a result, the adoption of the
new standard in the first quarter of our fiscal 2007 could negatively affect our
stock price and our stock price volatility. </FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2>Furthermore, the application of SFAS No.&nbsp;123R requires significant
judgment and the use of estimates, particularly surrounding stock price
volatility, option forfeiture rates and expected option lives, to build a model
for appropriately valuing share-based compensation. There is little experience
or guidance with respect to developing these assumptions and models. There is
also uncertainty as to how SFAS No.&nbsp;123R will be interpreted and applied as
more companies adopt the standard and companies and their advisors gain more
experience with the standard. </FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2>There is a risk that, as we and others gain experience with SFAS 123R or
as a result of subsequent accounting guidelines, we could determine that the
assumptions or model we used requires modification. Any such modification could
result in significantly different charges in future periods and, potentially,
could require us to correct the charges taken in prior periods.&nbsp; Any such
corrections of charges taken in a prior period could negatively affect our
results of operations, stock price and our stock price volatility. </FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><B><FONT
size=2>Failure to maintain effective internal control over financial reporting
may materially adversely impact our business. </FONT></B><FONT
size=2>&nbsp;&nbsp;</FONT><B><FONT size=2> </FONT></B></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2>Effective internal controls are necessary for us to provide reasonable
assurance with respect to our financial reports and to effectively prevent
fraud. If we cannot provide reasonable assurance with respect to our financial
reports and effectively prevent fraud, our brand and operating results could be
harmed. Pursuant to the Sarbanes-Oxley Act of 2002, we are required to furnish a
report by management on internal control over financial reporting, including
management&#146;s assessment of the effectiveness of such control. Internal control
over financial reporting may not prevent or detect misstatements because of its
inherent limitations, including the possibility of human error, the
circumvention or overriding of controls, or fraud. Therefore, even effective
internal controls can provide only reasonable assurance with respect to the
preparation and fair presentation of financial statements. In addition,
projections of any evaluation of effectiveness of internal control over
financial reporting to future periods are subject to the risk that the control
may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate. If we fail to
maintain the adequacy of our internal </FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: center"><FONT
size=2>16</FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P><BR>
<HR align=center width="100%" noShade SIZE=2>

<P style="PAGE-BREAK-BEFORE: always"></P>
<PAGE>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2>controls, including any failure to implement required new or improved
controls, or if we experience difficulties in their implementation, our business
and operating results could be harmed, we could fail to meet our reporting
obligations, and there could be a material adverse effect on our stock price.
</FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><B><FONT
size=2>We are subject to internal control evaluations and attestation
requirements of Section</FONT></B><FONT size=2>&nbsp;</FONT><B><FONT size=2>404
of the Sarbanes-Oxley Act. </FONT></B></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2>Pursuant to Section&nbsp;404 of the Sarbanes-Oxley Act of 2002, our
management must perform evaluations of the Company&#146;s internal control over
financial reporting; as such standards may be modified, supplemented or amended
from time to time. Beginning during its fiscal year ending June 30, 2008 and
annually thereafter, our Form&nbsp;10-KSB or Form 10K must include a report of
its management&#146;s assessment of the adequacy of such internal control, and our
independent registered public accounting firm must publicly attest to the
adequacy of management&#146;s assessment and the effectiveness of our internal
controls. Ongoing compliance with these requirements is complex, costly and
time-consuming. If we fail to maintain an effective internal control over
financial reporting, if our management does not timely assess the adequacy of
such internal controls, or if our independent registered public accounting firm
does not timely attest to the evaluation, we could be subject to regulatory
sanctions and the public&#146;s perception of Media Sciences may decline and the
trading price of our stock could drop significantly.</FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><U><B><FONT
size=2>RISKS OF OWNING OUR COMMON STOCK</FONT></B></U></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><B><FONT
size=2>Securities analysts&#146; or investors&#146; expectations may not be met or
exceeded resulting in a decline in our stock price. </FONT></B></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT size=2>If
our revenues, operating results, earnings or outlook are below the levels
expected by investors or securities analysts, our stock price is likely to
decline. Moreover, even if our total revenues meet investors&#146; and securities
analysts&#146; expectations, if a component of our total revenues or operating
results does not meet these expectations, our stock price may
decline.</FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2>Deviations from expectations may be the result of unreasonable or
aggressive analyst or investor expectations and/or result from fluctuations in
our revenues and operating results. We may experience significant fluctuations
in our future revenues and operating results as a result of many factors,
including: </FONT></P>

<br>
<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 WIDTH=100%>
<TR VALIGN=Bottom>
     <TH></TH>
     <TH></TH></TR>
<TR VALIGN=Top>
     <TD WIDTH=3% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>o</FONT></TD>
     <TD WIDTH=97% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
difficulty predicting the size and timing of customer orders;</FONT></TD></TR>
<TR VALIGN=Top>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>o</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
potential fluctuations in demand or prices of our products and services;</FONT></TD></TR>
<TR VALIGN=Top>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>o</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>the rate of customer acceptance of our new or existing products or the acceptance of such products
expected to be introduced in the future, and any delays in our launch of new products or delays in
 orders caused by customer evaluations of these new products;</FONT></TD></TR>
<TR VALIGN=Top>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>o</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>periodic difficult economic conditions, particularly affecting the technology industry, as well as
 economic uncertainties arising out of possible future terrorist activities; military and security actions
 in Iraq and the Middle East in general; and geopolitical instability in markets such as the
 Korean peninsula and other parts of Asia, all of which have increased the likelihood that we may
have product supply issues or that customers will unexpectedly delay, cancel or reduce the size of
orders, resulting in revenue shortfalls;</FONT></TD></TR>
<TR VALIGN=Top>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>o</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>fluctuations in foreign currency exchange rates, which could have an adverse impact on
our international revenue, particularly in western Europe if the Euro or Pound Sterling were
 to weaken significantly against the U.S. dollar;</FONT></TD></TR>
<TR VALIGN=Top>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>o</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> the performance of our international business, which accounts for approximately 18% of
 our consolidated revenues;</FONT></TD></TR>
<TR VALIGN=Top>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>o</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>changes in the mix of products and services that we sell or the channels through which
 they are   distributed;</FONT></TD></TR>
<TR VALIGN=Top>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>o</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>changes in our competitors' product offerings, marketing programs and pricing policies;</FONT></TD></TR>
<TR VALIGN=Top>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>o</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>any increased price sensitivity by our customers, particularly in the face of increased competition
  including the availability of competitive illegally imported infringing product;</FONT></TD></TR>
</TABLE>
<br>

<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: center"><FONT
size=2>17</FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P><BR>
<HR align=center width="100%" noShade SIZE=2>

<P style="PAGE-BREAK-BEFORE: always"></P>
<PAGE>

<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 WIDTH=100%>
<TR VALIGN=Bottom>
     <TH></TH>
     <TH></TH></TR>
<TR VALIGN=Top>
     <TD WIDTH=3% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>o</FONT></TD>
     <TD WIDTH=97% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
our ability to develop, introduce and market new products and initiatives, on a timely basis and whether any
  such new products are competitive or accepted in the market;</FONT></TD></TR>
<TR VALIGN=Top>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>o</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
the lengthy sales cycle for some of our distribution agreements, particularly with regard to government
  contracts or branded retail distribution agreements, which typically involve more comprehensive
   qualifications and negotiations process and may require more detailed customer evaluations;</FONT></TD></TR>
<TR VALIGN=Top>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>o</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
our ability to control costs and expenses;</FONT></TD></TR>
<TR VALIGN=Top>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>o</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
loss of key personnel or inability to recruit and hire qualified additional or replacement key personnel;</FONT></TD></TR>
<TR VALIGN=Top>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>o</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
the degree of success, if any, of our strategy to further establish and expand our relationships with
 distributors;</FONT></TD></TR>
<TR VALIGN=Top>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>o</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
the structure, timing and integration of acquisitions of businesses, products and technologies and
  related disruption of our current business;</FONT></TD></TR>
<TR VALIGN=Top>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>o</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
costs associated with acquisitions, including expenses charged for any impaired acquired intangible
  assets and goodwill;</FONT></TD></TR>
<TR VALIGN=Top>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>o</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
the terms, timing and dilutive impact of financing activities;</FONT></TD></TR>
<TR VALIGN=Top>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>o</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
technological changes in printers that comprise our current and potential market;</FONT></TD></TR>
<TR VALIGN=Top>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>o</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
technological changes in toner and solid ink manufacturing; and</FONT></TD></TR>
<TR VALIGN=Top>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>o</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
the ability of our products to satisfy market needs from a technical, performance, price and quality
  perspective.</FONT></TD></TR>
</TABLE>
<br>

<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><B><FONT
size=2>Our stock price has been volatile, and you could lose the value of your
investment. </FONT></B></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2>Our stock price has been volatile and has fluctuated significantly in the
past and your investment in our stock could lose some or all of its value. For
example, during the past twelve months, the closing sales price of our common
stock has fluctuated from a high of $5.89 per share to a low of $1.63 per share.
The trading price of our stock is likely to continue to be volatile and subject
to fluctuations in the future in response to various factors, some of which are
beyond our control. These factors include: </FONT></P>

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<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 WIDTH=100%>
<TR VALIGN=Bottom>
     <TH></TH>
     <TH></TH></TR>
<TR VALIGN=Top>
     <TD WIDTH=3% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>o</FONT></TD>
     <TD WIDTH=97% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
quarterly variations in our results of operations or those of our competitors.</FONT></TD></TR>
<TR VALIGN=Top>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>o</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
announcements by us or our competitors of new products, product improvements, significant contracts,
         commercial relationships or capital commitments.</FONT></TD></TR>
<TR VALIGN=Top>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>o</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
the emergence of new sales or distribution channels in which we are unable to compete effectively.</FONT></TD></TR>
<TR VALIGN=Top>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>o</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
our ability to develop and market new and enhanced products on a timely basis.</FONT></TD></TR>
<TR VALIGN=Top>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>o</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
commencement of, or our involvement in, litigation.</FONT></TD></TR>
<TR VALIGN=Top>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>o</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
recommendations by securities analysts or changes in earnings estimates.</FONT></TD></TR>
<TR VALIGN=Top>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>o</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
announcements about our earnings that are not in line with analyst expectations.</FONT></TD></TR>
<TR VALIGN=Top>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>o</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
general economic conditions and slow or negative growth of related markets.</FONT></TD></TR>
</TABLE>
<br>

<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2>The stock market in general and the market for small market
capitalization technology companies in particular have experienced extreme price
and volume fluctuations. These broad market and industry factors could
materially and adversely affect the market price of our stock, regardless of our
actual operating performance. Our fluctuating stock price also carries other
risks, including the increased risk of shareholder litigation.</FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><B><FONT
size=2>Our officers, directors and affiliates beneficially own approximately 35%
of the outstanding shares of common stock, allowing these shareholders to
influence matters requiring approval of the stockholders. </FONT></B></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT size=2>As
of June 30, 2006, our management beneficially owned shares of our common stock
representing approximately 35% of our voting stock. As a result of such
ownership, and potential increased ownership, by our officers and directors,
other investors will have limited control over matters requiring approval by the
stockholders, including the election of directors. Such concentrated control may
also make it difficult for you to influence corporate matters, and our
management may take actions that our stockholders do not view as beneficial.
</FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: center"><FONT
size=2>18</FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P><BR>
<HR align=center width="100%" noShade SIZE=2>

<P style="PAGE-BREAK-BEFORE: always"></P>
<PAGE>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><B><FONT
size=2>We do not intend to pay dividends on our common stock. </FONT></B></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT size=2>We
have never declared or paid any cash dividend on our common stock. We currently
intend to retain any future earnings and do not expect to pay any dividends in
the foreseeable future. Future cash dividends on the common stock, if any, will
be at the discretion of our board, and will depend on our future operations and
earnings, capital requirements and surplus, general financial condition,
contractual restrictions imposed by lending or other agreements, and other
factors that the board may consider important. </FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><B><FONT
size=2>We have authorized a class of preferred stock which may alter the rights
of common stock holders by giving preferred stock holders greater dividend
rights, liquidation rights and voting rights than our common stockholders
have.</FONT></B></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2>Our board is empowered, without stockholder approval, to issue preferred
stock with dividend, liquidation, conversion, voting or other rights that could
adversely affect the voting power or other rights of the holders of common
stock. Our Certificate of Incorporation, as amended, authorizes a class of
5,000,000 shares of preferred stock with such designation, rights and
preferences as may be determined from time to time by the Board of Directors. In
the event of issuance, the preferred stock could be utilized, under certain
circumstances, as a method of discouraging, delaying or preventing a change in
control of the company. </FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><B><FONT
size=2>Anti-takeover defenses in our governing documents and certain provisions
under Delaware law could be dilutive and prevent an acquisition of our company
or limit the price that investors might be willing to pay for our common
stock.</FONT></B></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2>Our governing documents and certain provisions of the Delaware General
Corporation Law could make it difficult for another company to acquire control
of our company. Our certificate of incorporation allows our board to issue, at
any time and without stockholder approval, preferred stock with voting rights or
such other rights, preferences and terms as it may determine. Also, Delaware law
generally prohibits a Delaware corporation from engaging in any business
combination with a person owning 15% or more of its voting stock, or who is
affiliated with the corporation and owned 15% or more of its voting stock at any
time within three years prior to the proposed business combination, for a period
of three years from the date the person became a 15% owner, unless specified
conditions are met. All or any one of these factors could limit the price that
certain investors would be willing to pay for shares of our common stock and
could delay, prevent or allow our Board of Directors to resist an acquisition of
our company, even if the proposed transaction were favored by independent
stockholders.</FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: center"><FONT
size=2>19</FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P><BR>
<HR align=center width="100%" noShade SIZE=2>

<P style="PAGE-BREAK-BEFORE: always"></P>
<PAGE>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: center"><B><FONT
size=2>USE OF PROCEEDS</FONT></B></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: center"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT size=2>We will not receive any proceeds from
the resales of the shares of common stock offered by this prospectus. However, we will
receive the exercise price of stock options held by the selling stockholders that are
included in this prospectus, totaling $242,500.00, if and when the options are exercised.
We expect to use the proceeds received from the exercise of the stock options, if any, for
general working capital purposes.</FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: center"><B><FONT
size=2>SELLING STOCKHOLDERS</FONT></B></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: center"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2>This prospectus relates to the resale of up to 150,000 shares of our
common stock which may be acquired by the selling stockholders pursuant to their
respective nonincentive stock option agreements. The shares of common stock
offered by this prospectus may be offered from time to time by the selling
stockholders. The registration of these shares does not necessarily mean that a
selling stockholder will sell all or any of the shares.</FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2>The following table sets forth information regarding the beneficial
ownership of our common stock by the selling stockholders as of August 31, 2006.
The information with respect to beneficial ownership of common stock held by
each person is based upon record ownership data provided by our transfer agent,
information as supplied or confirmed by selling stockholders, based upon
statements filed with the Securities and Exchange Commission, or based upon our
actual knowledge.</FONT></P>
<br>

<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 WIDTH=100%>
<TR VALIGN=Bottom>
     <TH><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TD WIDTH=30% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><U>Name of Selling Stockholder</U> </FONT></TD>
     <TD WIDTH=20% ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Number of Shares<br>
Owned Prior to this<br>
<U>Offering (a)(b)</U></FONT></TD>
     <TD WIDTH=20% ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Number of<br>Shares Being<br><u>Offered</u></FONT></TD>
     <TD WIDTH=20% ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Number of<br>Shares Owned<br>After this<br><U>Offering (c)</U> </FONT></TD>
     <TD WIDTH=10% ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE="2">Percent<br>Owned<br>After<br><U>Offering (d)</U> </FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD WIDTH=30% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Anderson, Lawrence (1)</FONT></TD>
     <TD WIDTH=20% ALIGN=center><FONT FACE="Times New Roman, Times, Serif" SIZE=2>102,000&nbsp;</FONT></TD>
     <TD WIDTH=20% ALIGN=center><FONT FACE="Times New Roman, Times, Serif" SIZE=2>100,000&nbsp;</FONT></TD>
     <TD WIDTH=20% ALIGN=center><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2,000&nbsp;</FONT></TD>
     <TD WIDTH=10% ALIGN=center><FONT FACE="Times New Roman, Times, Serif" SIZE=2>*</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Gunn, Donald (2)</FONT></TD>
     <TD ALIGN=center><FONT FACE="Times New Roman, Times, Serif" SIZE=2>75,000&nbsp;</FONT></TD>
     <TD ALIGN=center><FONT FACE="Times New Roman, Times, Serif" SIZE=2>50,000&nbsp;</FONT></TD>
     <TD ALIGN=center><FONT FACE="Times New Roman, Times, Serif" SIZE=2>25,000&nbsp;</FONT></TD>
     <TD ALIGN=center><FONT FACE="Times New Roman, Times, Serif" SIZE=2>*</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>TOTAL</FONT></TD>
     <TD ALIGN=center><FONT FACE="Times New Roman, Times, Serif" SIZE=2>177,000&nbsp;</FONT></TD>
     <TD ALIGN=center><FONT FACE="Times New Roman, Times, Serif" SIZE=2>150,000&nbsp;</FONT></TD>
     <TD ALIGN=center><FONT FACE="Times New Roman, Times, Serif" SIZE=2>27,000&nbsp;</FONT></TD>
     <TD ALIGN=center><FONT FACE="Times New Roman, Times, Serif" SIZE=2>*</FONT></TD></TR>
</TABLE>
<br>

<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 WIDTH=100%>
<TR VALIGN=Bottom>
     <TH></TH>
     <TH></TH></TR>
<TR VALIGN=Bottom>
     <TD WIDTH=5% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>*</FONT></TD>
     <TD WIDTH=95% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Represents less than 1%.</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(a)</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Includes shares underlying stock options which are included in this prospectus.</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(b)</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The selling stockholders may have sold or transferred, in transactions exempt from the registration
         requirements of the Securities Act, some or all of their shares since the dates as of which the
         information in the above table was supplied to us.  Information about the selling stockholders may
         change over time.  We will file a prospectus supplement to name successors to any named selling
         stockholders who are able to use the prospectus to resell the securities.</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(c)</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Assumes all of the shares offered by a selling stockholder pursuant to this prospectus are sold.</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(d)</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Based upon 11,131,363 shares outstanding as of August 31, 2006, as adjusted to assume the issuance of
         150,000 shares underlying stock options included in this prospectus.</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(1)</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Mr. Anderson is an officer of the Company.  Mr. Anderson was granted stock options to acquire 100,000
         shares of common stock pursuant to a Nonincentive Stock Option Agreement, dated June 6, 2005.  The stock
         options are subject to vesting over a five year period from June 6, 2005, vesting at the rate of 20% per
         year commencing with June 6, 2006.</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(2)</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Mr. Gunn is a former Vice President of the Company's subsidiary, Media Sciences, Inc., and former
         director of the Company.  Mr. Gunn was granted stock options to acquire up to 100,000 shares of common
         stock pursuant to a Nonincentive Stock Option Agreement dated August 8, 2005, subject to vesting
         conditions.  The option grant was modified by an agreement dated March 31, 2006 between the Company and
         Mr. Gunn.  As modified, stock options to purchase 50,000 shares of common stock became fully vested as
         of April 2006.  His employment ended in March 31, 2006, and the other stock options to purchase 50,000
         shares have been forfeited.</FONT></TD></TR>
</TABLE>

<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: center"><FONT
size=2>20</FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P><BR>
<HR align=center width="100%" noShade SIZE=2>





<PAGE>

<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: center"><B><FONT size=2>PLAN OF DISTRIBUTION</FONT></B></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: center"><FONT size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT size=2>We
are registering shares of common stock offered for sale by this prospectus on
behalf of the selling shareholders. The shares of common stock may be offered
from time to time by the selling stockholders, or their donees or other
transferees and successors in interest permitted to use Form&nbsp;S-8, under
General Instruction A of Form&nbsp;S-8, in one or more transactions at fixed
prices, at market prices at the same time of sale, at varying prices determined
at the time of sale or at negotiated prices. </FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT size=2>The selling stockholders may offer their shares of common stock in one or
more of the following transactions:</FONT></P>

<br>
<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 WIDTH=100%>
<TR VALIGN=Top>
     <TH><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TD WIDTH=3% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>o</FONT></TD>
     <TD WIDTH=97% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>on the American Stock Exchange, any other exchange upon which our shares may trade in the future, or in the over-the-counter market;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>o</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>to purchasers directly;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>o</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>in ordinary brokerage transactions and transactions in which the broker solicits purchasers;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>o</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>through purchases by a broker or dealer as principal and resale by such broker or dealer for its own account pursuant to this prospectus;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>o</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>block trades in which a broker-dealer so engaged will attempt to sell the shares as agent but may take a position and resell a portion of the block as principal to facilitate the transaction;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>o</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>in connection with short sales; or</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>o</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>in any combination of one or more of these methods.</FONT></TD></TR>
</TABLE>
<br>





<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT size=2>Selling stockholders may sell their shares of common stock:</FONT></P>

<br>
<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 WIDTH=100%>
<TR VALIGN=Top>
     <TH><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TD WIDTH=3% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>o</FONT></TD>
     <TD WIDTH=97% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>at market prices prevailing at the time of sale;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>o</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>at prices related to such prevailing market prices;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>o</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>at negotiated prices;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>o</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>at fixed prices; or</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>o</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>at a combination of such prices.</FONT></TD></TR>
</TABLE>
<br>




<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2>The selling stockholders may effect such transactions by selling shares
to or through broker-dealers, and all such broker-dealers may receive
compensation in the form of discounts, concessions, or commissions from the
selling stockholders and/or the purchasers of shares of common stock for whom
such broker-dealers may act as agents or to whom they sell as principals, or
both. Compensation as to particular broker-dealers may be in excess of customary
commissions.</FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2>Any broker-dealer acquiring common stock from the selling stockholders
may sell the shares either directly, in its normal market-making activities,
through or to other brokers on a principal or agency basis or to its customers.
Any such sales may be at prices then prevailing on the Nasdaq National Market or
at prices related to such prevailing market prices or at negotiated prices to
its customers or a combination of such methods. The selling stockholders and any
broker-dealers in connection with the sale of the common stock hereunder might
be deemed &#147;underwriters&#148; within the meaning of Section 2(11) of the Securities
Act, and any commissions received by them an any profit on the resale of shares
purchased by them might be deemed to be underwriting discounts and commissions
under the Securities Act. Any such commissions, as well as other expenses
incurred by the selling stockholders and applicable transfer taxes, are payable
by the selling stockholders. None of the selling stockholders, at the date of
this prospectus, has any agreement, arrangement or understanding with any broker
or dealer to sell any of the Shares. All selling and other expenses incurred by
individual selling stockholders will be borne by those selling
stockholders.</FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2>The selling stockholders will act independently of us in making decisions
with respect to the timing, manner and size of each sale of shares of common
stock currently held by selling stockholders. The selling stockholders may also
sell shares under Rule 144 of the Securities Act of 1933, as amended, if
available, rather than under this prospectus. </FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: center"><FONT
size=2>21</FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P><BR>
<HR align=center width="100%" noShade SIZE=2>

<P style="PAGE-BREAK-BEFORE: always"></P>
<PAGE>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT size=2>To
comply with the securities laws of certain states, the shares of common stock
offered by this prospectus may need to be offered or sold in such jurisdictions
only through registered or licensed brokers or dealers.</FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2>The offering of the shares of common stock pursuant to this prospectus
will terminate on the earlier of the time when the shares of common
stock:</FONT></P>

<br>
<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 WIDTH=100%>
<TR VALIGN=Top>
     <TH><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TD WIDTH=4% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>o</FONT></TD>
     <TD WIDTH=96% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>have been sold by the selling stockholders pursuant to this prospectus;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>o</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>the time when all of the shares of common stock are eligible to be sold pursuant to Rule 144(k) under the Securities Act; or</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>o</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>this prospectus is no longer effective.</FONT></TD></TR>
</TABLE>
<br>

<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: center"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: center"><B><FONT
size=2>LEGAL MATTERS</FONT></B></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: center"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2>The validity of the shares offered pursuant to this prospectus will be
passed upon for us by Law Offices of Dan Brecher, New York, New York, counsel to
the Company. Dan Brecher, the sole principal of the law firm, beneficially owns
49,853 shares of the Company&#146;s common stock.</FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: center"><B><FONT
size=2>EXPERTS</FONT></B></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2>The consolidated financial statements, as of and for the years ended June
30, 2005 and 2004, incorporated in this prospectus by reference to our Annual
Report on Form 10-KSB/A for the year ended June 30, 2005, have been so
incorporated in reliance on the report of J.H. Cohn LLP, independent registered
public accounting firm, given the authority of said firm as experts in auditing
and accounting.</FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: center"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: center"><B><FONT
size=2>INDEMNIFICATION</FONT></B></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT size=2>We
will indemnify our directors, officers, and controlling persons against
liability under the Securities Act to the extent permitted by the General
Corporation Law of Delaware. We will indemnify them against all expenses and
liabilities that are reasonably incurred in connection with this prospectus to
the extent allowed under Delaware law.</FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2>Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the small
business issuer pursuant to the foregoing provisions, or otherwise, the small
business issuer has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable. </FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT size=2>In
the event that a claim for indemnification against such liabilities, other than
the payment by us of expenses incurred or paid by any of our directors,
officers, or controlling persons in the successful defense of any action, suit
or proceeding, is asserted by such directors, officers or controlling persons in
connection with the securities being registered, we will, unless in the opinion
of our counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
us is against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.</FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: center"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: center"><FONT
size=2>22</FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P><BR>
<HR align=center width="100%" noShade SIZE=2>

<P style="PAGE-BREAK-BEFORE: always"></P>
<PAGE>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: center"><B><FONT
size=2>DOCUMENTS INCORPORATED BY REFERENCE</FONT></B></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2>The SEC allows us to incorporate by reference the information we file
with the SEC into this Reoffer Prospectus by referring you to those which means
that we can disclose important information to you by referring you to another
document filed separately with the SEC. Any information we incorporate in this
manner by reference is considered to be part of this prospectus. Our reporting
number under the Exchange Act is 1-16053.</FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2>The following documents we have filed with the SEC are incorporated by
reference into this prospectus:</FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<TABLE style="MARGIN-LEFT: 0.5in; BORDER-COLLAPSE: collapse" cellSpacing=0 cellPadding=0 border=0>

  <TR>
    <TD vAlign=top width="8%">
      <P
      style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; TEXT-ALIGN: left"><FONT
      size=2>(a)</FONT></P></TD>
    <TD vAlign=top>
      <P
      style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; TEXT-ALIGN: left"><FONT
      size=2>our annual report on Form 10-KSB/A for the fiscal year ended June
      30, 2005, filed on May 25, 2006; </FONT></P></TD></TR>
  <TR>
    <TD vAlign=top width="8%">
      <P
      style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; TEXT-ALIGN: left"><FONT
      size=2>(b)</FONT></P></TD>
    <TD vAlign=top>
      <P
      style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; TEXT-ALIGN: left"><FONT
      size=2>our quarterly reports on Form 10-QSB/A for the fiscal quarters
      ended September 30, 2005 and December 31, 2005, filed on May 25,
      2006;</FONT></P></TD></TR>
  <TR>
    <TD vAlign=top width="8%">
      <P
      style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; TEXT-ALIGN: left"><FONT
      size=2>(c)</FONT></P></TD>
    <TD vAlign=top>
      <P
      style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; TEXT-ALIGN: left"><FONT
      size=2>our quarterly report on Form 10-QSB for the fiscal quarter ended
      March 31, 2006, filed on May 15, 2006;</FONT></P></TD></TR>
  <TR>
    <TD vAlign=top width="8%">
      <P
      style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; TEXT-ALIGN: left"><FONT
      size=2>(d)</FONT></P></TD>
    <TD vAlign=top>
      <P
      style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; TEXT-ALIGN: left"><FONT
      size=2>our current reports on Form 8-K, filed on November 14, 2005,
      December 6, 2005, February 24, 2006, March 16, 2006, April 6, 2006, April
      24, 2006, May 2, 2006 and June 27, 2006; and</FONT></P></TD></TR>
  <TR>
    <TD vAlign=top width="8%">
      <P
      style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; TEXT-ALIGN: left"><FONT
      size=2>(e)</FONT></P></TD>
    <TD vAlign=top>
      <P
      style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; TEXT-ALIGN: left"><FONT
      size=2>the description of our common stock contained in our registration
      statement on Form 8-A filed on August 8,
2000.</FONT></P></TD></TR></TABLE>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2>Additionally, all documents we file with the SEC pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this prospectus
and prior to the termination of the offering of the shares offered hereby shall
be deemed to be incorporated by reference into this prospectus and shall
automatically update and supersede this information.</FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT size=2>We
will provide, without charge, to each person, including any beneficial owner, to
whom a copy of this prospectus is delivered, upon such person&#146;s written or oral
request, a copy of any and all of the documents incorporated by reference in
this prospectus (other than exhibits to such documents, unless such exhibits are
specifically incorporated by reference into the information that this prospectus
incorporates). Requests should be directed to Media Sciences International,
Inc., 8 Allerman Road, Oakland, New Jersey 07436, Attention: Corporate
Secretary, telephone: (201) 677-9311.</FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: center"><B><FONT
size=2>WHERE YOU CAN FIND MORE INFORMATION</FONT></B></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT size=2>We
have filed with the SEC a registration statement on Form S-8 under the
Securities Act of 1933, as amended, with respect to the common stock offered by
this prospectus. This prospectus, filed as part of the registration statement,
does not contain all of the information set forth in the registration statement
and its exhibits and schedules. For further information regarding us and the
shares offered hereby, please refer to the registration statement. You may
inspect a copy of the registration statement without charge at the SEC&#146;s Public
Reference Room, and you may obtain copies of all or any part of the registration
statement from such office upon payment of the fees prescribed by the
SEC.</FONT></P>
<P style="MARGIN-TOP: 5pt; MARGIN-BOTTOM: 5pt; TEXT-ALIGN: left"><FONT size=2>We
are required by the Securities Exchange Act of 1934, as amended, to file
reports, proxy statements and other information with the SEC. These filings may
be read and copied at the SEC&#146;s Public Reference Room at 100 F. Street, N.E.,
Washington, D.C. 20549. You may obtain information on the operation of the
Public Reference Room and any applicable copying fee by calling the SEC at
1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy
and information statements, and other information about us that we file
electronically with the SEC. Our filings with the SEC are available to the
public on the SEC&#146;s web site at http://www.sec.gov. Our company maintains an
Internet site at www.mediasciences.com.</FONT></P>
<P style="MARGIN-TOP: 5pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: center"><FONT
size=2>23</FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P><BR>
<HR align=center width="100%" noShade SIZE=2>

<P style="PAGE-BREAK-BEFORE: always"></P>
<PAGE>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: center"><B><FONT
size=2>PART II</FONT></B></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: center"><B><FONT
size=2>INFORMATION REQUIRED IN THE REGISTRATION STATEMENT</FONT></B></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><B><FONT
size=2>Item 3. Incorporation of Documents by Reference.</FONT></B></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2>The Company hereby incorporates by reference in this registration
statement the following documents:</FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<TABLE style="MARGIN-LEFT: 0.25in; BORDER-COLLAPSE: collapse" cellSpacing=0 cellPadding=0 border=0>

  <TR>
    <TD vAlign=top width="8%">
      <P       style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; TEXT-ALIGN: left"><FONT
      size=2>(a)</FONT></P></TD>
    <TD vAlign=top>
      <P       style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; TEXT-ALIGN: left"><FONT
      size=2>The Company&#146;s annual report on Form 10-KSB/A filed pursuant to
      Sections 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended
      (the &#147;Exchange Act&#148;), containing audited financial statements for the
      Company&#146;s fiscal year ended June 30, 2005, as filed with the Securities
      and Exchange Commission on May 25, 2006. </FONT></P></TD></TR></TABLE>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0.75in; TEXT-INDENT: -0.5in; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<TABLE style="MARGIN-LEFT: 0.25in; BORDER-COLLAPSE: collapse" cellSpacing=0 cellPadding=0 border=0>

  <TR>
    <TD vAlign=top width="8%">
      <P
      style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; TEXT-ALIGN: left"><FONT
      size=2>(b)</FONT></P></TD>
    <TD vAlign=top>
      <P
      style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; TEXT-ALIGN: left"><FONT
      size=2>All other reports filed pursuant to Section 13(a) or 15(d) of the
      Exchange Act since the end of the fiscal year covered by the registrant
      document referred to in (a) above.</FONT></P></TD></TR></TABLE>
<P
style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0.75in; TEXT-INDENT: -0.5in; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<TABLE style="MARGIN-LEFT: 0.25in; BORDER-COLLAPSE: collapse" cellSpacing=0 cellPadding=0 border=0>

  <TR>
    <TD vAlign=top width="8%">
      <P       style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; TEXT-ALIGN: left"><FONT       size=2>(c)</FONT></P></TD>
    <TD vAlign=top>
      <P       style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; TEXT-ALIGN: left"><FONT       size=2>The description of the Company&#146;s Common Stock contained in the
      Company&#146;s Registration Statement on Form 8-A filed under the Exchange Act
      including any amendment or report filed for the purpose of updating such
      description.</FONT></P></TD></TR></TABLE>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT size=2>In
addition, all documents subsequently filed by the Company pursuant to Sections
13(a), 13(c), 14 and 15(d) of the Exchange Act, prior to the filing of a
post-effective amendment to this registration statement which indicates that all
securities offered hereby have been sold or which deregisters all securities
remaining unsold, shall be deemed to be incorporated by reference in this
registration statement and to be a part hereof from the date of filing of such
documents.</FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><B><FONT
size=2>Item 4. Description of Securities.</FONT></B></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2>The class of securities to be offered is registered under Section 12 of
the Exchange Act.</FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><B><FONT
size=2>Item 5. Interests of Named Experts and Counsel.</FONT></B></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2>The validity of the shares offered pursuant to this prospectus will be
passed upon for us by Law Offices of Dan Brecher, New York, New York, counsel to
the Company. Dan Brecher, the sole principal of the law firm, beneficially owns
49,853 shares of the Company&#146;s common stock. </FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><B><FONT
size=2>Item 6. Indemnification of Directors and Officers.</FONT></B></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2>Our Certificate of Incorporation provides that to the fullest extent
permitted by the General Corporation Law of Delaware, including, without
limitation, as provided in Section 102(b)(7) of the General Corporation Law of
Delaware, as the same exists or may hereafter be amended, any of our directors
shall not be personally liable to us or our stockholders for monetary damages
for breach of fiduciary duty as a director. Section 102(b)(7) of the Delaware
General Corporation Law permits a corporation to provide in its certificate of
incorporation that a director of the corporation shall not be personally liable
to the corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability:</FONT></P>
<br>

<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 WIDTH=100%>
<TR VALIGN=Top>
     <TH><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TD WIDTH=4% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>o</FONT></TD>
     <TD WIDTH=96% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>for any breach of the director's duty of loyalty to the corporation or its stockholders;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>o</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>o</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>for payments of unlawful dividends or unlawful stock repurchases or redemptions; or</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>o</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>for any transaction from which the director derived an improper personal benefit.</FONT></TD></TR>
</TABLE>

<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: center"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: center"><FONT
size=2>II-1</FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P><BR>
<HR align=center width="100%" noShade SIZE=2>


<P style="PAGE-BREAK-BEFORE: always"></P>
<PAGE>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT size=2>If
the General Corporation Law of Delaware is amended to authorize corporate action
further eliminating or limiting the personal liability of directors, then the
liability of our directors shall be eliminated or limited to the fullest extent
permitted by the General Corporation Law of Delaware, as so amended. Any repeal
or modification of the provision of the Certificate of Incorporation by our
stockholders shall not adversely affect any right or protection of our directors
existing at the time of such repeal or modification or with respect to events
occurring prior to such time.</FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2>Our Certificate of Incorporation and Bylaws further provide for the
indemnification of our directors and officers to the fullest extent permitted by
Section 145 of the Delaware General Corporation Law, including circumstances in
which indemnification is otherwise discretionary. Insofar as indemnification for
liabilities arising under the Securities Act may be permitted to our directors,
officers and controlling persons pursuant to the foregoing provisions, or
otherwise, we have been advised that in the opinion of the SEC, such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable.</FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2>Section 145 of the Delaware General Corporation Law provides that a
corporation may indemnify directors and officers as well as other employees and
individuals against expenses, including attorneys&#146; fees, judgments, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with any threatened, pending or completed actions, suits or
proceedings in which such person is made a party by reason of such person being
or having been a director, officer, employee of or agent to the registrant. The
statute provides that it is not exclusive of other rights to which those seeking
indemnification may be entitled under any by-law, agreement, vote of
stockholders or disinterested directors or otherwise.</FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2>Our Certificate of Incorporation provides that we will indemnify any of
our directors, officers, employees, or agents with respect to actions, suits, or
proceedings relating to us and, subject to certain limitations, a director will
not be personally liable for monetary damages for breach of his or her fiduciary
duty.</FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2>Our directors or officers, or a person who at our request serves as a
director, officer, employee or agent of another business entity, shall be
indemnified by us against all expense, liability and loss, including attorneys&#146;
fees, judgments, fines, other expenses and losses, that is reasonably incurred
or suffered in connection with any action, suit or proceeding or threatened
action, suit or proceeding. For a person to receive indemnification under this
provision, our Board of Directors must authorize the indemnification, and the
person seeking indemnification must agree to repay us for all amounts advanced
to him or her if a court of law ultimately determines that the person should not
have been indemnified by us. A person who is entitled to indemnification may
recover from us, and may sue us if we fail to make timely payment.</FONT></P>
<P
style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-INDENT: 1in; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><B><FONT
size=2>Item 7. Exemption From Registration Claimed.</FONT></B></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2>Inapplicable.</FONT></P>

<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: center"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: center"><FONT
size=2>II-2</FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P><BR>
<HR align=center width="100%" noShade SIZE=2>

<P style="PAGE-BREAK-BEFORE: always"></P>
<PAGE>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><B><FONT
size=2>Item 8. Exhibits.</FONT></B></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>

<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 WIDTH=100%>
<TR VALIGN=Top>
     <TH><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH></TR>
<TR VALIGN=Top>
     <TD WIDTH=15% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><U>Exhibit Number</U> </FONT></TD>
     <TD WIDTH=85% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><U>Description of Exhibit</U> </FONT></TD></TR>
<TR VALIGN=Top>
     <TD WIDTH=15% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH=85% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Top>
     <TD WIDTH=15% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>4.1&nbsp;</FONT></TD>
     <TD WIDTH=85% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Certificate of Incorporation of Cadapult Graphic Systems, Inc., a Delaware corporation (Incorporated by reference to Exhibit 3.1 of Quarterly Report on Form 10-QSB/A filed on September 1, 1998)</FONT></TD></TR>
<TR VALIGN=Top>
     <TD align=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>4.2&nbsp;</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Certificate of Amendment of Certificate of Incorporation of Cadapult Graphic Systems, Inc. (Incorporated by reference to Exhibit 3(i)(5) of Annual Report on Form 10-KSB filed on September 28, 1999)</FONT></TD></TR>
<TR VALIGN=Top>
     <TD align=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>4.3&nbsp;</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Certificate of Amendment of Certificate of Incorporation of Cadapult Graphic Systems, Inc. (Incorporated by reference to Exhibit 3(i)(1) of Quarterly Report on Form 10-QSB filed on May 15, 2002)</FONT></TD></TR>
<TR VALIGN=Top>
     <TD align=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>4.4&nbsp;</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Certificate of Designation (Incorporated by reference to Exhibit 4.5 of Registration Statement on Form SB-2, Registration Number 333-91005, originally filed on November 15, 1999)</FONT></TD></TR>
<TR VALIGN=Top>
     <TD align=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>4.5</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Certificate of Amendment of Certificate of Designation of Series A Preferred Stock (Incorporated by reference to Exhibit 3(i)(6) of Annual Report on Form 10-KSB filed on September 15, 2003)</FONT></TD></TR>
<TR VALIGN=Top>
     <TD align=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>4.6</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Certificate of Amendment of Certificate of Designation of Series A Preferred Stock (Incorporated by reference to Exhibit 4.7 of Registration Statement on Form SB-2, Registration Number 333-112340, filed on January 30, 2004).</FONT></TD></TR>
<TR VALIGN=Top>
     <TD align=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>4.7</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Bylaws, as amended and restated (Incorporated by reference to Exhibit 3(ii) of Current Report on Form 8-K filed on November 14, 2005)</FONT></TD></TR>
<TR VALIGN=Top>
     <TD align=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>5*</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Opinion on Legality of Law Offices of Dan Brecher</FONT></TD></TR>
<TR VALIGN=Top>
     <TD align=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>10.1*</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Nonincentive Stock Option Agreement dated June 6, 2005 by and between Media Sciences International, Inc. and Lawrence Anderson</FONT></TD></TR>
<TR VALIGN=Top>
     <TD align=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>10.2*</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Nonincentive Stock Option Agreement dated August 8, 2005 by and between Media Sciences International, Inc. and Donald Gunn</FONT></TD></TR>
<TR VALIGN=Top>
     <TD align=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>10.3*</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Separation Agreement dated March 31, 2006 by and between Media Sciences International, Inc. and Donald Gunn</FONT></TD></TR>
<TR VALIGN=Top>
     <TD align=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>23.1*</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Consent of J.H. Cohn LLP</FONT></TD></TR>
<TR VALIGN=Top>
     <TD align=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>23.2*</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Consent of Law Offices of Dan Brecher (included in Exhibit 5)</FONT></TD></TR>
</TABLE>


<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2>____</FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT size=2>*
Filed herewith</FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: center"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: center"><FONT
size=2>II-3</FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P><BR>
<HR align=center width="100%" noShade SIZE=2>

<P style="PAGE-BREAK-BEFORE: always"></P>
<PAGE>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><B><FONT
size=2>Item 9. Undertakings.</FONT></B></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2>The undersigned registrant hereby undertakes that it will:</FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-INDENT: 0.5in; TEXT-ALIGN: left"><FONT size=2>(1)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;File, during any period in which
it offers or sells securities, a post-effective amendment to this registration
statement to:</FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-INDENT: 0.5in; TEXT-ALIGN: left"><FONT size=2></FONT>&nbsp;</P>
<TABLE style="MARGIN-LEFT: 1in; BORDER-COLLAPSE: collapse" cellSpacing=0 cellPadding=0 width=460 border=0>

  <TR>
    <TD vAlign=top width="10%">
      <P       style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; TEXT-ALIGN: left"><FONT       size=2>(i)</FONT></P></TD>
    <TD vAlign=top width="89%">
      <P       style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; TEXT-ALIGN: left"><FONT       size=2>include any prospectus required by section 10(a)(3) of the
      Securities Act;</FONT></P></TD></TR></TABLE>


<TABLE style="MARGIN-LEFT: 1in; BORDER-COLLAPSE: collapse" cellSpacing=0 cellPadding=0 width=508 border=0>

  <TR>
    <TD vAlign=top width="9%">
      <P       style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; TEXT-ALIGN: left"><FONT       size=2>(ii)</FONT></P></TD>
    <TD vAlign=top width="90%">
      <P       style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; TEXT-ALIGN: left"><FONT       size=2>reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the information in
the registration statement; and</FONT></P></TD></TR></TABLE>
<TABLE style="MARGIN-LEFT: 1in; BORDER-COLLAPSE: collapse" cellSpacing=0 cellPadding=0 width=508 border=0>

  <TR>
    <TD vAlign=top width="9%">
      <P       style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; TEXT-ALIGN: left"><FONT       size=2>(iii)</FONT></P></TD>
    <TD vAlign=top width="90%">
      <P       style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; TEXT-ALIGN: left"><FONT       size=2>include any additional or changed material information on the plan
      of distribution;</FONT></P></TD></TR></TABLE>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT size=2>provided, however, that the registrant does not need to make
post-effective amendments with respect to the information set forth in
paragraphs (a)(1)(i) and (a)(1)(ii) above if the information is incorporated by
reference from periodic reports filed by the registrant under the Exchange
Act.</FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-INDENT: 0.4in; TEXT-ALIGN: left"><FONT
size=2>(2)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For determining liability under the
Securities Act, treat each post-effective amendment as a new registration
statement of the securities offered, and the offering of the securities at that
time to be the initial bona fide offering. </FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-INDENT: 0.4in; TEXT-ALIGN: left"><FONT size=2>(3)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;File a post-effective amendment to
remove from registration any of the securities that remain unsold at the end of
the offering.</FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2>The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant&#146;s annual report pursuant to Section&nbsp;13(a) or Section&nbsp;15(d)
of the Exchange Act (and, where applicable, each filing of an employee benefit
plan&#146;s annual report pursuant to Section&nbsp;15(d) of the Exchange Act) that is
incorporated by reference in the registration statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.</FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2>Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable.&nbsp; In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.</FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: center"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: center"><FONT
size=2>II-4</FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P><BR>
<HR align=center width="100%" noShade SIZE=2>

<P style="PAGE-BREAK-BEFORE: always"></P>
<PAGE>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: center"><B><FONT
size=2>SIGNATURES</FONT></B></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-INDENT: 0.5in; TEXT-ALIGN: left"><FONT
size=2>Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-8 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Oakland, State of New Jersey, on September 8, 2006.
</FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<TABLE style="MARGIN-LEFT: 6pt; BORDER-COLLAPSE: collapse" cellSpacing=0 cellPadding=0 width="97%" border=0>

  <TR>
    <TD
    style="PADDING-RIGHT: 6pt; PADDING-LEFT: 6pt; PADDING-BOTTOM: 0in; PADDING-TOP: 0in"
    vAlign=top width="53%">
      <P
      style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; TEXT-ALIGN: left"><FONT
      size=1></FONT>&nbsp;</P></TD>
    <TD
    style="PADDING-RIGHT: 6pt; PADDING-LEFT: 6pt; PADDING-BOTTOM: 0in; PADDING-TOP: 0in"
    vAlign=top width="46%">
      <P
      style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; TEXT-ALIGN: left"><FONT
      size=2>MEDIA SCIENCES INTERNATIONAL, INC.</FONT></P>
      <P
      style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; TEXT-ALIGN: left"><FONT
      size=2></FONT>&nbsp;</P>
      <P
      style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0pt; TEXT-INDENT: 0pt; TEXT-ALIGN: left"><FONT
      size=2>By:&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><U><FONT
      size=2>/s/ Michael W. Levin</FONT></U> <FONT size=2>&nbsp;</FONT></P>
      <P
      style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0pt; TEXT-INDENT: 0.5in; TEXT-ALIGN: left"><FONT
      size=2>Michael W. Levin</FONT></P>
      <P
      style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; MARGIN-LEFT: 0pt; TEXT-INDENT: 0.5in; TEXT-ALIGN: left"><FONT
      size=2>Chief Executive Officer and
President</FONT></P></TD></TR></TABLE>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P
style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-INDENT: 0.5in; TEXT-ALIGN: left"><FONT
size=2>Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the date indicated.</FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>


<TABLE WIDTH=650 CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=220><FONT FACE="Times New Roman, Times, Serif" SIZE=2><u>SIGNATURES</u></FONT></TD>
<TD WIDTH=220><FONT FACE="Times New Roman, Times, Serif" SIZE=2><u>TITLE</u></FONT></TD>
<TD WIDTH=210><FONT SIZE=2><u>DATE</u></FONT></TD>
</TR>
</TABLE>
<br>

<TABLE WIDTH=650 CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=220><FONT FACE="Times New Roman, Times, Serif" SIZE=2><u>/s/ Michael W. Levin</u><br>Michael W. Levin </FONT></TD>
<TD WIDTH=220><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Chairman of the Board, President and Chief Executive Officer</FONT></TD>
<TD WIDTH=210><FONT SIZE=2>September 8, 2006</FONT></TD>
</TR>
</TABLE>
<br>

<TABLE WIDTH=650 CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=220><FONT FACE="Times New Roman, Times, Serif" SIZE=2><u>/s/ Kevan Bloomgren</u><br>Kevan Bloomgren</FONT></TD>
<TD WIDTH=220><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Chief Financial Officer</FONT></TD>
<TD WIDTH=210><FONT SIZE=2>September 8, 2006</FONT></TD>
</TR>
</TABLE>
<br>

<TABLE WIDTH=650 CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=220><FONT FACE="Times New Roman, Times, Serif" SIZE=2><u>/s/ Paul C. Baker </u><br>Paul C. Baker </FONT></TD>
<TD WIDTH=220><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Director</FONT></TD>
<TD WIDTH=210><FONT SIZE=2>September 8, 2006</FONT></TD>
</TR>
</TABLE>
<br>

<TABLE WIDTH=650 CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=220><FONT FACE="Times New Roman, Times, Serif" SIZE=2><u>/s/ Edwin Ruzinsky</u><br>Edwin Ruzinsky</FONT></TD>
<TD WIDTH=220><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Director</FONT></TD>
<TD WIDTH=210><FONT SIZE=2>September 8, 2006</FONT></TD>
</TR>
</TABLE>
<br>
<TABLE WIDTH=650 CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=220><FONT FACE="Times New Roman, Times, Serif" SIZE=2><u>/s/ Henry Royer</u><br>Henry Royer</FONT></TD>
<TD WIDTH=220><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Director</FONT></TD>
<TD WIDTH=210><FONT SIZE=2>September 8, 2006</FONT></TD>
</TR>
</TABLE>
<br>

<TABLE WIDTH=650 CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=220><FONT FACE="Times New Roman, Times, Serif" SIZE=2><u>/s/ Alan L. Bazaar</u><br>Alan L. Bazaar</FONT></TD>
<TD WIDTH=220><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Director</FONT></TD>
<TD WIDTH=210><FONT SIZE=2>September 8, 2006</FONT></TD>
</TR>
</TABLE>
<br>

<TABLE WIDTH=650 CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=220><FONT FACE="Times New Roman, Times, Serif" SIZE=2><u>/s/ Dennis Ridgeway</u><br>Dennis Ridgeway</FONT></TD>
<TD WIDTH=220><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Director</FONT></TD>
<TD WIDTH=210><FONT SIZE=2>September 8, 2006</FONT></TD>
</TR>
</TABLE>
<br>

<TABLE WIDTH=650 CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=220><FONT FACE="Times New Roman, Times, Serif" SIZE=2><u>/s/ Willem van Rijn</u><br>Willem van Rijn</FONT></TD>
<TD WIDTH=220><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Director</FONT></TD>
<TD WIDTH=210><FONT SIZE=2>September 8, 2006</FONT></TD>
</TR>
</TABLE>
<br>

<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: center"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: center"><FONT
size=2>II-5</FONT></P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P><BR>
<HR align=center width="100%" noShade SIZE=2>

<P style="PAGE-BREAK-BEFORE: always"></P>
<PAGE>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: left"><FONT
size=2></FONT>&nbsp;</P>
<P style="MARGIN-TOP: 0pt; MARGIN-BOTTOM: 0pt; TEXT-ALIGN: center"><B><FONT
size=2>EXHIBIT INDEX</FONT></B></P>
<br>

<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 WIDTH=100%>
<TR VALIGN=Top>
     <TH><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH>
     <TH><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TH></TR>
<TR VALIGN=Top>
     <TD WIDTH=15% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><U>Exhibit Number</U> </FONT></TD>
     <TD WIDTH=85% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><U>Description of Exhibit</U> </FONT></TD></TR>
<TR VALIGN=Top>
     <TD WIDTH=15% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH=85% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Top>
     <TD WIDTH=15% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>4.1&nbsp;</FONT></TD>
     <TD WIDTH=85% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Certificate of Incorporation of Cadapult Graphic Systems, Inc., a Delaware corporation (Incorporated by reference to Exhibit 3.1 of Quarterly Report on Form 10-QSB/A filed on September 1, 1998)</FONT></TD></TR>
<TR VALIGN=Top>
     <TD align=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>4.2&nbsp;</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Certificate of Amendment of Certificate of Incorporation of Cadapult Graphic Systems, Inc. (Incorporated by reference to Exhibit 3(i)(5) of Annual Report on Form 10-KSB filed on September 28, 1999)</FONT></TD></TR>
<TR VALIGN=Top>
     <TD align=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>4.3&nbsp;</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Certificate of Amendment of Certificate of Incorporation of Cadapult Graphic Systems, Inc. (Incorporated by reference to Exhibit 3(i)(1) of Quarterly Report on Form 10-QSB filed on May 15, 2002)</FONT></TD></TR>
<TR VALIGN=Top>
     <TD align=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>4.4&nbsp;</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Certificate of Designation (Incorporated by reference to Exhibit 4.5 of Registration Statement on Form SB-2, Registration Number 333-91005, originally filed on November 15, 1999)</FONT></TD></TR>
<TR VALIGN=Top>
     <TD align=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>4.5</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Certificate of Amendment of Certificate of Designation of Series A Preferred Stock (Incorporated by reference to Exhibit 3(i)(6) of Annual Report on Form 10-KSB filed on September 15, 2003)</FONT></TD></TR>
<TR VALIGN=Top>
     <TD align=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>4.6</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Certificate of Amendment of Certificate of Designation of Series A Preferred Stock (Incorporated by reference to Exhibit 4.7 of Registration Statement on Form SB-2, Registration Number 333-112340, filed on January 30, 2004).</FONT></TD></TR>
<TR VALIGN=Top>
     <TD align=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>4.7</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Bylaws, as amended and restated (Incorporated by reference to Exhibit 3(ii) of Current Report on Form 8-K filed on November 14, 2005)</FONT></TD></TR>
<TR VALIGN=Top>
     <TD align=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>5*</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Opinion on Legality of Law Offices of Dan Brecher</FONT></TD></TR>
<TR VALIGN=Top>
     <TD align=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>10.1*</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Nonincentive Stock Option Agreement dated June 6, 2005 by and between Media Sciences International, Inc. and Lawrence Anderson</FONT></TD></TR>
<TR VALIGN=Top>
     <TD align=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>10.2*</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Nonincentive Stock Option Agreement dated August 8, 2005 by and between Media Sciences International, Inc. and Donald Gunn</FONT></TD></TR>
<TR VALIGN=Top>
     <TD align=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>10.3*</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Separation Agreement dated March 31, 2006 by and between Media Sciences International, Inc. and Donald Gunn</FONT></TD></TR>
<TR VALIGN=Top>
     <TD align=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>23.1*</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Consent of J.H. Cohn LLP</FONT></TD></TR>
<TR VALIGN=Top>
     <TD align=left><FONT FACE="Times New Roman, Times, Serif" SIZE=2>23.2*</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Consent of Law Offices of Dan Brecher (included in Exhibit 5)</FONT></TD></TR>
</TABLE>

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forms8
As filed with the Securities and Exchange Commission on September 8,
2006
Registration No. 333-_________
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-8
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
MEDIA SCIENCES INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
DELAWARE
87-0475073
(State or other jurisdiction of incorporation)
(IRS Employer Identification No.)
8 Allerman Road, Oakland, New Jersey
07436
(Address of Principal Executive Offices)
(Zip Code)
Nonincentive Stock Option Agreement with Lawrence Anderson
Nonincentive Stock Option Agreement with Donald Gunn, as
amended
by Separation Agreement with Donald Gunn
(Full Title of Plan)
Michael W. Levin
Chairman, President and Chief Executive Officer
8 Allerman Road
Oakland, New Jersey 07436
(Name and address of agent for service)
(201) 677-9311
(Telephone number, including area code, of agent for service)
CALCULATION OF REGISTRATION FEE
Title of securities
to be registered (1)
Amount to be
Registered (2)
Proposed maximum
offering price
per share (3)
Proposed maximum
aggregate offering
price
Amount of
registration fee
Common stock,
$0.001 par value
150,000
$4.675
$701,250
$75.04
TOTAL
150,000
$701,250
$75.04
(1)
Represents shares subject to two nonincentive stock option
      agreements granted by the registrant to employees.
(2)
Pursuant to Rule 416(a), this registration statement also covers
      any additional securities that may be offered or issued in connection with
      any stock split, stock dividend or similar transaction.
(3)
As estimated solely for the purpose of computing the registration
      fee pursuant to Rule 457(h) and Rule 457(c) under the Securities Act. The
      proposed maximum offering price per share is based upon the average of the
      high and low prices for a share of common stock of the registrant, as
      reported on the American Stock Exchange on September 1, 2006.
EXPLANATORY NOTE
This Registration Statement on Form S-8 relates to the issuance of up to
150,000 shares of the Registrant's common stock upon the exercise of stock
options granted to Messrs. Gunn and Anderson pursuant to their respective
nonincentive stock option agreements, as amended by a separation agreement in
the case of Mr. Gunn.
Under cover of this Form S-8 is a Reoffer Prospectus prepared in
accordance with the requirements of Part I of the Form S-3. The Reoffer
Prospectus may be utilized for reofferings of common stock acquired by the
selling stockholders through exercise of stock options granted pursuant to their
respective nonincentive stock option agreements.
REOFFER PROSPECTUS
MEDIA SCIENCES INTERNATIONAL, INC.
150,000 Shares of Common Stock underlying Stock Options
This prospectus relates to the reoffer and resale by two selling
stockholders of a total of up to 150,000 shares of common stock of Media
Sciences International, Inc., a Delaware corporation, underlying stock options
that were issued to them pursuant to their respective nonincentive stock option
agreements, as amended, that were entered into in connection with the employment
of the two selling stockholders.
The shares may be reoffered and resold for the account of the selling
stockholders, and we will not receive any of the proceeds from the resale of the
shares of common stock, but we will receive the exercise price upon the exercise
of any stock options held by the selling stockholders. The selling stockholders
will pay all brokerage fees and commissions and similar sale-related expenses.
We are paying expenses relating to the registration of the shares with the
Securities and Exchange Commission.
The shares may be offered and sold, from time to time, by the selling
stockholders. The selling stockholders may from time to time sell their shares
of common stock directly to other purchasers or through agents, in ordinary
brokerage transactions, in negotiated transactions or otherwise, at market
prices prevailing at the time of sale, at prices related to the then-prevailing
market price or at negotiated prices.
Our common stock is quoted on the American Stock Exchange under the
symbol "GFX". On September 1, 2006, the last reported sale price for a share of
our common stock on the American Stock Exchange was $4.65.
See "Risk Factors" beginning on page 3 for a discussion of certain
factors that should be considered by prospective investors.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this prospectus is September 8, 2006
1
TABLE OF CONTENTS
Page
The Company
3
Risk Factors
3
Use of Proceeds
20
Selling Stockholders
20
Plan of Distribution
21
Legal Matters
22
Experts
22
Indemnification
22
Documents Incorporated by Reference
23
Where You Can Find More Information
23
2
THE COMPANY
We
are a manufacturer of supplies for business color printers and industrial coders
(printers). We operate in one business segment through two wholly-owned
subsidiaries.
Our wholly-owned subsidiary, Media Sciences, Inc., manufactures and
distributes printer supplies, including solid ink sticks and toner cartridges
for use in Tektronix, Xerox, QMS-Minolta, Epson, Ricoh, Oki and other color
printers. We intend to grow this business through an expansion of our product
line, expansion of our distribution channels, through our INKlusive free color
printer program and through demand creation marketing activities. While we
primarily sell our supplies through an international distribution channel, we
also sell supplies directly to certain end users through our INKlusive program.
Our wholly-owned subsidiary, Cadapult Graphic Systems, Inc., sells
supplies directly to certain end users through our INKlusive color printer
program and to those with whom we have a historical relationship.
We
are a Delaware corporation. Our principal corporate office is located at 8
Allerman Road, Allendale, New Jersey 07436. Our telephone number is
201-677-9311. Our web site address is www.mediasciences.com.
RISK FACTORS
An
investment in the shares being offered by this prospectus involves a high degree
of risk. You should carefully consider the risks described below before making
an investment. If any of the following risks occurs, our actual results could
differ significantly, and the trading price of our common stock could decline,
and you may lose all or part of your investment. You should also keep these risk
factors in mind when you read forward-looking statements. The important factors
that could affect forward-looking statements are subject to change, and we
disclaim any obligation or duty to update or modify any forward-looking
statements. We have identified the material risks which we believe may affect
our business and the principal ways in which we anticipate that they may affect
our business or financial condition.
RISKS RELATED TO OUR CORE BUSINESS OPERATIONS
We are at a competitive disadvantage because we operate in a market that
is dominated by companies that are the original manufacturers of printers for
which we supply products. If we do not effectively compete with new and existing
competitors, our revenues and operating margins will decline.
The printer consumable industry is highly competitive on both a worldwide
basis and a regional geographic basis. Our competitors and potential competitors
range from large international original equipment printer manufacturers to
numerous large and small providers of discounted remanufactured product. Our
most formidable competition in the color workgroup printer space is the
incumbent original equipment printer manufacturer (OEM). Our OEM competitors
include Xerox, Oki, Konica Minolta, and Epson. In most cases, these OEMs enjoy
market shares well in excess of 95%; some with shares as high as 99%. These OEMs
have certain inherent advantages due to the fact that they manufacturer the
subject printers for which we produce competing solid ink and toner consumables.
These OEM competitors also have much greater financial, technical, marketing,
name recognition, and other resources. In addition, the OEMs can influence
dealer, distributor, and ultimately customer choice through incentive and other
programs that discourage sale or purchase of non-OEM products. We expect
competition to increase in the future from existing competitors and a number of
companies that may enter our existing or future markets. Increased competition
could adversely affect our revenue and profitability through price reductions
and loss of market share.
The principal competitive factors in our products include: product
performance and quality, time to market, marketing and access to distribution
channels, product warranty, customer services, and product design and price. If
we do not sufficiently differentiate our products on these factors, our
business, operating results and financial condition will suffer. Some of our
current and potential competitors have substantially greater financial,
technical, sales and marketing resources than we have. We may not be able to
continue to compete successfully with our existing competitors or with new
competitors.
3
In
addition, current and potential competitors may make strategic acquisitions or
establish cooperative relationships among themselves or with third parties,
thereby increasing the ability of their products to address the needs of their
current and prospective customers. Accordingly, it is possible that new
competitors or alliances among current and new competitors may emerge and
rapidly gain significant market share and production economies. Such competition
could materially adversely affect our ability to sell our products on terms
favorable to us. Further, competitive pressures and functionally competitive
products could require us to reduce the price of our products, which could
materially adversely affect our business, operating results and financial
condition. We may not be able to compete successfully against current and future
competitors and any failure to do so would have a material adverse effect on our
business, operating results and financial condition.
We may need to change our pricing models to compete successfully.
The highly competitive markets in which we compete can put pressure on us
to reduce the prices of our products. As a result, we may not be able to
maintain our historical prices and margins, which could adversely affect our
business, results of operations and financial condition. We believe that
competition will increase in the future, which could require us to reduce
prices, increase advertising expenditures or take other actions which may have
an adverse effect on our operating results. Decreasing prices resulting from
competition and technological changes require us to sell a greater number of
products to achieve the same level of net revenues and gross profit. If this
occurs and we are unable to attract new customers and sell increased quantities
of products, our revenue growth and profitability could be adversely affected.
Any broadly-based changes to our prices and pricing policies could cause our
revenues to decline or be delayed as our sales force implements and our
customers adjust to the new pricing policies. Some of our competitors may bundle
products for promotional purposes or as a long-term pricing strategy or provide
guarantees of prices and product implementations. These practices could, over
time, significantly constrain the prices that we can charge for our products.
We rely on a small number of suppliers to provide key components for our
products.
Our manufacturing process requires a high volume of quality raw materials
and components from third-party suppliers. Defective products received from
these suppliers could reduce product reliability and harm our reputation. Our
reliance on suppliers may result in product delays or price increases. We use
some components that are not common to the rest of the personal computer and
consumer electronics industries. Further, a number of our products utilize
custom components. Some key components and raw materials (including certain
toners and electronic chips), may be obtained only from a single supplier or a
limited group of suppliers, either because alternative sources are not available
or the relationship is advantageous due to performance, quality, support,
delivery, capacity, or price considerations.
We
generally purchase raw materials, components and products using purchase orders
and have no guaranteed supply arrangements with the suppliers. From time to
time, vendors may cease to do business with us for various reasons, or change
our terms and conditions. Any such termination or the implementation of such
changes could have a material adverse impact on our financial results. The loss
of, or change in, business relationship with key suppliers, could negatively
impact our competitive position. Additionally, a merger or consolidation among
our suppliers could result in price increases which would adversely impact our
results of operations.
Even where alternative sources of supply may be available, qualification
of the alternative suppliers and establishment of reliable supplies could result
in delays and a possible loss of sales, which could have a material adverse
affect on our financial performance. Moreover, if actual demand for our products
is different than expected, we may purchase more/fewer parts than necessary or
incur costs for canceling, postponing or expediting delivery of products. Any or
all of these factors could materially and adversely affect our business,
financial condition and results of operations.
4
We rely on indirect distribution channels and major distributors that we
do not control.
We
rely significantly on independent distributors and resellers to market and
distribute our products. We do not control our distributors and resellers.
Additionally, our distributors and resellers are not obligated to buy our
products and could also represent other lines of products. Some of our
distributors and resellers maintain inventories of our products for resale to
their customers. If distributors and resellers reduce their inventory of our
products, our business could be adversely affected. Further, we could maintain
individually significant accounts receivable balances with certain distributors.
The financial condition of our distributors could deteriorate and distributors
could significantly delay or default on their payment obligations. Any
significant delays or defaults could have a material adverse effect on our
business, results of operations and financial condition.
Any failure to maintain on-going sales through distribution channels
could result in lower revenues.
To
date, we have sold our products principally through distributors and resellers.
Our ability to achieve revenue growth in the future will depend in large part on
our success in maintaining existing relationships and further establishing and
expanding relationships with new distributors and resellers. It is possible that
we will not be able to successfully expand our distribution channels, secure
business with additional distributors and resellers on commercially reasonable
terms or at all, and otherwise adequately continue to develop and maintain our
existing distribution relationships. Moreover, even if we succeed in these
endeavors, it still may not increase our revenues. We need to carefully monitor
the development and scope of our indirect sales channels and create appropriate
pricing, sales force compensation and other distribution parameters. If we
invest resources in these types of expansion and our overall revenues do not
correspondingly increase, our business, results of operations and financial
condition will be materially and adversely affected. Additionally, as we attempt
to attract and penetrate additional distributors and resellers, we may need to
increase corporate branding and marketing activities, which could increase our
operating expenses. Accordingly, these efforts, if not sufficiently effective,
may actually reduce our profits.
We are dependent on commercial delivery services for supply of raw
materials and finished goods as well as delivery of our products to
customers
.
We
generally ship our products in from our suppliers and to our customers by common
carrier, including, but not limited to Concordia, DHL, FedEx, and United Parcel
Service. If we are unable to pass on to our customers future increases in the
costs of our commercial delivery services, our profitability could be adversely
affected. Additionally, strikes or other service interruptions by such shippers
could adversely affect our ability to deliver products on a timely
basis.
Product Concentration – Our business derives revenues from a single group
of similar and related products.
Our revenues are derived primarily from a single group of similar and
related products, and a decline in demand or prices for these products or
services could substantially adversely affect our operating
results.
We currently
derive the majority of our revenues from the sale of solid ink sticks and toner
consumables for color work group printers. We expect these products to continue
to account for the majority of our revenues in the future. As a result, factors
adversely affecting the pricing of or demand for such products, including
difficult economic conditions, future terrorist activities or military actions,
any decline in overall market demand, competition, product performance or
technological change, could have a material adverse effect on our business and
consolidated results of operations and financial condition.
Our future growth is expected to be achieved through the development and
introduction of new products, increasing market penetration of our existing
products, and continuation of the trend in growth of color printing. There are
substantial risks that we will be unable to realize any or all of this expected
growth. Nor can we provide any assurance that new products we introduce will be
successful in the market. All of our new product initiatives have substantial,
entrenched OEM competitors with greater resources and experience in these
product areas. There can be no assurances that all or any of these new products
will be successful and contribute to profitability or growth.
5
Customer Concentration – Historically, a few customers have accounted for
a large percentage of our revenues. The loss of a significant customer would
significantly reduce our revenues.
Our customer base is relatively highly concentrated. Presently, three
customers account for about 35% of our entire net revenues. For the foreseeable
future, we expect to continue to have a relatively highly concentrated customer
base. In addition, the mix and type of customers, and sales to any single
customer, may vary significantly from quarter to quarter and from year to year.
If customers do not place orders, or delay or cancel orders, we may not be able
to replace the business. Any changing, rescheduling or canceling orders by these
customers may result in a significant decline in our revenues and profitability.
Major customers may also seek and on occasion receive pricing, payment terms or
other conditions that are less favorable to us. In addition, certain customers
may form strategic alliances or collaborative efforts that could result in
additional complexities in managing individual customer relationships and
transactions. These factors could have a material adverse effect on our
business, financial condition and results of operations.
Product Warranty – Because we offer a liberal product warranty, expenses
associated with the program could harm our revenues and substantially increase
our costs.
We
provide warranties for our products as to suitability for use in the intended
printer models and that our products are free of defects that could cause damage
to these printers. Costs covered under the product warranty include customary
charges for the repair or replacement of the printer with an equivalent new or
refurbished printer, at our sole discretion. We believe that our product
warranty is relatively liberal, providing in most cases, broader and more
complete coverage than that provided by the original equipment printer
manufacturer.
Some of the products we offer are internally complex and, despite
extensive testing and quality control, may contain defects. We may need to
recall defective products if these defects are not discovered until after
commercial shipments have been made, issue credits to customers, impair and
dispose of substantial inventories, and may incur substantial product warranty
and service costs if our products damage customer printers. Any product defects
could also cause damage to our reputation and result in loss of revenues,
product returns or order cancellations, lack of market acceptance of our
products, as well as increase our product warranty or service costs.
Accordingly, any product defects could have a material and adverse effect on our
business, results of operations and financial condition.
In
2002, we conducted a product recall after manufacturing defects in certain solid
ink sticks caused damage to some customer print heads. The recall and related
warranty expense cost the company approximately $5.0 million. Since then, the
Company has made substantial improvements in its testing and quality control
processes. We cannot guarantee that the testing and quality control improvements
we have implemented will be effective in preventing future recalls and similar
or more substantial material adverse effects on our business and results of
operations.
We are exposed to inventory risks.
We
are exposed to inventory risks as a result of the rapid technological changes
that affect the market and pricing for the products we sell. We seek to minimize
our inventory exposure through a variety of inventory management procedures and
policies. However, if there were unforeseen product developments that created
more rapid obsolescence or if vendors were to change their terms and conditions,
our inventory risks could increase. We also periodically take advantage of cost
savings associated with certain opportunistic bulk inventory purchases offered
by our vendors. These bulk purchases could increase our exposure to inventory
obsolescence. We cannot guarantee that we will be successful in our efforts to
mitigate our inventory risk and, in fact, many of the competitive and
technological factors that drive this risk are beyond our control.
6
We are, and may become, involved in litigation, which could materially
harm our business.
We
are a party to legal proceedings that arise from time to time, involving our
business, products or operations. We do not believe that any currently pending
or threatened litigation, based on our assessment of merit, will have a material
adverse effect on our financial condition. However, the litigation process is
inherently expensive, uncertain and includes the risk of an unexpected,
unfavorable result. Accordingly, it is possible in the future that the eventual
outcome of litigation could materially and adversely affect our results of
operations.
If we are unable to finance our INKlusive program, we may be required to
use alternative sources of financing or attempt to self-finance these
activities.
We
depend on our current third-party financing sources to fund our INKlusive
program. If either of our third-party financing vendors is unable to access the
capital markets, ceases to operate as a finance company, or chooses not to
participate in the financing of the INKlusive program, we may have to cease or
scale-back our INKlusive program to the extent we are unable to self-finance the
program. As a result, our revenues and operating results could be adversely
affected.
Covenants in our debt instruments could trigger a default adversely
affecting our ability to execute our business plan, our ability to obtain
further financing, and potentially adversely affect the ownership of our
assets.
Upon the occurrence of an event of default under any of our loan
agreements, the lenders or trustees could elect to declare all amounts
outstanding there under to be immediately due and payable and terminate all
commitments to extend further debt. If the lenders or trustees accelerate the
repayment of borrowings, we cannot provide assurance that we will have
sufficient assets to repay our debt facilities and our other indebtedness or be
able to implement our business plan. If we are unable to repay our outstanding
indebtedness, the bank could foreclose on all of our assets. Accordingly, the
occurrence of an event of default could have a material adverse affect on our
financial position, results of operations, and our viability.
Our bank debt agreements contain financial and other covenants. Although
we believe none of these covenants are presently restrictive to our operations,
our ability to meet the financial covenants can be affected by events beyond our
control, and we cannot provide assurance that we will meet those tests. A breach
of any of these covenants could result in a default under our debt agreements.
We have a revolving line of credit with a financial institution, whereby we can
borrow funds, subject to availability of collateral. Borrowings under the credit
line are collateralized by all of our assets. Although we currently have no
outstanding balances under this line, we have several term notes with the same
lender that are cross collateralized and contain cross default provisions with
the revolving line-of-credit.
If we do not generate sufficient cash flow from operations in the future,
we may not be able to fund our product development, potential acquisitions, or
fulfill our future obligations.
Our ability to generate sufficient cash flow from operations to fund our
operations and product development, including the payment of cash consideration
in any potential acquisitions and the payment of our other obligations, depends
on a range of economic, competitive and business factors, many of which are
outside our control. We cannot assure you that our business will generate
sufficient cash flow from operations, or that we will be able to sell assets or
raise equity or debt financings when needed or desirable. An inability to fund
our operations or fulfill outstanding obligations could have a material adverse
effect on our business, financial condition and results of operations.
7
RISKS RELATED TO OUR INTERNATIONAL BUSINESS AND SENSITIVITY TO ECONOMIC
CONDITIONS
Commodity price fluctuations may increase our cost of goods and adversely
affect our results.
A
large percentage of our products utilize petroleum, flax and soybean-based
materials and paper and corrugated packaging. Volatility in the prices of these
commodities could increase the costs of our products, which we may not be able
to pass on to our customers, and thereby adversely effect our results of
operations and cash flows.
Our international operations expose us to greater management,
collections, currency, export licensing, intellectual property, tax, regulatory
and other risks. Expansion into international markets is important to our
long-term success, and our inexperience in the operation of our business outside
the U.S. increases the risk that our international expansion efforts will not be
successful.
Net revenue outside the U.S. accounted for approximately 18% of our
consolidated net revenue in fiscal 2006. These non-U.S. sales are primarily
concentrated in Western Europe and are expected to grow at a rate faster than
our U.S. business. We opened our first office outside the U.S. in January 2005,
and have only limited experience with operations outside the U.S. Expansion into
international markets requires management attention and resources. These risks
could harm our international expansion efforts, which would in turn harm our
business and operating results.
Our international business is subject to a number of risks, including
unexpected changes in regulatory practices and tariffs, longer collection
cycles, seasonality, potential changes in export licensing and tax laws, and
greater difficulty in protecting intellectual property rights. Also, the impact
of fluctuating exchange rates between the U.S. dollar and foreign currencies in
markets where we do business may significantly impact our revenues. For example,
a strengthening of the U.S. dollar could have an unexpected adverse impact on
our international revenue. If the value of the U.S. dollar relative to the
European currencies were to significantly increase, it could have an unexpected
adverse impact on our revenues, profits and other operating results. General
economic and political conditions in these foreign markets, including the
military action in the Middle East, geopolitical instabilities on the Korean
peninsula and other parts of Asia and a backlash against U.S. based companies
may also impact our international revenues, as such conditions may cause
decreases in demand or impact our ability to collect payment from our customers.
There can be no assurances that these factors and other factors will not have a
material adverse effect on our future international revenues and consequently on
our business and consolidated financial condition and results of operations.
Currently, all of our toner-based products are sourced and assembled in
foreign locations, particularly Japan, China, and Taiwan, which subject us to a
number of economic and other risks.
Local laws in effect or that may be enacted in foreign jurisdictions may
afford less protection to holders of our securities than those in effect in the
United States.
We
presently have one non-U.S. subsidiary, Media Sciences U.K. Limited, and we may
have others in the future. These foreign subsidiaries are organized under the
laws of their respective jurisdictions. Thus, holders of our securities should
not conclude that assets and interests held by such foreign subsidiaries are
subject to the same protections afforded similar entities incorporated in a
United States jurisdiction.
Our earnings and growth rate could be adversely affected by changes in
general economic conditions and uncertain geopolitical conditions.
Weak general economic conditions, along with uncertainties in
geopolitical conditions, could adversely impact our revenue and growth rate and
impair the value of our assets. In addition, our revenue, gross margin and
earnings could deteriorate in the future as a result of unfavorable economic or
political conditions.
8
RISKS RELATED TO OUR TECHNOLOGY AND THE NATURE OF OUR
PRODUCTS
We operate in an industry characterized by increasingly rapid
technological changes and our sales are dependent on the continued development
of new technologies and products.
The markets for our products and services are characterized by: rapid
technological change; increasing technical complexity of the products (i.e., new
chemical toners, use of new smart chips, etc.); evolving industry standards;
fluctuations in customer demand; changes in customer requirements; and frequent
new product and service introductions and enhancements.
Our future success depends on our ability to continually enhance our
current products and develop and introduce new products and services that our
customers choose to buy. The timely availability of marketable new products is
critical to our future success. We cannot guarantee that we will be successful
in this effort. Our future success could be hindered by: delays in our
introduction of new products and services; delays in market acceptance of new
products and services or new releases of our current products and services; and
our, or a competitor's, announcement of new product or service enhancements or
technologies that could replace or shorten the life cycle of our existing
product and service offerings.
Execution risks associated with product development and introduction are
significant and could reduce the demand for our products and the profitability
of our operations.
Continuing improvements in technology mean frequent new product
introductions, short product life cycles, and improvement in product performance
characteristics. New product introductions present execution challenges and
risks for us. If we are unable to effectively manage a product introduction, our
business and results of operations could be unfavorably affected.
Our success is subject to many risks, including, but not limited to, our
ability to timely and cost-effectively: (1) develop and market new products
and price products appropriately; (2) improve existing products and
increase market share in its existing markets; (3) expand into or develop
related and new markets for its technology; (4) achieve market acceptance
of, and accurately forecast demand and meet production schedules for, its
products; (5) achieve cost efficiencies across product offerings;
(6) adapt to technology changes in related markets; (7) adapt to
changes in value offered by companies in different parts of the supply chain;
(8) qualify products for volume manufacturing with its customers; and
(9) successfully implement improvements in its manufacturing process.
Furthermore, new or improved products may involve higher costs and reduced
efficiencies compared to our more established products and could adversely
affect our gross margins. In addition, we must successfully implement changes in
our design engineering methodology, including changes that result in:
significant decreases in material costs and cycle time; greater commonality of
components and types of parts used in different products; and effective product
life cycle management. If we do not successfully manage these challenges, our
business, financial condition and results of operations could be materially and
adversely affected.
We
cannot guarantee that our products will achieve the broad market acceptance by
our channel and entities with which we have a technology relationship, customers
and prospective customers necessary to generate significant revenue. In
addition, we cannot guarantee that we will be able to respond effectively to
technological changes or new product announcements by others. If we experience
material delays or sales shortfalls with respect to our new products and
services or new releases of our current products and services, those delays or
shortfalls could have a material adverse effect on our business, results of
operations and financial condition.
9
Our intellectual property and other proprietary rights could offer only
limited protection. Competitors may use our technology, which could weaken our
competitive position, reduce our revenues and increase our costs.
Our success depends, to a large extent, on our ability to protect our
proprietary technology. We rely on a combination of patent, copyright,
trademark, service mark, trade secret rights, and confidentiality procedures to
establish and protect our proprietary rights. As part of our confidentiality
procedures, we generally enter into non-disclosure agreements with our
employees, distributors and corporate partners with respect to our documentation
and other proprietary information. Despite precautions we may take to protect
our intellectual property, we cannot assure you that third parties will not try
to challenge, invalidate or circumvent these safeguards. It is possible that
other companies could successfully challenge the validity or scope of our
current or future patents or that our competitors may independently develop
similar technology, duplicate our products, or design around patents and other
intellectual property rights that we hold. We also cannot assure you that the
rights granted under our patents or attendant to our other intellectual property
will provide us with any competitive advantages, or that patents will be issued
on any of our pending applications, or that future patents will be sufficiently
broad to protect our technology. Furthermore, the laws of foreign countries may
not protect our proprietary rights in those countries to the same extent as
applicable law protects these rights in the United States. Failure to protect
our intellectual property could materially adversely affect our business,
operating results and financial condition.
Existing and future claims of intellectual property infringement against
us could seriously harm our business because it could inhibit our ability to use
certain technologies, divert our management efforts, result in costly
litigation, and subject us to significant uncertainty regarding the ultimate
outcome.
We
are subject to legal proceedings and claims that arise in the ordinary course of
our business, that our products infringe certain patent or other intellectual
property rights. It is possible that third parties, including competitors,
technology partners, and other technology companies, could successfully claim
that our current or future products, whether developed internally or acquired,
infringe their rights, including their trade secret, copyright and patent
rights. These types of claims, with or without merit, can cause costly
litigation that absorbs significant management time, as well as impede our sales
efforts due to any uncertainty as to the outcome, all of which could materially
adversely affect our business, operating results and financial condition. These
types of claims, with or without merit, could also cause us to pay substantial
damages or settlement amounts, cease offering of any subject technology or
products altogether, require us to enter into royalty or license agreements, and
damage our ability to sell products due to any uncertainty generated as to
intellectual property ownership. Under certain circumstances our suppliers may
be contractually obligated to indemnify us against certain expenses, however
those suppliers may ultimately be unable to meet their obligations. Further, by
successfully challenging the validity of patents or other intellectual property,
we may make it easier for other competitors to enter the market.
Because of technological changes in its industry, current extensive
patent coverage, and the rapid rate of issuance of new patents, it is possible
certain of the Company's products, including products obtained through
acquisitions, components, and business methods may unknowingly infringe existing
patents of others. We attempt to ensure that products we develop or acquire and
our processes do not infringe upon third party patents and other proprietary
rights. The Company typically conducts as many as three independent intellectual
property reviews as an integral part of its product development process: an
extensive in-house review, a review by external council, and our key suppliers
conduct their own review. Before product launch, these independent reviews are
compared and reconciled. Despite these efforts, we cannot guarantee that this
process will be effective in preventing the Company from infringing the patent
rights of others.
We
do not believe that any currently pending or threatened litigation, based on our
assessment of merit, will have a material adverse effect on our financial
condition. However, the litigation process is inherently expensive, uncertain
and includes the risk of an unexpected, unfavorable result. Accordingly, it is
possible in the future that the eventual outcome of litigation could materially
and adversely affect our financial position and results of
operations.
10
On
June 23, 2006, Xerox Corporation filed a lawsuit against the Company alleging
Media Sciences' solid ink sticks for use in the Xerox® Phaser®
8500/8550 8500/8550 printers infringe, actively induces others to infringe, and/or contributorily
infringes four patents held by Xerox concerning solid ink stick shape. Xerox
seeks a preliminary and permanent injunction, a finding of willful infringement,
damages (including treble damages), and costs. In August 2006, Media Sciences
answered the complaint and counterclaimed for declaratory judgment of
non-infringement and invalidity. Media Sciences believes the filing of this
action by Xerox violates an agreement between the companies that was reached in
resolution of similar litigation in 2001. The Company believes it has
meritorious defenses and counterclaims and intends to pursue them vigorously.
There can be no assurance, however, that the Company will be successful in our
defense of this action. The loss of all or a part of this lawsuit could have a
material adverse affect on our operations.
OTHER BUSINESS RISKS
Challenges of Growth — If we fail to manage our operations and grow
revenues or fail to continue to effectively control expenses, our future
operating results could be adversely affected.
The scope of our operations, the number of our employees and the
geographic area of our operations and our revenues have grown rapidly. Our
growth could place a significant strain on our managerial, operational and
financial resources. To manage our current growth and any future growth
effectively, we need to continue to implement and improve additional management
and financial systems and controls. We may not be able to manage the current
scope of our operations or future growth effectively and still exploit market
opportunities for our products and services in a timely and cost-effective
way.
We
attribute most of our growth during recent years to the introduction of new
products and general growth of the color work group printer market. We cannot
assure you that this market we serve will continue to grow. We cannot assure you
that we will be successful in developing and introducing new products or that
any new products we may introduce will actually increase our revenue growth
rate.
If
we experience a shortfall in revenue in any given quarter, due to the fixed
nature of many of our expenses, we may not be able to further reduce operating
expenses quickly in response. Any significant shortfall in revenue therefore
could immediately and adversely affect our results of operations for that
quarter. Accordingly, our revenue growth, profitability and cash flows from
operating activities could be lower than in recent years.
If we are unable to attract and retain key executive and management
personnel, we may not be able to manage and execute our business
plan.
Our success depends, in large part, upon the services of a number of key
employees. Other than our founder and CEO, Michael W. Levin, who has an
employment agreement and for whom we maintain a key-person life insurance
policy, our executive officers and key employees are at-will employees and are
not covered by key-person life insurance policies. Competition for these types
of employees is intense, and it is possible that we will not be able to retain
our key employees and that we will not be successful in attracting, assimilating
and retaining qualified candidates in the future.
Further, we may have difficultly attracting and retaining qualified board
members and executive officers, which would adversely affect our business.
Recently enacted and proposed changes in the laws and regulations affecting
public companies, including the provisions of the Sarbanes-Oxley Act of 2002,
mandate, among other things, that companies adopt new corporate governance
measures and impose comprehensive reporting and disclosure requirements, set
stricter independence and financial expertise standards for audit committee
members and impose increased civil and criminal penalties for companies, their
chief executive officers and chief financial officers and directors for
securities law violations. In addition, regulations adopted by stock exchanges
require comprehensive rules and regulations relating to corporate governance.
These laws, rules and regulations have increased and will make it more difficult
and more expensive for us to obtain director and officer (D&O) liability
insurance in the future. Further, our board members, Chief Executive Officer and
Chief Financial Officer could face an increased risk of personal liability in
connection with the performance of their duties that cannot be addressed with
D&O insurance.
11
If we lose key personnel or cannot hire enough qualified employees, it
will adversely affect our ability to manage our business, develop, acquire new
products and increase revenue.
The effective management of our growth could depend upon our ability to
retain our highly skilled technical, managerial, finance and marketing
personnel. If any of those employees leave, we will need to attract and retain
replacements for them. To achieve our growth objectives, we also need to add key
personnel in the future. The market for these qualified employees is
competitive. We could find it difficult to successfully attract, assimilate or
retain sufficiently qualified personnel in sufficient numbers. We might not
attract and retain enough qualified personnel to support our anticipated
domestic or international growth and our increasingly complex product
offerings.
Furthermore, we may need to hire additional personnel to develop new
products, product enhancements and technologies. If we cannot add the necessary
staff and resources, our ability to develop future products could be delayed.
Similarly, we may need to hire key personnel in connection with potential future
acquisitions. If we cannot retain and add the necessary staff and resources for
these acquired businesses, our ability to develop acquired products, markets and
customers could be delayed. Any such delays could have a material adverse effect
on our business, results of operations and financial condition.
We may incur substantial additional costs to motivate, attract, and
retain key employees
As
a result of our adoption of Statement of Financial Accounting Standards, or
SFAS, No. 123(R), "Share-Based Payments," which begins in our first quarter
of fiscal 2007 (ending September 30, 2006), we will record a charge to earnings for
equity-based compensation, such as stock options and restricted stock awards.
This requirement reduces the attractiveness of granting equity-based
compensation as the expense associated with these grants will decrease our
profitability. If we do not successfully attract, retain and motivate key
employees as a result of these or other factors, our operating results and
ability to capitalize on its opportunities may be materially and adversely
affected.
In
addition, regulations adopted by AMEX and certain other exchanges require
stockholder approval for new equity compensation plans and significant
amendments to existing plans, including increases in shares available for
issuance under such plans, and prohibit member organizations from giving a proxy
to vote on equity compensation plans unless the beneficial owner of the shares
has given voting instructions. These regulations could make it more difficult
for us to grant equity compensation to employees in the future. To the extent
that these regulations make it more difficult or expensive to grant equity
compensation to employees, we may incur increased compensation costs or find it
difficult to attract, retain and motivate employees, which could materially and
adversely affect our business.
If we become subject to unfair hiring claims, we could be prevented from
hiring needed employees, incur
liability for damages and incur substantial litigation costs in defending
ourselves.
Companies in our industry whose employees accept positions with
competitors frequently claim that those competitors have engaged in unfair
hiring practices or that the employment of these persons would involve the
disclosure or use of trade secrets. These claims could prevent us from hiring
employees or cause us to incur liability for damages. We could also incur
substantial costs in defending ourselves or our employees against these claims,
regardless of their merits. Defending ourselves from these claims could also
divert the attention of our management away from our operations.
Disruption of our operations at our corporate headquarters could
negatively impact our results of operations.
Although we have multiple sales office locations in the United
States and an office in Western Europe, essentially all of our computer equipment,
intellectual property resources and personnel, including critical resources
dedicated to research and development, manufacturing and administrative support
functions, are presently located at our corporate headquarters in Oakland, New
Jersey. The occurrence of a natural disaster or other unanticipated catastrophes
could cause interruptions in our operations. Extensive or multiple interruptions
in our operations due to natural disasters or unanticipated catastrophes could
severely disrupt our operations and have a material adverse effect on our
results of operations.
12
RISKS RELATED WITH OUR INFORMATION TECHNOLOGY
Because our business relies upon a variety of computer systems to operate
effectively, the failure or disruption of, or latent defects in, these systems
could have a material adverse effect on our business.
We
depend on our information technology and manufacturing infrastructure to achieve
our business objectives. The effectiveness and efficiency of our operations
depend on a variety of information systems, including e-mail, enterprise
resource planning, electronic data interchange, customer resource management and
e-commerce systems, and financial accounting. Disruption in the operation of
these systems, or difficulties in maintaining or upgrading these systems, could
have a material adverse effect on our business. An infrastructure disruption
could cause us to lose customers and revenue, and could require us to incur
significant expense to eliminate these problems and address related security
concerns. The harm to our business could be even greater if it occurs during a
period of disproportionately heavy demand. Difficulties that we have
encountered, or may encounter, in connection with our implementation and use of
our computer systems, including human error or our reliance on, or a failure or
disruption of, or latent defects in, such systems, could adversely affect our
order management and fulfillment, financial reporting and supply chain
management processes, and any such difficulties could have a material adverse
effect on our business.
The success of our business depends on the continuing development,
maintenance and operation of our information technology systems.
Our success is dependent on the accuracy, proper utilization and
continuing development of our information technology systems, including our
business application systems, Web servers and telecommunications network. The
quality and our utilization of the information generated by our information
technology systems, and our success in implementing new systems and upgrades,
affects, among other things, our ability to:
o
conduct business with our customers;
o
manage our inventory and accounts receivable;
o
purchase, sell, ship and invoice our products efficiently and on a timely basis; and
o
maintain our cost-efficient operating model.
The integrity of our information technology systems is vulnerable to
certain forms of disaster including, but not limited to, natural disasters such
as tornadoes. While we have taken steps to protect our information technology
systems from a variety of threats, including computer viruses and malicious
hackers, there can be no guarantee that those steps will be effective.
Furthermore, although we have redundant systems at a separate location to back
up our primary application systems, there can be no assurance that these
redundant systems will operate properly if and when required. Any disruption to
or infiltration of our information technology systems could significantly harm
our business and results of operations.
We
have operations, clients, and vendors throughout the world. Our operations are
dependent upon the connectivity of our operations throughout the world.
Activities that interfere with our international connectivity, such as computer
"hacking" or the introduction of a virus into our computer systems, could
significantly interfere with our business operations.
RISKS RELATED TO ACQUISITIONS AND ALLIANCES
We are exposed to risks associated with acquisitions.
From our inception in May 1987, we have made a number of strategic
acquisitions. In connection with acquisitions completed prior to June 30, 2006,
we recorded approximately $4.9 million as intangible assets and goodwill, of
which approximately $0.4 million had been amortized and $0.9 million written
off. We intend to continue to address the need to develop new products and
enhance existing products through acquisitions of other companies, product lines
and/or technologies. Our growth is dependent upon market growth, growth in
market share, our ability to enhance existing products and services, and our
ability to introduce new products on a timely basis.
13
In
the future we expect to acquire, or make significant investments in, businesses
to achieve our strategic objectives. While we expect to carefully analyze each
potential acquisition before committing to the transaction, we may not be able
to integrate and manage acquired products and businesses effectively. We cannot
assure anyone that our previous acquisitions or any future acquisitions will be
successful in helping us reach our financial and strategic goals either for that
acquisition or for us generally. Acquisitions involve numerous risks, including
but not limited to: (1) diversion of management's attention from other
operational matters; (2) inability to complete acquisitions as anticipated
or at all; (3) inability to realize synergies expected to result from an
acquisition; (4) failure to commercialize purchased technologies;
(5) ineffectiveness of an acquired company's internal controls;
(6) impairment of acquired assets as a result of technological advancements
or worse-than-expected performance of the acquired company or its product
offerings; (7) unknown, underestimated and/or undisclosed commitments or
liabilities, including those related to an acquired company's product quality or
unauthorized use of a third-party's intellectual property; (8) substantial
unanticipated costs; (9) material product liability or intellectual property
liability associated with the sale of the acquired company's products; (10)
failure to integrate and retain key employees; and (11) ineffective
integration of operations. Mergers and acquisitions are inherently subject to
significant risks, and the inability to effectively manage these risks could
materially and adversely affect our business, financial condition and results of
operations.
In
addition, acquisitions also expose us to the risk of claims by terminated
employees, shareholders of the acquired companies or other third parties related
to the transaction. If we undertake future acquisitions, we may issue dilutive
securities, assume or incur additional debt obligations, incur large one-time
expenses, utilize substantial portions of our cash, and acquire intangible
assets that would result in significant future amortization expense. In a number
of our acquisitions, we have agreed to make future payments, or earnouts, based
on the performance of the businesses we acquired. The performance goals pursuant
to which these future payments may be made generally relate to achievement by
the acquired business of certain specified bookings, revenue, product
proliferation, product development or employee retention goals during a
specified period following completion of the applicable acquisition. Future
acquisitions may involve issuances of stock as payment of the purchase price for
the acquired business, grants of incentive stock or options to employees of the
acquired businesses (which may be dilutive to existing stockholders),
expenditure of substantial cash resources or the incurrence of material amounts
of debt. Any of these events could have a material adverse effect on our
business, operating results and financial condition.
If we determine that any of our goodwill or intangible assets, including
technology purchased in acquisitions, are impaired, we would be required to take
a charge to earnings, which could have a material adverse effect on our results
of operations.
On
June 29, 2001, the FASB pronounced under Statement of Financial Accounting
Standards No. 142,
"Goodwill and Other Intangible
Assets"
("FAS 142") that purchased goodwill should
not be amortized, but rather, should be periodically reviewed for impairment.
Such impairment could be caused by internal factors as well as external factors
beyond our control. The FASB has further determined that at the time goodwill is
considered impaired, an amount equal to the impairment loss should be charged as
an operating expense in the statement of operations. The timing of such an
impairment (if any) of goodwill acquired in past and future transactions is
uncertain and difficult to predict. Our results of operations in periods
following any such impairment could be materially adversely affected. We are
required to determine whether goodwill and any assets acquired in past
acquisitions have been impaired in accordance with FAS 142 and, if so,
charge such impairment as an expense. In the quarter ended June 30, 2005, we
took an asset impairment charge of $0.9 million related to past acquisitions. We
have remaining net goodwill and net acquired intangible assets of approximately
$3.6 million at June 30, 2006, so if we are required to take such additional
impairment charges, or if financial analysts or investors believe we may need to
take such action in the future, our stock price and operating results could be
materially adversely affected.
We
review for impairment annually, or sooner if events or changes in circumstances
indicate that the carrying amount could exceed fair value. Due to uncertain
market conditions and potential changes in our strategy and product portfolio,
it is possible that the forecasts we use to support our goodwill and other
intangible assets could change in the future. Significant judgments are required
to estimate the fair value of goodwill and intangible assets, including
estimating future cash flows, determining appropriate discount rates, estimating
the applicable tax rates, foreign exchange rates and interest rates, projecting
the future industry trends and market conditions, and making other assumptions.
Changes in these estimates and assumptions, including changes in our reporting
structure, could materially affect our determinations of fair value.
14
REGULATORY RISKS
We cannot provide any assurance that current laws, or any laws enacted in
the future, will not have a material adverse effect on our business.
Our operations are subject to laws, rules, regulations, including
environmental regulations, government policies and other requirements in each of
the jurisdictions in which we conduct business. Changes in and compliance with
such laws, rules, regulations, policies or requirements could result in
increased costs, the need to modify our products and could affect the demand for
our products, which may have an adverse impact on our future operating results.
If we do not comply with applicable laws, rules and regulations, we could
be subject to costs and liabilities and its business may be adversely impacted.
Our operating results could be adversely affected as a result of changes
in our effective tax rates.
As
a U.S. based multinational company, we are subject to taxation in the United
States and various other countries. Significant judgment is required to
determine and estimate worldwide tax liabilities. Our future tax rates could be
affected by changes in the following:
o
Earnings being lower than anticipated in countries where we are taxed at lower rates as compared to the United States statutory tax rate;
o
An increase in expenses not deductible for tax purposes, including certain stock compensation, write-offs of acquired in-process research and development and impairment of goodwill;
o
Changes in the valuation of our deferred tax assets and liabilities;
o
Changes in tax laws or the interpretation of such tax laws; or
o
New accounting standards or interpretations of such standards.
Any significant change in our future effective tax rates could adversely
impact our results of operations for future periods. Accordingly, forecasting
our estimated annual effective tax rate is complex and subject to uncertainty,
and material differences between forecasted and actual tax rates could have a
material impact on our results of operations.
Significant judgment is required in determining our provision for income
taxes. The calculation of our tax liabilities involves dealing with
uncertainties in the application of complex tax regulations. In determining the
adequacy of our provision for income taxes, we regularly assess the likelihood
of adverse outcomes resulting from tax examinations. We provide for tax
liabilities on our Consolidated Balance Sheets unless we consider it probable
that additional taxes will not be due. However, the ultimate outcome of tax
examinations cannot be predicted with certainty, including the total amount
payable or the timing of any such payments upon resolution of such issues. In
addition, we cannot assure you that such amounts will not be materially
different than that which is reflected in our historical income tax provisions
and accruals. Should the IRS or other tax authorities assess additional taxes as
a result of a current or a future examination, we may be required to record
charges to operations in future periods that could have a material impact on the
results of operations, financial position or cash flows in the applicable period
or periods recorded.
Changes in accounting regulations and related interpretations and
policies, could cause us to recognize lower revenue and profits.
Policies, guidelines and interpretations related to revenue recognition,
accounting for acquisitions, income taxes, facilities consolidation charges,
allowances for doubtful accounts and other financial reporting matters require
difficult judgments on complex matters that are often subject to multiple
sources of authoritative guidance. To the extent that management's judgment is
incorrect, it could result in an adverse impact on the Company's financial
statements. Some of these matters are also among topics currently under
re-examination by accounting standard setters and regulators. These standard
setters and regulators could promulgate interpretations and guidance that could
result in material and potentially adverse changes to our accounting policies.
15
If we are required to remit significant payroll taxes, it will have an
adverse impact on our future financial results.
When our employees exercise certain stock options, we are subject to
employer payroll taxes on the difference between the price of our common stock
on the date of exercise and the exercise price. These payroll taxes are
determined by the tax rates in effect in the employee's taxing jurisdiction and
are treated as an expense in the period in which the exercise occurs. During a
particular period, these payroll taxes could be material, in particular if an
increase in our stock price causes a significant number of employees to exercise
their options. However, because we are unable to predict our stock price, the
number of exercises, or the country of exercise during any particular period, we
cannot predict the amount, if any, of employer payroll tax expense that will be
recorded in a future period or the impact on our future financial results. Stock
price increases make it more likely that option holders will exercise their
options and, accordingly, that we would incur higher payroll taxes.
Changes in financial accounting standards related to share-based payments
are expected to have an adverse impact on our reported results of operations.
In December 2004, the Financial Accounting Standards Board issued SFAS
No. 123R,
Share-Based Payment
. SFAS No. 123R is a very complex accounting standard that requires
companies to expense the fair value of employee stock options and similar awards
and is effective as of July 1, 2006 for us. The adoption of the new
standard is expected to have an adverse impact on our reported results of
operations for periods after its implementation. SFAS No. 123R also
requires the benefits of tax deductions in excess of recognized compensation
cost to be reported as a financing cash flow, rather than as an operating cash
flow as required under current financial accounting standards. This requirement
will reduce our net operating cash flows and increase net financing cash flows
in periods after implementation of the new standard. Additionally, SFAS
No. 123R could adversely impact our ability to provide accurate financial
guidance concerning our expected results of operations on a GAAP basis for
periods after its effectiveness due to the variability of the factors used to
estimate the values of share-based payments. As a result, the adoption of the
new standard in the first quarter of our fiscal 2007 could negatively affect our
stock price and our stock price volatility.
Furthermore, the application of SFAS No. 123R requires significant
judgment and the use of estimates, particularly surrounding stock price
volatility, option forfeiture rates and expected option lives, to build a model
for appropriately valuing share-based compensation. There is little experience
or guidance with respect to developing these assumptions and models. There is
also uncertainty as to how SFAS No. 123R will be interpreted and applied as
more companies adopt the standard and companies and their advisors gain more
experience with the standard.
There is a risk that, as we and others gain experience with SFAS 123R or
as a result of subsequent accounting guidelines, we could determine that the
assumptions or model we used requires modification. Any such modification could
result in significantly different charges in future periods and, potentially,
could require us to correct the charges taken in prior periods.  Any such
corrections of charges taken in a prior period could negatively affect our
results of operations, stock price and our stock price volatility.
Failure to maintain effective internal control over financial reporting
may materially adversely impact our business.
Effective internal controls are necessary for us to provide reasonable
assurance with respect to our financial reports and to effectively prevent
fraud. If we cannot provide reasonable assurance with respect to our financial
reports and effectively prevent fraud, our brand and operating results could be
harmed. Pursuant to the Sarbanes-Oxley Act of 2002, we are required to furnish a
report by management on internal control over financial reporting, including
management's assessment of the effectiveness of such control. Internal control
over financial reporting may not prevent or detect misstatements because of its
inherent limitations, including the possibility of human error, the
circumvention or overriding of controls, or fraud. Therefore, even effective
internal controls can provide only reasonable assurance with respect to the
preparation and fair presentation of financial statements. In addition,
projections of any evaluation of effectiveness of internal control over
financial reporting to future periods are subject to the risk that the control
may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate. If we fail to
maintain the adequacy of our internal
16
controls, including any failure to implement required new or improved
controls, or if we experience difficulties in their implementation, our business
and operating results could be harmed, we could fail to meet our reporting
obligations, and there could be a material adverse effect on our stock price.
We are subject to internal control evaluations and attestation
requirements of Section
404
of the Sarbanes-Oxley Act.
Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, our
management must perform evaluations of the Company's internal control over
financial reporting; as such standards may be modified, supplemented or amended
from time to time. Beginning during its fiscal year ending June 30, 2008 and
annually thereafter, our Form 10-KSB or Form 10K must include a report of
its management's assessment of the adequacy of such internal control, and our
independent registered public accounting firm must publicly attest to the
adequacy of management's assessment and the effectiveness of our internal
controls. Ongoing compliance with these requirements is complex, costly and
time-consuming. If we fail to maintain an effective internal control over
financial reporting, if our management does not timely assess the adequacy of
such internal controls, or if our independent registered public accounting firm
does not timely attest to the evaluation, we could be subject to regulatory
sanctions and the public's perception of Media Sciences may decline and the
trading price of our stock could drop significantly.
RISKS OF OWNING OUR COMMON STOCK
Securities analysts' or investors' expectations may not be met or
exceeded resulting in a decline in our stock price.
If
our revenues, operating results, earnings or outlook are below the levels
expected by investors or securities analysts, our stock price is likely to
decline. Moreover, even if our total revenues meet investors' and securities
analysts' expectations, if a component of our total revenues or operating
results does not meet these expectations, our stock price may
decline.
Deviations from expectations may be the result of unreasonable or
aggressive analyst or investor expectations and/or result from fluctuations in
our revenues and operating results. We may experience significant fluctuations
in our future revenues and operating results as a result of many factors,
including:
o
difficulty predicting the size and timing of customer orders;
o
potential fluctuations in demand or prices of our products and services;
o
the rate of customer acceptance of our new or existing products or the acceptance of such products
expected to be introduced in the future, and any delays in our launch of new products or delays in
 orders caused by customer evaluations of these new products;
o
periodic difficult economic conditions, particularly affecting the technology industry, as well as
 economic uncertainties arising out of possible future terrorist activities; military and security actions
 in Iraq and the Middle East in general; and geopolitical instability in markets such as the
 Korean peninsula and other parts of Asia, all of which have increased the likelihood that we may
have product supply issues or that customers will unexpectedly delay, cancel or reduce the size of
orders, resulting in revenue shortfalls;
o
fluctuations in foreign currency exchange rates, which could have an adverse impact on
our international revenue, particularly in western Europe if the Euro or Pound Sterling were
 to weaken significantly against the U.S. dollar;
o
the performance of our international business, which accounts for approximately 18% of
 our consolidated revenues;
o
changes in the mix of products and services that we sell or the channels through which
 they are   distributed;
o
changes in our competitors' product offerings, marketing programs and pricing policies;
o
any increased price sensitivity by our customers, particularly in the face of increased competition
  including the availability of competitive illegally imported infringing product;
17
o
our ability to develop, introduce and market new products and initiatives, on a timely basis and whether any
  such new products are competitive or accepted in the market;
o
the lengthy sales cycle for some of our distribution agreements, particularly with regard to government
  contracts or branded retail distribution agreements, which typically involve more comprehensive
   qualifications and negotiations process and may require more detailed customer evaluations;
o
our ability to control costs and expenses;
o
loss of key personnel or inability to recruit and hire qualified additional or replacement key personnel;
o
the degree of success, if any, of our strategy to further establish and expand our relationships with
 distributors;
o
the structure, timing and integration of acquisitions of businesses, products and technologies and
  related disruption of our current business;
o
costs associated with acquisitions, including expenses charged for any impaired acquired intangible
  assets and goodwill;
o
the terms, timing and dilutive impact of financing activities;
o
technological changes in printers that comprise our current and potential market;
o
technological changes in toner and solid ink manufacturing; and
o
the ability of our products to satisfy market needs from a technical, performance, price and quality
  perspective.
Our stock price has been volatile, and you could lose the value of your
investment.
Our stock price has been volatile and has fluctuated significantly in the
past and your investment in our stock could lose some or all of its value. For
example, during the past twelve months, the closing sales price of our common
stock has fluctuated from a high of $5.89 per share to a low of $1.63 per share.
The trading price of our stock is likely to continue to be volatile and subject
to fluctuations in the future in response to various factors, some of which are
beyond our control. These factors include:
o
quarterly variations in our results of operations or those of our competitors.
o
announcements by us or our competitors of new products, product improvements, significant contracts,
         commercial relationships or capital commitments.
o
the emergence of new sales or distribution channels in which we are unable to compete effectively.
o
our ability to develop and market new and enhanced products on a timely basis.
o
commencement of, or our involvement in, litigation.
o
recommendations by securities analysts or changes in earnings estimates.
o
announcements about our earnings that are not in line with analyst expectations.
o
general economic conditions and slow or negative growth of related markets.
The stock market in general and the market for small market
capitalization technology companies in particular have experienced extreme price
and volume fluctuations. These broad market and industry factors could
materially and adversely affect the market price of our stock, regardless of our
actual operating performance. Our fluctuating stock price also carries other
risks, including the increased risk of shareholder litigation.
Our officers, directors and affiliates beneficially own approximately 35%
of the outstanding shares of common stock, allowing these shareholders to
influence matters requiring approval of the stockholders.
As
of June 30, 2006, our management beneficially owned shares of our common stock
representing approximately 35% of our voting stock. As a result of such
ownership, and potential increased ownership, by our officers and directors,
other investors will have limited control over matters requiring approval by the
stockholders, including the election of directors. Such concentrated control may
also make it difficult for you to influence corporate matters, and our
management may take actions that our stockholders do not view as beneficial.
18
We do not intend to pay dividends on our common stock.
We
have never declared or paid any cash dividend on our common stock. We currently
intend to retain any future earnings and do not expect to pay any dividends in
the foreseeable future. Future cash dividends on the common stock, if any, will
be at the discretion of our board, and will depend on our future operations and
earnings, capital requirements and surplus, general financial condition,
contractual restrictions imposed by lending or other agreements, and other
factors that the board may consider important.
We have authorized a class of preferred stock which may alter the rights
of common stock holders by giving preferred stock holders greater dividend
rights, liquidation rights and voting rights than our common stockholders
have.
Our board is empowered, without stockholder approval, to issue preferred
stock with dividend, liquidation, conversion, voting or other rights that could
adversely affect the voting power or other rights of the holders of common
stock. Our Certificate of Incorporation, as amended, authorizes a class of
5,000,000 shares of preferred stock with such designation, rights and
preferences as may be determined from time to time by the Board of Directors. In
the event of issuance, the preferred stock could be utilized, under certain
circumstances, as a method of discouraging, delaying or preventing a change in
control of the company.
Anti-takeover defenses in our governing documents and certain provisions
under Delaware law could be dilutive and prevent an acquisition of our company
or limit the price that investors might be willing to pay for our common
stock.
Our governing documents and certain provisions of the Delaware General
Corporation Law could make it difficult for another company to acquire control
of our company. Our certificate of incorporation allows our board to issue, at
any time and without stockholder approval, preferred stock with voting rights or
such other rights, preferences and terms as it may determine. Also, Delaware law
generally prohibits a Delaware corporation from engaging in any business
combination with a person owning 15% or more of its voting stock, or who is
affiliated with the corporation and owned 15% or more of its voting stock at any
time within three years prior to the proposed business combination, for a period
of three years from the date the person became a 15% owner, unless specified
conditions are met. All or any one of these factors could limit the price that
certain investors would be willing to pay for shares of our common stock and
could delay, prevent or allow our Board of Directors to resist an acquisition of
our company, even if the proposed transaction were favored by independent
stockholders.
19
USE OF PROCEEDS
We will not receive any proceeds from
the resales of the shares of common stock offered by this prospectus. However, we will
receive the exercise price of stock options held by the selling stockholders that are
included in this prospectus, totaling $242,500.00, if and when the options are exercised.
We expect to use the proceeds received from the exercise of the stock options, if any, for
general working capital purposes.
SELLING STOCKHOLDERS
This prospectus relates to the resale of up to 150,000 shares of our
common stock which may be acquired by the selling stockholders pursuant to their
respective nonincentive stock option agreements. The shares of common stock
offered by this prospectus may be offered from time to time by the selling
stockholders. The registration of these shares does not necessarily mean that a
selling stockholder will sell all or any of the shares.
The following table sets forth information regarding the beneficial
ownership of our common stock by the selling stockholders as of August 31, 2006.
The information with respect to beneficial ownership of common stock held by
each person is based upon record ownership data provided by our transfer agent,
information as supplied or confirmed by selling stockholders, based upon
statements filed with the Securities and Exchange Commission, or based upon our
actual knowledge.
Name of Selling Stockholder
Number of Shares
Owned Prior to this
Offering (a)(b)
Number of
Shares Being
Offered
Number of
Shares Owned
After this
Offering (c)
Percent
Owned
After
Offering (d)
Anderson, Lawrence (1)
102,000
100,000
2,000
*
Gunn, Donald (2)
75,000
50,000
25,000
*
TOTAL
177,000
150,000
27,000
*
*
Represents less than 1%.
(a)
Includes shares underlying stock options which are included in this prospectus.
(b)
The selling stockholders may have sold or transferred, in transactions exempt from the registration
         requirements of the Securities Act, some or all of their shares since the dates as of which the
         information in the above table was supplied to us.  Information about the selling stockholders may
         change over time.  We will file a prospectus supplement to name successors to any named selling
         stockholders who are able to use the prospectus to resell the securities.
(c)
Assumes all of the shares offered by a selling stockholder pursuant to this prospectus are sold.
(d)
Based upon 11,131,363 shares outstanding as of August 31, 2006, as adjusted to assume the issuance of
         150,000 shares underlying stock options included in this prospectus.
(1)
Mr. Anderson is an officer of the Company.  Mr. Anderson was granted stock options to acquire 100,000
         shares of common stock pursuant to a Nonincentive Stock Option Agreement, dated June 6, 2005.  The stock
         options are subject to vesting over a five year period from June 6, 2005, vesting at the rate of 20% per
         year commencing with June 6, 2006.
(2)
Mr. Gunn is a former Vice President of the Company's subsidiary, Media Sciences, Inc., and former
         director of the Company.  Mr. Gunn was granted stock options to acquire up to 100,000 shares of common
         stock pursuant to a Nonincentive Stock Option Agreement dated August 8, 2005, subject to vesting
         conditions.  The option grant was modified by an agreement dated March 31, 2006 between the Company and
         Mr. Gunn.  As modified, stock options to purchase 50,000 shares of common stock became fully vested as
         of April 2006.  His employment ended in March 31, 2006, and the other stock options to purchase 50,000
         shares have been forfeited.
20
PLAN OF DISTRIBUTION
We
are registering shares of common stock offered for sale by this prospectus on
behalf of the selling shareholders. The shares of common stock may be offered
from time to time by the selling stockholders, or their donees or other
transferees and successors in interest permitted to use Form S-8, under
General Instruction A of Form S-8, in one or more transactions at fixed
prices, at market prices at the same time of sale, at varying prices determined
at the time of sale or at negotiated prices.
The selling stockholders may offer their shares of common stock in one or
more of the following transactions:
o
on the American Stock Exchange, any other exchange upon which our shares may trade in the future, or in the over-the-counter market;
o
to purchasers directly;
o
in ordinary brokerage transactions and transactions in which the broker solicits purchasers;
o
through purchases by a broker or dealer as principal and resale by such broker or dealer for its own account pursuant to this prospectus;
o
block trades in which a broker-dealer so engaged will attempt to sell the shares as agent but may take a position and resell a portion of the block as principal to facilitate the transaction;
o
in connection with short sales; or
o
in any combination of one or more of these methods.
Selling stockholders may sell their shares of common stock:
o
at market prices prevailing at the time of sale;
o
at prices related to such prevailing market prices;
o
at negotiated prices;
o
at fixed prices; or
o
at a combination of such prices.
The selling stockholders may effect such transactions by selling shares
to or through broker-dealers, and all such broker-dealers may receive
compensation in the form of discounts, concessions, or commissions from the
selling stockholders and/or the purchasers of shares of common stock for whom
such broker-dealers may act as agents or to whom they sell as principals, or
both. Compensation as to particular broker-dealers may be in excess of customary
commissions.
Any broker-dealer acquiring common stock from the selling stockholders
may sell the shares either directly, in its normal market-making activities,
through or to other brokers on a principal or agency basis or to its customers.
Any such sales may be at prices then prevailing on the Nasdaq National Market or
at prices related to such prevailing market prices or at negotiated prices to
its customers or a combination of such methods. The selling stockholders and any
broker-dealers in connection with the sale of the common stock hereunder might
be deemed "underwriters" within the meaning of Section 2(11) of the Securities
Act, and any commissions received by them an any profit on the resale of shares
purchased by them might be deemed to be underwriting discounts and commissions
under the Securities Act. Any such commissions, as well as other expenses
incurred by the selling stockholders and applicable transfer taxes, are payable
by the selling stockholders. None of the selling stockholders, at the date of
this prospectus, has any agreement, arrangement or understanding with any broker
or dealer to sell any of the Shares. All selling and other expenses incurred by
individual selling stockholders will be borne by those selling
stockholders.
The selling stockholders will act independently of us in making decisions
with respect to the timing, manner and size of each sale of shares of common
stock currently held by selling stockholders. The selling stockholders may also
sell shares under Rule 144 of the Securities Act of 1933, as amended, if
available, rather than under this prospectus.
21
To
comply with the securities laws of certain states, the shares of common stock
offered by this prospectus may need to be offered or sold in such jurisdictions
only through registered or licensed brokers or dealers.
The offering of the shares of common stock pursuant to this prospectus
will terminate on the earlier of the time when the shares of common
stock:
o
have been sold by the selling stockholders pursuant to this prospectus;
o
the time when all of the shares of common stock are eligible to be sold pursuant to Rule 144(k) under the Securities Act; or
o
this prospectus is no longer effective.
LEGAL MATTERS
The validity of the shares offered pursuant to this prospectus will be
passed upon for us by Law Offices of Dan Brecher, New York, New York, counsel to
the Company. Dan Brecher, the sole principal of the law firm, beneficially owns
49,853 shares of the Company's common stock.
EXPERTS
The consolidated financial statements, as of and for the years ended June
30, 2005 and 2004, incorporated in this prospectus by reference to our Annual
Report on Form 10-KSB/A for the year ended June 30, 2005, have been so
incorporated in reliance on the report of J.H. Cohn LLP, independent registered
public accounting firm, given the authority of said firm as experts in auditing
and accounting.
INDEMNIFICATION
We
will indemnify our directors, officers, and controlling persons against
liability under the Securities Act to the extent permitted by the General
Corporation Law of Delaware. We will indemnify them against all expenses and
liabilities that are reasonably incurred in connection with this prospectus to
the extent allowed under Delaware law.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the small
business issuer pursuant to the foregoing provisions, or otherwise, the small
business issuer has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable.
In
the event that a claim for indemnification against such liabilities, other than
the payment by us of expenses incurred or paid by any of our directors,
officers, or controlling persons in the successful defense of any action, suit
or proceeding, is asserted by such directors, officers or controlling persons in
connection with the securities being registered, we will, unless in the opinion
of our counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
us is against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
22
DOCUMENTS INCORPORATED BY REFERENCE
The SEC allows us to incorporate by reference the information we file
with the SEC into this Reoffer Prospectus by referring you to those which means
that we can disclose important information to you by referring you to another
document filed separately with the SEC. Any information we incorporate in this
manner by reference is considered to be part of this prospectus. Our reporting
number under the Exchange Act is 1-16053.
The following documents we have filed with the SEC are incorporated by
reference into this prospectus:
(a)
our annual report on Form 10-KSB/A for the fiscal year ended June
      30, 2005, filed on May 25, 2006;
(b)
our quarterly reports on Form 10-QSB/A for the fiscal quarters
      ended September 30, 2005 and December 31, 2005, filed on May 25,
      2006;
(c)
our quarterly report on Form 10-QSB for the fiscal quarter ended
      March 31, 2006, filed on May 15, 2006;
(d)
our current reports on Form 8-K, filed on November 14, 2005,
      December 6, 2005, February 24, 2006, March 16, 2006, April 6, 2006, April
      24, 2006, May 2, 2006 and June 27, 2006; and
(e)
the description of our common stock contained in our registration
      statement on Form 8-A filed on August 8,
2000.
Additionally, all documents we file with the SEC pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this prospectus
and prior to the termination of the offering of the shares offered hereby shall
be deemed to be incorporated by reference into this prospectus and shall
automatically update and supersede this information.
We
will provide, without charge, to each person, including any beneficial owner, to
whom a copy of this prospectus is delivered, upon such person's written or oral
request, a copy of any and all of the documents incorporated by reference in
this prospectus (other than exhibits to such documents, unless such exhibits are
specifically incorporated by reference into the information that this prospectus
incorporates). Requests should be directed to Media Sciences International,
Inc., 8 Allerman Road, Oakland, New Jersey 07436, Attention: Corporate
Secretary, telephone: (201) 677-9311.
WHERE YOU CAN FIND MORE INFORMATION
We
have filed with the SEC a registration statement on Form S-8 under the
Securities Act of 1933, as amended, with respect to the common stock offered by
this prospectus. This prospectus, filed as part of the registration statement,
does not contain all of the information set forth in the registration statement
and its exhibits and schedules. For further information regarding us and the
shares offered hereby, please refer to the registration statement. You may
inspect a copy of the registration statement without charge at the SEC's Public
Reference Room, and you may obtain copies of all or any part of the registration
statement from such office upon payment of the fees prescribed by the
SEC.
We
are required by the Securities Exchange Act of 1934, as amended, to file
reports, proxy statements and other information with the SEC. These filings may
be read and copied at the SEC's Public Reference Room at 100 F. Street, N.E.,
Washington, D.C. 20549. You may obtain information on the operation of the
Public Reference Room and any applicable copying fee by calling the SEC at
1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy
and information statements, and other information about us that we file
electronically with the SEC. Our filings with the SEC are available to the
public on the SEC's web site at http://www.sec.gov. Our company maintains an
Internet site at www.mediasciences.com.
23
PART II
INFORMATION REQUIRED IN THE REGISTRATION STATEMENT
Item 3. Incorporation of Documents by Reference.
The Company hereby incorporates by reference in this registration
statement the following documents:
(a)
The Company's annual report on Form 10-KSB/A filed pursuant to
      Sections 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended
      (the "Exchange Act"), containing audited financial statements for the
      Company's fiscal year ended June 30, 2005, as filed with the Securities
      and Exchange Commission on May 25, 2006.
(b)
All other reports filed pursuant to Section 13(a) or 15(d) of the
      Exchange Act since the end of the fiscal year covered by the registrant
      document referred to in (a) above.
(c)
The description of the Company's Common Stock contained in the
      Company's Registration Statement on Form 8-A filed under the Exchange Act
      including any amendment or report filed for the purpose of updating such
      description.
In
addition, all documents subsequently filed by the Company pursuant to Sections
13(a), 13(c), 14 and 15(d) of the Exchange Act, prior to the filing of a
post-effective amendment to this registration statement which indicates that all
securities offered hereby have been sold or which deregisters all securities
remaining unsold, shall be deemed to be incorporated by reference in this
registration statement and to be a part hereof from the date of filing of such
documents.
Item 4. Description of Securities.
The class of securities to be offered is registered under Section 12 of
the Exchange Act.
Item 5. Interests of Named Experts and Counsel.
The validity of the shares offered pursuant to this prospectus will be
passed upon for us by Law Offices of Dan Brecher, New York, New York, counsel to
the Company. Dan Brecher, the sole principal of the law firm, beneficially owns
49,853 shares of the Company's common stock.
Item 6. Indemnification of Directors and Officers.
Our Certificate of Incorporation provides that to the fullest extent
permitted by the General Corporation Law of Delaware, including, without
limitation, as provided in Section 102(b)(7) of the General Corporation Law of
Delaware, as the same exists or may hereafter be amended, any of our directors
shall not be personally liable to us or our stockholders for monetary damages
for breach of fiduciary duty as a director. Section 102(b)(7) of the Delaware
General Corporation Law permits a corporation to provide in its certificate of
incorporation that a director of the corporation shall not be personally liable
to the corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability:
o
for any breach of the director's duty of loyalty to the corporation or its stockholders;
o
for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law;
o
for payments of unlawful dividends or unlawful stock repurchases or redemptions; or
o
for any transaction from which the director derived an improper personal benefit.
II-1
If
the General Corporation Law of Delaware is amended to authorize corporate action
further eliminating or limiting the personal liability of directors, then the
liability of our directors shall be eliminated or limited to the fullest extent
permitted by the General Corporation Law of Delaware, as so amended. Any repeal
or modification of the provision of the Certificate of Incorporation by our
stockholders shall not adversely affect any right or protection of our directors
existing at the time of such repeal or modification or with respect to events
occurring prior to such time.
Our Certificate of Incorporation and Bylaws further provide for the
indemnification of our directors and officers to the fullest extent permitted by
Section 145 of the Delaware General Corporation Law, including circumstances in
which indemnification is otherwise discretionary. Insofar as indemnification for
liabilities arising under the Securities Act may be permitted to our directors,
officers and controlling persons pursuant to the foregoing provisions, or
otherwise, we have been advised that in the opinion of the SEC, such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable.
Section 145 of the Delaware General Corporation Law provides that a
corporation may indemnify directors and officers as well as other employees and
individuals against expenses, including attorneys' fees, judgments, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with any threatened, pending or completed actions, suits or
proceedings in which such person is made a party by reason of such person being
or having been a director, officer, employee of or agent to the registrant. The
statute provides that it is not exclusive of other rights to which those seeking
indemnification may be entitled under any by-law, agreement, vote of
stockholders or disinterested directors or otherwise.
Our Certificate of Incorporation provides that we will indemnify any of
our directors, officers, employees, or agents with respect to actions, suits, or
proceedings relating to us and, subject to certain limitations, a director will
not be personally liable for monetary damages for breach of his or her fiduciary
duty.
Our directors or officers, or a person who at our request serves as a
director, officer, employee or agent of another business entity, shall be
indemnified by us against all expense, liability and loss, including attorneys'
fees, judgments, fines, other expenses and losses, that is reasonably incurred
or suffered in connection with any action, suit or proceeding or threatened
action, suit or proceeding. For a person to receive indemnification under this
provision, our Board of Directors must authorize the indemnification, and the
person seeking indemnification must agree to repay us for all amounts advanced
to him or her if a court of law ultimately determines that the person should not
have been indemnified by us. A person who is entitled to indemnification may
recover from us, and may sue us if we fail to make timely payment.
Item 7. Exemption From Registration Claimed.
Inapplicable.
II-2
Item 8. Exhibits.
Exhibit Number
Description of Exhibit
4.1
Certificate of Incorporation of Cadapult Graphic Systems, Inc., a Delaware corporation (Incorporated by reference to Exhibit 3.1 of Quarterly Report on Form 10-QSB/A filed on September 1, 1998)
4.2
Certificate of Amendment of Certificate of Incorporation of Cadapult Graphic Systems, Inc. (Incorporated by reference to Exhibit 3(i)(5) of Annual Report on Form 10-KSB filed on September 28, 1999)
4.3
Certificate of Amendment of Certificate of Incorporation of Cadapult Graphic Systems, Inc. (Incorporated by reference to Exhibit 3(i)(1) of Quarterly Report on Form 10-QSB filed on May 15, 2002)
4.4
Certificate of Designation (Incorporated by reference to Exhibit 4.5 of Registration Statement on Form SB-2, Registration Number 333-91005, originally filed on November 15, 1999)
4.5
Certificate of Amendment of Certificate of Designation of Series A Preferred Stock (Incorporated by reference to Exhibit 3(i)(6) of Annual Report on Form 10-KSB filed on September 15, 2003)
4.6
Certificate of Amendment of Certificate of Designation of Series A Preferred Stock (Incorporated by reference to Exhibit 4.7 of Registration Statement on Form SB-2, Registration Number 333-112340, filed on January 30, 2004).
4.7
Bylaws, as amended and restated (Incorporated by reference to Exhibit 3(ii) of Current Report on Form 8-K filed on November 14, 2005)
5*
Opinion on Legality of Law Offices of Dan Brecher
10.1*
Nonincentive Stock Option Agreement dated June 6, 2005 by and between Media Sciences International, Inc. and Lawrence Anderson
10.2*
Nonincentive Stock Option Agreement dated August 8, 2005 by and between Media Sciences International, Inc. and Donald Gunn
10.3*
Separation Agreement dated March 31, 2006 by and between Media Sciences International, Inc. and Donald Gunn
23.1*
Consent of J.H. Cohn LLP
23.2*
Consent of Law Offices of Dan Brecher (included in Exhibit 5)
____
*
Filed herewith
II-3
Item 9. Undertakings.
The undersigned registrant hereby undertakes that it will:
(1)      File, during any period in which
it offers or sells securities, a post-effective amendment to this registration
statement to:
(i)
include any prospectus required by section 10(a)(3) of the
      Securities Act;
(ii)
reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the information in
the registration statement; and
(iii)
include any additional or changed material information on the plan
      of distribution;
provided, however, that the registrant does not need to make
post-effective amendments with respect to the information set forth in
paragraphs (a)(1)(i) and (a)(1)(ii) above if the information is incorporated by
reference from periodic reports filed by the registrant under the Exchange
Act.
(2)     For determining liability under the
Securities Act, treat each post-effective amendment as a new registration
statement of the securities offered, and the offering of the securities at that
time to be the initial bona fide offering.
(3)     File a post-effective amendment to
remove from registration any of the securities that remain unsold at the end of
the offering.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d)
of the Exchange Act (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Exchange Act) that is
incorporated by reference in the registration statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable.  In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
II-4
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-8 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Oakland, State of New Jersey, on September 8, 2006.
MEDIA SCIENCES INTERNATIONAL, INC.
By:
/s/ Michael W. Levin
Michael W. Levin
Chief Executive Officer and
President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the date indicated.
SIGNATURES
TITLE
DATE
/s/ Michael W. Levin
Michael W. Levin
Chairman of the Board, President and Chief Executive Officer
September 8, 2006
/s/ Kevan Bloomgren
Kevan Bloomgren
Chief Financial Officer
September 8, 2006
/s/ Paul C. Baker
Paul C. Baker
Director
September 8, 2006
/s/ Edwin Ruzinsky
Edwin Ruzinsky
Director
September 8, 2006
/s/ Henry Royer
Henry Royer
Director
September 8, 2006
/s/ Alan L. Bazaar
Alan L. Bazaar
Director
September 8, 2006
/s/ Dennis Ridgeway
Dennis Ridgeway
Director
September 8, 2006
/s/ Willem van Rijn
Willem van Rijn
Director
September 8, 2006
II-5
EXHIBIT INDEX
Exhibit Number
Description of Exhibit
4.1
Certificate of Incorporation of Cadapult Graphic Systems, Inc., a Delaware corporation (Incorporated by reference to Exhibit 3.1 of Quarterly Report on Form 10-QSB/A filed on September 1, 1998)
4.2
Certificate of Amendment of Certificate of Incorporation of Cadapult Graphic Systems, Inc. (Incorporated by reference to Exhibit 3(i)(5) of Annual Report on Form 10-KSB filed on September 28, 1999)
4.3
Certificate of Amendment of Certificate of Incorporation of Cadapult Graphic Systems, Inc. (Incorporated by reference to Exhibit 3(i)(1) of Quarterly Report on Form 10-QSB filed on May 15, 2002)
4.4
Certificate of Designation (Incorporated by reference to Exhibit 4.5 of Registration Statement on Form SB-2, Registration Number 333-91005, originally filed on November 15, 1999)
4.5
Certificate of Amendment of Certificate of Designation of Series A Preferred Stock (Incorporated by reference to Exhibit 3(i)(6) of Annual Report on Form 10-KSB filed on September 15, 2003)
4.6
Certificate of Amendment of Certificate of Designation of Series A Preferred Stock (Incorporated by reference to Exhibit 4.7 of Registration Statement on Form SB-2, Registration Number 333-112340, filed on January 30, 2004).
4.7
Bylaws, as amended and restated (Incorporated by reference to Exhibit 3(ii) of Current Report on Form 8-K filed on November 14, 2005)
5*
Opinion on Legality of Law Offices of Dan Brecher
10.1*
Nonincentive Stock Option Agreement dated June 6, 2005 by and between Media Sciences International, Inc. and Lawrence Anderson
10.2*
Nonincentive Stock Option Agreement dated August 8, 2005 by and between Media Sciences International, Inc. and Donald Gunn
10.3*
Separation Agreement dated March 31, 2006 by and between Media Sciences International, Inc. and Donald Gunn
23.1*
Consent of J.H. Cohn LLP
23.2*
Consent of Law Offices of Dan Brecher (included in Exhibit 5)
____
*
Filed herewith
II-6