---

# UNITED STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549

# FORM 10-KSB

| | [x] | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
| | --- | ------------------------------------------------------------------------------------

# For the
fiscal year ended June 30, 2003

| | [  ] | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
                  EXCHANGE ACT OF 1934
| | ---- | ----------------------------------------------------------------------------------------------------

For the transition period from __________ to __________.

Commission file number: 0-21853

---

MEDIA
SCIENCES INTERNATIONAL, INC.(Name of small business issuer in its charter)

---

| | DELAWARE
(State or other jurisdiction of incorporation or organization) |  | 87-0475073
(I.R.S. Employer Identification No.) | 
| | ----------------------------------------------------------------------- |  | ----------------------------------------------- | 

| | 40 Boroline Road, Allendale, NJ
(Address of principal executive offices) |  | 07401
(Zip Code) | 
| | ------------------------------------------------------------------------ |  | ---------------- | 

Issuers telephone number: (201) 236-9311

Securities registered pursuant to Section 12(b) of the Exchange Act:

| | Title of each class
Common Stock |  | Name of each exchange on which registered
AMEX | 
| | -------------------------------- |  | ---------------------------------------------- | 

Securities registered pursuant to Section 12(g) of the Exchange Act:

Common Stock(Title of Class)

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act
during the past 12 months (or for such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the 90 past days.  YES [X] NO [  ]

Check if there is no
disclosure of delinquent filers in response to Item 405 of Regulation S-B is not
contained in this form, and no disclosure will be contained, to the best of
registrants knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ ]

State issuers revenues for its most recent fiscal year:  $14,597,862.

The aggregate market value of voting and non-voting stock of the issuer held by non-affiliates on August 21, 2003
was $1,321,406.

# APPLICABLE
ONLY TO CORPORATE REGISTRANTS

As of August 25, 2003, we had 3,577,210 shares of common stock issued and outstanding.

# DOCUMENTS
INCORPORATED BY REFERENCE

None.

Transitional Small Business Disclosure Format (check one): YES [  ] NO [X]

---

# MEDIA
SCIENCES INTERNATIONAL, INC.

# TABLE OF
CONTENTS

|         |  |                                                                                                                                     | Page
|-------- |  | ----------------------------------------------------------------------------------------------------------------------------------- | ----
|PART I   |  |                                                                                                                                     |     
|         |  |                                                                                                                                     |     
|Item 1.  |  | Description of Business                                                                                                             | 3   
|Item 2.  |  | Description of Property                                                                                                             | 7   
|Item 3.  |  | Legal Proceedings                                                                                                                   | 7   
|Item 4.  |  | Submission of Matters to a Vote of Security Holders                                                                                 | 7   
|         |  |                                                                                                                                     |     
|PART II  |  |                                                                                                                                     |     
|         |  |                                                                                                                                     |     
|Item 5.  |  | Market for Common Stock and Related Stockholder Matters                                                                             | 8   
|Item 6.  |  | Managements Discussion and Analysis or Plan of Operation                                                                           | 12  
|Item 7.  |  | Financial Statements                                                                                                                | 18  
|Item 8.  |  | Changes In and Disagreements With Accountants on Accounting and
                    Financial Disclosure                            | 41  
|         |  |                                                                                                                                     |     
|PART III |  |                                                                                                                                     |     
|         |  |                                                                                                                                     |     
|Item 9.  |  | Directors, Executive Officers, Promoters and Control Persons;
                    Compliance With Section 16(a) of the Exchange Act | 42  
|Item 10. |  | Executive Compensation                                                                                                              | 46  
|Item 11. |  | Security Ownership of Certain Beneficial Owners and Management                                                                      | 50  
|Item 12. |  | Certain Relationships and Related Transactions                                                                                      | 52  
|Item 13. |  | Exhibits and Reports on Form 8-K                                                                                                    | 55  
|Item 14. |  | Controls and Procedures                                                                                                             | 57  

---

# PART I

## ITEM 1.  
DESCRIPTION OF BUSINESS

## Our
Organization History

We are a Delaware corporation named Media Sciences International, Inc. (Media Sciences).

We originally incorporated
under the laws of the State of Utah on August 11, 1983 under the name Communitra
Energy, Inc. On July 16, 1985, we amended our articles of incorporation to
change our name to Seafoods Plus, Ltd. We did not engage in any substantive
business activity from approximately 1988 to June 18, 1998.

On June 18, 1998, we
acquired Cadapult Graphic Systems Inc., a privately held New Jersey corporation
formed on May 1, 1987 (CGSI), in a transaction viewed as a reverse
acquisition. CGSI was a provider of computer graphics systems, peripherals,
supplies and services to visual communicators and graphics professionals.

On August 14, 1998, we
reincorporated under the laws of the State of Delaware as Cadapult Graphic
Systems, Inc.

On August 14, 1998, CGSI,
our wholly owned New Jersey subsidiary, merged into Cadapult Graphic Systems,
Inc.

In January 1999, we
acquired the assets of Tartan Technical, Inc., a computer graphics products
reseller in Massachusetts with $3.5 million of annual revenues.

In June 1999, we acquired
the assets of WEB Associates, Inc., a computer graphics products reseller in
Pennsylvania with $2.7 million of annual revenues.

On August 11, 1999, we
formed Media Sciences, Inc., as a wholly owned New Jersey subsidiary, for the
manufacture and distribution of digital color printer supplies.

In December 1999, Media Sciences, Inc. acquired the assets of ultraHue, Inc., a New Mexico corporation, a
manufacturer of workgroup color printer supplies.

On April 19, 2002, we
amended our certificate of incorporation to change our corporate name to Media
Sciences International, Inc.

On April 30, 2002, we
effected the structural change approved by our shareholders on April 19, 2002 by
agreement between Media Sciences International, Inc. and a newly formed, wholly
owned New Jersey corporation named Cadapult Graphic Systems, Inc. As a result of
the change in corporate structure, we are now organized with two operating
subsidiaries: Media Sciences, Inc. and Cadapult Graphic Systems, Inc. Media
Sciences International, Inc., as a parent corporation, does not have a present
intent to engage in substantive independent business operations. We intend to
conduct substantially all of our operations in the future through subsidiaries.

As of June 30, 2003, we had
3,577,210 shares of common stock issued and outstanding and 547,500 shares of
preferred stock issued and outstanding.

We have not been subject to
bankruptcy, receivership or any similar proceedings.

## Our Business

We are a manufacturer of
supplies for digital workgroup color printers.

Our wholly owned
subsidiary, Media Sciences, Inc., manufactures and distributes color printer
supplies, including solid ink sticks and color toner cartridges for use in Xerox
and other color printers. Media Sciences distributes these products
internationally through a network of dealers and distributors. We intend to grow
this business through an expansion of our product line, expansion of our
distribution channels and through demand creation marketing programs.

---

Our wholly owned
subsidiary, Cadapult Graphic Systems, Inc., sells supplies directly to certain
end users through our No-Cap Color program and to those with whom we have a
historical relationship.

## Operating
Strategy

We have a strategic
objective of becoming the leading independent manufacturer of supplies for
digital color business printers. We intend to achieve this objective through an
expansion of our product line, through brand development, an expansion of our
distribution network and through marketing programs.

The opportunity to sell
Media Sciences supplies exists in the installed base of workgroup, or business,
color printers. The installed base are those color printers used by
organizations of all sizes. Almost all of these organizations are using original
equipment manufacturer (OEM) supplies, or those being produced by, and sold
under the label of, the printer manufacturer such as Tektronix, Xerox or QMS. We
believe that as color printers become more commonplace in the office
environment, a subset of these users will seek alternative supplies to the OEM
brand, primarily as a way to reduce the cost of ownership of their color
printers. If we look at the color market as being analogous to the monochrome
printer and supply market, an opportunity exists for alternate supply
manufacturers to achieve a 20-25% market share in the aggregate. Our objective
is to be the leader within this market space by providing high quality, less
expensive color printer supplies through the same distribution channels used for
selling the OEM supplies.

In addition to penetrating
the installed base, we intend to create a significant new set of color printer
users who are contractually committed to our supplies. We are striving to
achieve this objective through our sales programs such as our INKlusive Color
printer program. We believe this program provides a unique opportunity for
organizations that are not currently using color printers to migrate to color
without the cost and technology risk of buying a printer outright.

## Principal
Products and Services and Programs

Products

Solid Ink Sticks.   We
manufacture and distribute solid ink sticks for use in the Xerox/Tektronix
Phaser 340, 350, 360, 840, 850, 860 and Phaser 8200 color printers. Our ink is
sold under the Media Sciences brand, and under the brands of many of our dealers
and distributors. We offer flexible, custom packaging to meet the needs of those
distribution partners. Our solid ink is typically sold to organizations at
prices that are 20% to 50% less than those of the Xerox/Tektronix brand.

Toner Cartridges.   We offer
two lines of toner cartridges: Identicals and our Clearcase line of toner
cartridges. As with our ink, our toner cartridges are sold under the Media
Sciences brand and under the brands of our distributors. We plan to expand our
toner cartridges offerings both within the Xerox/Tektronix line of color
printers and to other color printer manufacturers as well.

| | o | Identicals  Our Identical line of toner cartridges include toner
cartridges for the Xerox/Tektronix Phaser 780, 1235, 2135 and 6200 color
printers. These are new cartridges offered at a discount to those of the OEM.                                                                                                                                   
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | o | Clearcase  Our Clearcase line of toner cartridges are for use in
Xerox/Tektronix Phaser 560, 740 and 750 color printers. These are newly
manufactured toner cartridges, featuring a unique clear case, allowing the user
to see the colored toner within the cartridges. These cartridges are offered at
a discount of up to 30% to the prices of the OEM.

---

Sales Programs

INKlusive.          Our INKlusive color printer program, and its variations, provide a customer with a workgroup
color printer, on-site service, and a box of ink for a fixed charge per month at a substantial discount.  The
program requires a 24 month commitment, and upon successful completion of the program, the printer is the
customer's to keep at no additional charge.  The INKlusive program is targeted at small businesses, education,
non-profits and real estate agents and brokers.  The program is advanced by our channel partners who receive a
commission for each unit placed, and are encouraged to sell additional Media Sciences supplies to the customer.

Media Sciences offers this
program in conjunction with a financing company. Media Sciences does not own or
otherwise finance the cost of the printer.

No-Cap Color.   Our No-Cap
Color program provides a customer with one or more workgroup color printers, at
no charge, in return for a monthly or bi-monthly commitment to purchase certain
Media Sciences supplies from us. We offer several printers under this program,
including two business printers, one solid ink, one laser, and one graphic arts
printer. These printers have retail values of up to $6,000 and include service
throughout the duration of the program. We target the broad corporate market
with this program, as well as certain vertical markets. The printer remains the
property of Media Sciences or its assignees at all times.

Our No-Cap Color program
offers benefits to both the end user and Media Sciences. The end-user benefits
by obtaining a color printer without a capital investment and without service
costs. End user costs are limited to the purchase of supplies that they would
need to purchase anyway. We benefit by creating new customers with an obligation
to purchase our supplies, thereby creating a high-margin reoccurring revenue
stream.

Printers for our No-Cap
Color program are purchased outright and/or leased to us by third party leasing
companies. We intend to phase out the No-Cap Color program over the next few
years in favor of the INKlusive color printer program.

## Marketing and
Sales Plans

We intend to increase our
marketing and sales efforts. The goal of these efforts is to increase revenues
through increased market awareness of our products and sales programs.

We are expanding our Media
Sciences distribution channels through outside sales efforts and direct mail. We
intend to strengthen these channels through performance based sales incentive
programs. We plan to build end-user awareness and demand for our supplies
through advertising and marketing campaigns.

We are marketing our
INKlusive program through our channel partners, web advertising and affiliates
and through direct mail promotions.

## Industry and
Market Overview

The office environment has
been dominated by monochrome (black and white) printers and color monitors. Over
the past several years, color printers have been introduced to the office
environment for mission critical applications where color is a must. Today,
however, with the ever-increasing quality, print speed and lower costs of
acquisition and ownership, these printers are being placed and used more
frequently in the office. U.S. placements of these workgroup color printers are
expected to increase from 486,000 in 2000 to 5,767,000 in 2005 or at a compound
annual growth rate of 64%, according to year 2002 market research by Cap
Ventures. We believe the worldwide market for color printers is twice this size
and will grow at approximately the same rate. Output in pages from 2000-2005 is
expected to change from 292 billion pages in 2000 to 445 billion pages in 2005,
but in 2000 color output accounted for approximately 4% of these total pages. It
is forecasted that by 2005 it will grow to 8%, according to year 2002 market
research by Cap Ventures. As more printers are used and more color pages are
produced, organizations large and small will need to manage the on-going and
increasing supplies expense for their color printers.

---

Digital color printers
create an ongoing requirement for service and supplies. The reoccurring business
of supply purchases often exceeds the original costs of the device over its
lifetime. Today, in the color workgroup printer environment, supplies for these
printers are manufactured and distributed by the printer manufacturers. There
exists little competition to these sources of supplies. As the adoption of color
printing technology continues, we expect the demand for alternative supplies to
grow dramatically. In the monochrome printer market, year 2000 market research
by Lyra Research Inc. estimates that third party supply manufacturers will
provide approximately 22-27% of the supplies consumed from 2000-2003. We believe
that a similar opportunity exists in the color market.

## Distribution
Methods of the Products and Services

Media Sciences, Inc. sells through an international network of channel partners.  Our products are sold under the
Media Sciences brand, the brands of some of our distribution partners and in generic, or non-branded boxes.

Our distribution can also
be profiled by the markets they serve, including office supply wholesalers,
remanufacturers, technology resellers, catalog and web resellers, and those who
sell to the government.

Our products are available
in North and South America, Europe, South Africa, and Australia.

Cadapult Graphic Systems
sell supplies directly to certain end users through our No-Cap Color program and
to those with whom we have a historical relationship. These direct sales are
conducted through telephone and Internet sales efforts.

## Competition

We primarily compete with
the original equipment manufacturer of the printers for which we provide
supplies, including Xerox, which sells printers under the Tektronix and Xerox
brands. Other than the original equipment manufacturers, we are not aware of any
other significant competitor that provides solid ink or toner for use in these
printers.

## Principal
Suppliers

Purchases in the fiscal
year ended June 30,2003 from one vendor amounted to 11% of cost of goods sold.
Purchases from two vendors amounted to 51% of total purchases for the fiscal
year ended June 30, 2002.

## Dependence on
Major Customers

Sales to one customer
represented 11% of our revenues in our fiscal year ended June 30, 2003. Sales to
that same customer represented 12% of our revenues in our fiscal year ended June
30, 2002.

## Intellectual
Property

We regard our trademarks,
trade secrets, and proprietary technology and similar intellectual property as
critical to our success, and rely on trademark, copyright and patent law, trade
secret protection and confidentiality and other agreements with our employees,
customers, partners and others to protect our proprietary rights. We have
registered certain trademarks in the United States and have applied for the
registration of other trademarks in the United States. We have applied for
certain patents in the United States.

## Need for
Government Approval

Not applicable.

## Government
Regulation

Not applicable.

---

## Research and
Development

Not applicable.

## Compliance
with Environmental Laws

Not applicable.

## Employees

We currently have 36 full-time employees, including seven management level employees.

## ITEM 2.  
DESCRIPTION OF PROPERTY

We maintain our executive
offices at Allendale, New Jersey, pursuant to a lease expiring on May 31, 2011.
We also maintain a sales office in Redmond, Washington. Our offices are
adequately covered by insurance for claims arising out of such occupancies.

We occupy approximately
15,400 square feet, including warehousing and manufacturing facilities. We
believe that our present facilities are suitable for our present needs, however,
it may be necessary to increase the size of our current facilities or add new
facilities in the future to accommodate our projected growth.

The table below sets forth
the location, approximate square footage, approximate annual rent, use of each
location and expiration date of each lease. Some of the leases summarized in the
table provide for moderate annual rental increases.

`--------------------  -----------  -----------  ------------------  ---------------
                      Approximate  Approximate                      Lease
Location              Square Feet  Annual Rent  Use                 Expiration Date
--------------------  -----------  -----------  ------------------  ---------------

40 Boroline Road         15,400      $184,800   Executive Offices,  May 31, 2011
Allendale, NJ 07401                             Warehouse, and
                                                Manufacturing
                                                Facility

201 MJL Center           1,500       $28,200    Sales               month to month
16398 NE 85th Street                                                lease
Redmond, WA 98052
--------------------  -----------  -----------  ------------------  ---------------`

## ITEM 3.   LEGAL
PROCEEDINGS

As at June 30, 2003, we are
not a party to any material pending legal proceeding, other than ordinary
routine litigation incidental to our business.

## ITEM 4.      SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

In July and August, 2003, a
majority of the holders of our 547,500 shares of preferred stock outstanding
approved an amendment, by written consent, to the Certificate of Designation of
the Series A Preferred Stock to provide that no payments of dividends or
deferred dividends shall be made if Media Sciences is in default of its senior
lending agreement or if such payment causes an event of default under the senior
lending agreement. The preferred stockholders representing 353,750 preferred
shares consented to the amendment.

---

# PART II

## ITEM 5.      MARKET FOR THE COMPANYS COMMON EQUITY AND RELATED
           STOCKHOLDER MATTERS

## Market
Information

Our common stock is listed
on the American Stock Exchange under the symbol GFX. From July 10,
1998 to August 8, 2000, our common stock was quoted on the OTC Bulletin Board
under the symbol GRFX.

The following table sets
forth for the periods indicated, the high and low closing sale prices for a
share of our common stock, during the relevant periods, as reported by the
American Stock Exchange.

`Fiscal Year           Quarter Ended                  High              Low
-----------           ------------------             -----             -----

2002                  September 30, 2001             $2.00             $1.00
                      December 31, 2001              $1.50             $1.04
                      March 31, 2002                 $1.30             $1.00
                      June 30, 2002                  $1.19             $0.95
2003                  September 30, 2002             $1.00             $0.60
                      December 31, 2002              $0.85             $0.50
                      March 31, 2003                 $0.63             $0.47
                      June 30, 2003                  $0.60             $0.40
-----------           ------------------             -----             -----`

## Holders

The approximate number of
holders of record of our common stock as of June 30, 2003 was 402. As of that
date, there were approximately 633 beneficial stockholders, including
stockholders holding common stock under nominee security position listings.

## Dividends

We have never declared any
cash dividends on our common stock. Future cash dividends on the
common stock, if any, will be at the discretion of our Board of Directors and
will depend on our future operations and earnings, capital requirements and
surplus, general financial condition, contractual restrictions, and other
factors that the Board of Directors may consider important.

Unless and until we have fully paid
all dividends on the outstanding shares of series A preferred stock, we cannot
declare or pay cash dividends, or distribute or set aside assets, for any of our
other securities.

Our series A preferred
stock bears a fixed dividend at an annual rate of 11.5%. Dividends are to be
paid in cash each quarter in arrears. The first dividend payment occurred on
January 1, 2000. Pursuant to an amendment to the Certificate of Designation of
the Series A Preferred Stock, no payments of dividends or deferred dividends
shall be made if Media Sciences is in default of its senior lending agreement or
if such payment causes an event of default under the senior lending agreement.

---

In March 2001, our Board of
Directors voted to defer, until fiscal year 2002, the cash payment of the
preferred stock dividend for the periods ending March 31, 2001 and June 30, 2001
in order to conserve cash for the now settled litigation with Tektronix, Inc.
and Xerox Corporation. Our preferred shareholders had the option to receive
payment-in-kind, through a common stock issuance valued at $1.00 per share, the
fair market value of our common stock on that date. In September 2001, our
preferred shareholders were permitted the option to receive dividend payment for
those two payments through payment-in-kind, through a common stock issuance
valued at $1.10 per share, the fair market value of our common stock on that
date. Through December 31,2001, thirty three shareholders elected to receive
their dividend payments through the payment-in-kind, totaling $154,134 and
consisting of 148,136 shares of common stock for the two periods ending March
31, 2001 and June 30, 2001. In June 2002, our Board of Directors voted to offer
preferred shareholders the option to receive payment-in-kind for the dividend
periods ending June 30, 2002 and September 30, 2002 in order to conserve cash
flow, through a common stock issuance at $0.95 per share, the fair market value
of our common stock on that date. Fourteen shareholders elected to receive their
dividend payments through the payment-in-kind, totaling $87,112 and consisting
of 91,694 shares of common stock for the two periods ending June 30, 2002 and
September 30, 2002, of which 45,847 shares were issued as of June 30, 2002 and
45,847 shares were issued as of September 30, 2002. In December 2002, our Board
of Directors voted to defer payment of the preferred stock dividends through the
periods ending September 30, 2003. Our Board voted to accrue 6% simple interest
on the deferred dividends, to be paid upon payment of the deferred dividends.
For the one year ended June 30, 2003, we accrued $586,069 of stock dividends to
our preferred shareholders and paid $43,556 in stock dividends through a common
stock issuance at $0.95 per share.

## Securities
Authorized for Issuance under Equity Compensation Plans

`Number of securities to  Weighted average
                           be issued upon exercise  exercise price of     Number of securities
                           of outstanding options,  outstanding options,  remaining available
Plan category              warrants and rights      warrants and rights   for future issuance
-------------------------  -----------------------  -------------------   --------------------

Equity compensation plans          338,406                 $1.70               125,677
approved by
securities holders

Equity compensation plans        3,374,000                 $2.80                     0
not approved by
security holders

Total                            3,712,406                 $2.70               125,677
-------------------------  -----------------------  -------------------   --------------------`

Under our incentive stock
option plan for employees, directors and consultants, which was adopted by our
Board of Directors and approved by our shareholders on August 10, 1998, we
reserved 500,000 shares of our common stock for issuance pursuant to exercises
of incentive stock options. An incentive stock option entitles the holder to
purchase a share of our common stock at a purchase price equal to the fair
market value of the common stock on the day of grant. As of June 30, 2003,
option holders have exercised options to purchase 35,917 shares of common stock,
and we had outstanding incentive stock options to purchase 338,406 shares of
common stock, exercisable, subject to vesting, for five or ten years from the
date of grant at prices of $0.43 to $4.00.

Commencing fiscal year
2004, our outside directors are granted ten year stock options under the
incentive stock option plan to purchase 10,000 shares of common stock,
exercisable at the fair market value on the date of appointment to the Board.
Outside directors will also be granted, annually, additional stock options to
purchase 5,000 shares of common stock for continued service on the Board. Under
our director compensation plan through 2003, our outside directors were granted
stock options under the incentive stock option plan to purchase 10,000 shares of
common stock, exercisable at the fair market value on the date of appointment to
the Board, and granted, annually, additional options to purchase 5,000 shares of
common stock on or about each July 1 for continued service on the Board.

In August 1998, we issued
warrants to purchase 75,000 shares of common stock exercisable for five years at
$4.00 per share for legal services.

---

In February 1999, we issued
warrants to purchase 30,000 shares of common stock exercisable for five years at
$5.00 per share for legal services.

Pursuant to employment
agreements, amended as of March 5, 1999, each of Duncan Huyler, Vice President,
and of Frances Blanco, Vice President, Treasurer and Secretary, stock options,
which were reissued on May 6, 2001, to purchase up to 100,000 shares of common
stock, subject to vesting upon Media Sciences attaining certain specified
corporate milestones based upon corporate earnings, exercisable for five years
at $1.25 per share. As of June 30, 2003, all 200,000 options are exercisable.

On December 13, 1999, we
issued to each of Donald Gunn and another employee, stock options which were
reissued on December 14, 2001, to purchase 50,001 shares of our common stock,
subject to vesting over a three year period, exercisable for five years at $1.27
per share. As of June 30, 2003, all 100,002 options are exercisable.

From October 1999 to March
10, 2000, we conducted a private placement of 550,000 units of our securities
and raised gross proceeds of approximately $5,500,000. Each unit consisted of
one share of convertible preferred stock and a warrant, exercisable for five
years at $4.50 per share, to purchase two shares of common stock. In connection
with the private placement, we issued to the investors and consultants,
including the placement agent and members of the selling group, an aggregate of
550,000 shares of preferred stock and 1,956,500 warrants, exercisable for five
years, to purchase shares of common stock, as follows: 15,000 shares at $3.00
per share; 40,000 shares at $3.75 per share; 15,000 shares at $4.00 per share;
550,000 shares at $3.75 per share; 236,500 shares at $1.65 per share; and
1,100,000 shares at $4.50 per share.

Pursuant to an oral
employment agreement effective as of July 2000, and as amended September 7,
2000, we issued to Duncan Yates stock options, which were reissued on May 6,
2001, to purchase up to 100,000 shares of common stock, of which stock options
to acquire 50,000 shares vested immediately and stock options to acquire an
additional 50,000 shares are subject to vesting upon us attaining certain
specified corporate milestones, exercisable for five years at $1.25 per share.
As of June 30, 2003, all 100,000 options are exercisable.

On May 31, 2001, we issued
warrants to purchase up to 200,000 shares of our common stock exercisable for
five years at $1.00 per share in consideration for consulting services.

On June 14, 2002, in
connection with the issuance of short-term promissory notes, we issued warrants
to purchase up to 87,500 shares of our common stock exercisable for five years
at $1.00 per share.

On April 7, 2003, we issued
to each of Duncan Huyler, Frances Blanco, Duncan Yates, Donald Gunn and Randy
Hooker, stock options to purchase 25,000 shares of common stock. The stock
options vest on April 6, 2004 and are exercisable until April 5, 2008 at $0.50
per share.

In June 2003, we issued to
Michael Levin stock options to purchase up to 500,000 shares of common stock,
exercisable at $1.00 per share and expiring in June 2008. Options to purchase
250,000 shares vested immediately and options to purchase an additional 250,000
shares vest ratably over the period July 1, 2003 through June 30, 2005.

## Transfer Agent

The transfer agent for our
common stock is Continental Stock Transfer & Trust Company, New York, New
York.

---

## Recent Sales
of Unregistered Securities

In connection with
preferred stock dividends, our Board of Directors voted to defer, until fiscal
year 2002, the payment of the preferred stock dividend for the periods ending
March 31, 2001 and June 30, 2001 in order to conserve cash for the
Tektronix/Xerox litigation, which has since been settled. We also offered our
preferred shareholders the option to receive payment-in-kind, through a common
stock issuance at $1.00 per share, the fair market value of our common stock on
that date. The offer expired on May 15, 2001. As of May 15, 2001, thirty
shareholders elected to receive their dividend payment through the
payment-in-kind, totaling $88,152 and consisting of 88,152 shares of stock for
the two periods ending March 31, 2001 and June 30, 2001. In September 2001, our
preferred shareholders were permitted the option to receive dividend payment for
those two payments through payment-in-kind, through a common stock issuance
valued at $1.10 per share, the fair market value of our common stock on that
date. Through December 31,2001, thirty three shareholders elected to receive
their dividend payments through the payment-in-kind, totaling $154,134 and
consisting of 148,136 shares of common stock for the two periods ending March
31, 2001 and June 30, 2001. In June 2002, our Board of Directors voted to offer
preferred shareholders the option to receive payment-in-kind for the dividend
periods ending June 30, 2002 and September 30, 2002 in order to conserve cash
flow, through a common stock issuance at $0.95 per share, the fair market value
of our common stock on that date. Fourteen shareholders elected to receive their
dividend payments through the payment-in-kind, totaling $87,112 and consisting
of 91,694 shares of common stock for the two periods ending June 30, 2002 and
September 30, 2002, of which 45,847 shares were issued as of June 30, 2002 and
45,847 shares were issued as of September 30, 2002. In December 2002, our Board
of Directors voted to defer payment of the preferred stock dividends through the
periods ending September 30, 2003. Our Board voted to accrue 6% simple interest
on the deferred dividends, to be paid upon payment of the deferred dividends.
For the nine months ended March 31, 2003, we accrued $586,069 of stock dividends
to our preferred shareholders and paid $43,556 in stock dividends through a
common stock issuance at $0.95 per share.

On April 7, 2003, in
transactions deemed exempt from registration pursuant to Section 4(2) of the
Securities Act, we issued to each of Duncan Huyler, Frances Blanco, Duncan
Yates, Donald Gunn and Randy Hooker, all of whom are senior management level
personnel of Media Sciences, stock options to purchase 25,000 shares of common
stock. The stock options vest on April 6, 2004 and are exercisable until April
5, 2008 at $0.50 per share.

In June 2003, in a
transaction deemed exempt from registration pursuant to Section 4(2) of the
Securities Act, pursuant to an employment agreement effective as of July 1,
2003, we issued to Michael Levin, an executive officer of Media Sciences, stock
options to purchase up to 500,000 shares of common stock, exercisable at $1.00
per share and expiring in June 2008. Options to purchase 250,000 shares vested
immediately and options to purchase an additional 250,000 shares vest ratably
over the period July 1, 2003 through June 30, 2005.

---

## ITEM 6.  
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
           RESULTS OF OPERATIONS

## FORWARD-LOOKING
INFORMATION

This report on Form 10-KSB
contains certain forward-looking statements within the meaning of
Section 21E of the Securities Exchange Act of 1934, as amended (the
Exchange Act), which represent our expectations and beliefs,
including, but not limited to statements concerning Media Sciences
expected growth. The words believe, expect,
anticipate, estimate, project, and similar
expressions identify forward-looking statements, which speak only as of the date
such statement was made. These statements by their nature involve substantial
risks and uncertainties, certain of which are beyond our control, and actual
results may differ materially depending on a variety of important factors.

The following discussion
and analysis should be read in conjunction with the information set forth in the
audited financial statements for the year ended June 30, 2003.

## RESULTS OF OPERATIONS FOR THE YEAR ENDED JUNE 30, 2003

Sales.  
   Sales for the year ended June 30, 2003, compared to the year period ended June 30, 2002, increased
approximately 5% to $14,597,862 from $13,844,318. Media Sciences sales increased approximately 16% to $9,599,263
from $8,300,027.

Cost of Sales.   Cost of
sales for the year ended June 30, 2003 were $7,175,113, or approximately 49% of
sales, as compared to $7,240,840, or approximately 52% of sales, for the year
period ended June 30, 2002. The reduction in cost of sales as a percentage of
sales reflects the continued increase in Media Sciences business relative to the
Cadapult business.

Selling, General and
Administrative.   Selling, general and administrative expenses for the year ended
June 30, 2003 decreased to $5,255,743, or 36% of sales, from $6,282,040, or 45%
of sales, for the year ended June 30, 2002. For the year ended June 30, 2003,
our selling general and administrative costs included approximately $1.35
million of expenses related to the recall of our solid ink in January 2002
and the related warranty expenses as compared to approximately $3 million, net
of $1 million insurance benefit for the prior year. In addition, for the year
ended June 30, 2002, we recorded a net reduction in our selling, general and
administrative costs of approximately $600,000 due to the settlement of a legal
malpractice suit.

Depreciation and
Amortization.   Depreciation and amortization expense for the year ended June 30,
2003 increased to $790,512, including $532,403 included in cost of sales, from
$736,097 for the year ended June 30, 2002 of which $447,313 was included in cost
of sales.

Interest Expense.   Interest
expense for the year ended June 30, 2003 increased to $448,623 from $409,857
incurred for the year ended June 30, 2002. The increase in interest was due to
increased borrowings and the interest component of payments on capital leases and
the supplier agreement.

Income Taxes.   For the year
ended June 30, 2003, we recorded a current income tax expense of $132,573 and a
deferred income tax expense of $452,685 as compared to a current income tax
expense of $4,330 and a deferred income tax benefit of $152,000 for the year
ended June 30, 2002. We recorded the current income tax expense because of New
Jerseys two-year suspension of the use of net operating loss carry
forwards.

Dividends.          For the year ended June 30, 2003, we accrued $586,059 of stock dividends to our preferred
shareholders and paid $43,556 in stock dividends through a common stock issuance at $0.95 per share.  In June
2002, our Board of Directors voted to offer preferred shareholders the option to receive payment-in-kind for the
dividend periods ending June 30, 2002 and September 30, 2002 in order to conserve cash flow, through a common
stock issuance at $0.95 per share, the fair market value of our common stock on that date.  Fourteen shareholders
elected to receive their dividend payments through the payment-in-kind, totaling $87,112 and consisting of 91,694
shares of common stock for the two periods ending June 30, 2002 and September 30, 2002.

---

Net Income (Loss).   For the
year ended June 30, 2003 we earned $245,391, or $0.07 per share basic and
diluted, as compared to the year ended June 30, 2002, where we incurred a loss
applicable to common shareholders of $859,048, or $0.25 per share. The
conversion of the Series A convertible preferred stock has been excluded from
the computation of diluted earnings per share for the years ended June 30, 2003
and 2002, as the conversion would be anti-dilutive after adding back preferred
stock dividends to net income.

## RESULTS OF OPERATIONS FOR THE YEAR ENDED JUNE 30, 2002

Sales.     Sales for the year ended June 30, 2002, compared to the year period ended June 30, 2001, increased
approximately 10% to $13,844,318 from $12,523,401. Media Sciences sales increased approximately 51% to $8,300,027
from $5,145,964.

Cost of Sales.   Cost of
sales for the year ended June 30, 2002 were $7,240,840, or approximately 52% of
sales, as compared to $7,596,973, or approximately 61% of sales, for the year
period ended June 30, 2001. Certain direct and indirect manufacturing costs
previously reported as selling, general and administrative costs for the year
ended June 30, 2001 have been reclassified to conform to the current years
presentation where these costs are now classified as cost of sales.
Approximately $460,000 of these costs for the year ended June 30, 2001 were
reclassified as cost of sales.

Selling, General and
Administrative.   Selling, general and administrative expenses for the year ended
June 30, 2002 decreased to $6,282,040, or 45% of sales, from $6,763,208 or 54%
of sales for the year ended June 30, 2001. For the year ended June 30, 2002, our
selling general and administrative costs included approximately $3 million of
expenses related to the recall of our solid ink and the related warranty
expenses. In addition, for the year ended June 30, 2002, we recorded a reduction
in our selling, general and administrative costs of approximately $600,000 due
to the net settlement of a legal malpractice suit. Our selling, general and
administrative expenses for the year ended June 30, 2001 included approximately
$1.1 million in legal fees, associated with the now settled litigation with
Tektronix and Xerox, the present value of future payments under a supplier
agreement in the amount of $884,000, an accrual of warranty expenses in the
amount of $400,000 and expenses associated with the move and consolidation of
our facility of approximately $150,000.

Depreciation and
Amortization.   Depreciation and amortization expense for the year ended June 30,
2002 decreased to $736,097, including $447,313 included in cost of sales, from
$771,461 for the year ended June 30, 2001 of which $104,124 was included in cost
of sales. Amortization of goodwill decreased from $368,157 to zero as the result
of our adoption of FASB issued SFAS No. 142 as discussed in Note 1 of the
financial statement.

Interest Expense.   Interest
expense for the year ended June 30, 2002 increased to $409,857 from $265,012
incurred for the year ended June 30, 2001. The increase in interest was due to
increased borrowings and the interest component of payments on capital leases
the supplier agreement.

Income Taxes.   For the year
ended June 30, 2002, we recorded an income tax benefit of $147,670 versus an
income tax benefit of $1,153,224 for the year ended June 30, 2001. We recognized
an income tax benefit because we determined that it was more likely than not
that we would be able to fully utilize our deferred tax assets.

Dividends.          For the year ended June 30, 2002, we paid or accrued $629,515 of stock dividends to our
preferred shareholders.  In March 2001, our Board of Directors voted to defer, until fiscal year 2002, the cash
payment of the preferred stock dividend for the periods ending March 31, 2001 and June 30, 2001 in order to
conserve cash for the now settled litigation with Tektronix, Inc. and Xerox Corporation.  Our preferred
shareholders had the option to receive payment-in-kind, through a common stock issuance valued at $1.00 per
share, the fair market value of our common stock on that date.  In September 2001, our preferred shareholders
were permitted the option to receive dividend payment for those two payments through payment-in-kind, through a
common stock issuance valued at $1.10 per share, the fair market value of our common stock on that date.  Through
December 31,2001, thirty three shareholders elected to receive their dividend payments through the
payment-in-kind, totaling $154,134 and consisting of 148,136 shares of common stock for the two periods ending
March 31, 2001 and June 30, 2001. In June 2002, our Board of Directors voted to again offer preferred
shareholders the option to receive payment-in-kind for the dividend periods ending June 30, 2002 and September
30, 2002 in order to conserve cash flow, through a common stock issuance at $0.95 per share, the fair market
value of our common stock on that date.  Fourteen shareholders elected to receive their dividend payments through
the payment-in-kind, totaling $87,112.50 and consisting of 91,694 shares of common stock for the two periods
ending June 30, 2002 and September 30, 2002.

---

Net Income (Loss).   For the
year ended June 30, 2002, we incurred a loss applicable to common shareholders
of $859,048, or $0.25 per share, as compared to the year ended June 30, 2001
where we incurred a loss of $2,248,765, or $0.68 per share. The conversion of
the Series A convertible preferred stock has been excluded from the computation
of diluted earnings per share for the years ended June 30, 2002 and 2001, as the
conversion would be anti-dilutive after adding back preferred stock dividends to
net income.

## LIQUIDITY AND CAPITAL RESOURCES

We experienced positive
cash flow of $24,287 for the one year period ended June 30, 2003. Cash flows
from operating activities resulted in positive cash flows of $314,365 resulting
primarily from net income of $875,016, non-cash charges of $790,511 for
depreciation and amortization and $452,685 for deferred income taxes, offset by
a decrease in accounts payable of $971,533 and an increase in accounts
receivable of $702,010.

The cash we used in
investing activities included the purchase of equipment in the amount of
$296,296 and the purchase of intangibles associated with the acquisition of
ultraHue in December 1999 in the amount of $94,608.

Cash generated by financing
activities included advances from officers, investors and short-term bank debt
in the amount of $275,705 offset primarily by payments on long-term debt of
$155,256.

Prior to August 8, 2003, we
had an agreement with a lender under which we were able to borrow up to $4
million, under a revolving line of credit, subject to availability of
collateral. As of June 30, 2003, $1,779,862 was outstanding under this line. We
were in compliance with all covenants as of June 30, 2003.

On August 8, 2003, we
entered into a new agreement with a new lender under which we can borrow up to
$3 million under a revolving line of credit, subject to availability of
collateral. Borrowings bear interest at 1.75% over the lenders base rate,
are payable on demand and are collateralized by all assets of our company. This
line expires on October 31, 2006.

Between August 2000 and
September 2003, the Company borrowed an aggregate of $450,000 from its
President. The funds were used for general corporate purposes. The debt is
structured through two notes payable. The first note, in the amount of $255,000,
bears an interest rate of 10% per annum and is payable in monthly installments
of interest only through May 2004. The second note, in the amount of $195,000,
bears an interest rate of 20% per annum and is payable in monthly installments
of interest only through May 2005. There is no representation or assurance made
that Mr. Levin will make any further loans to us.

In December 2000, the note
payable to ultraHue came due and was satisfied with a cash payment of $760,000
and a demand note in the amount of $400,000 bearing an interest rate of 13% per
annum. Through June 2003, we repaid $150,000 of this note.

On June 14, 2002, we issued
short-term promissory notes aggregating $175,000 and warrants to purchase up to
87,500 shares of our common stock exercisable for five years at $1.00 per share
to seven note holders: Paul Levin, Frank and Edna Blanco, Nathan D. Watters,
Adam H. Watters, Mitchell Baker, Esther Baker, and Harold and Marsha Kugelman.
The notes matured in December 2002 and bore simple interest at the rate of 12%
per year. In December 2002, we repaid the $175,000 borrowed in June through cash
principal payments of $75,000 and through the issuance of new, one-year notes
aggregating $100,000 and bearing simple interest of 20%, payable quarterly. The
note holders were persons who bear the following relationships with Media
Sciences or with our officers and directors: Paul Levin is the father of Michael
W. Levin, President and Chairman of Media Sciences; Frank and Edna Blanco are
the parents of Frances Blanco, Vice President and a director of Media Sciences;
Mitchell Baker is the son of Paul Baker, a director of Media Sciences; and
Esther Baker is the wife of Paul Baker. Three of the four new note holders are
persons who bear the following relationships with Media Sciences or with our
officers and directors: Paul Levin is the father of Michael W. Levin, President
and Chairman of Media Sciences; Frank and Edna Blanco are the parents of Frances
Blanco, Vice President and a director of Media Sciences; and Mitchell Baker is
the son of Paul Baker, a director of Media Sciences.

---

On June 5, 2001, we issued
a $400,000 promissory note and warrants to purchase up to 200,000 shares of our
common stock at $1.00 per share to Consonance Services Group. The note matured
on June 5, 2003 and bore a simple interest at the rate of 12% per year. The note
was secured by a security agreement which covered all corporate assets. Two
members of this investor group were persons who bear the following relationships
with Media Sciences or with our officers and directors: Paul Baker is a director
of Media Sciences and Mitchell Baker is the son of Paul Baker. On June 5, 2003,
we repaid the $400,000 note due to the Consonance Services Group, through the
issuance of eight, $50,000 promissory notes, due on June 5, 2005 and carrying a
20% interest rate, to the eight individuals comprising the Consonance Group.
These notes are unsecured.

The terms of the loans from
the Companys officers, directors, and others having relationships with our
officers and directors were determined by the Board of Directors in light of the
Companys financial condition, the terms of previous borrowings from such
persons, and the terms on which short-term loans were available from public
resources. The terms of these loans were deemed fair to the Company and viewed
as arms length transactions. There are no ongoing contractual or other
commitments with any of these persons resulting from these transactions, and
there is no representation or assurances made that any of these persons will
make any further loans to us.

## CRITICAL ACCOUNTING POLICIES

## Use of Estimates

The accompanying
consolidated financial statements have been prepared in conformity with
accounting principles generally accepted in the United States. When more than
one accounting principle, or method of its application, is generally accepted,
management selects the principle or method that is appropriate in the
Companys specific circumstances. Application of the accounting principles
requires the Companys management to make estimates about the future
resolution of existing uncertainties and that affect the reported amounts of
assets, liabilities, revenues, expenses which in the normal course of business
are subsequently adjusted to actual results. Actual results could differ from
such estimates. In preparing these financial statements, management has made its
best estimates and judgments of the amounts and disclosures included in the
consolidated financial statements giving due regard to materiality.

## Revenue Recognition, Accounts Receivable and Allowance for Doubtful Accounts

Revenue is recognized at
the point of shipment for goods sold, and ratably through the duration of
service contracts. Deferred Revenue consists principally of billings on service
contracts prior to rendering related services.

The Company markets its
products to an international network of dealers and distributors. Credit is
extended after a credit review by management which is based on a customers
ability to perform its obligations. Such reviews are regularly updated. The
allowance for doubtful accounts is based upon agings of customer balances and
specific account reviews by management. Media Sciences International, Inc. has
no concentrations of credit risks and generally does not require collateral or
other security from its customers.

Accounts receivable are
presented net of a reserve for doubtful accounts of $35,000 at June 30, 2003 and
2002, which represented 1.9% and 2.7%, respectively, of gross trade receivables.

## Inventories and Inventory Reserves

Inventories are stated at
the lower of cost or market, with costs being determined on a first-in,
first-out method. Work-in-process and finished goods include material costs,
labor costs and manufacturing overhead. The Company evaluates its inventories
periodically to identify excess, slow-moving and obsolete inventories and assess
reserve adequacy. At June 30, 2003 and 2002, no reserve was deemed necessary.

---

## Goodwill and Impairment

The excess of the purchase
consideration over the fair value of the net assets of acquired businesses is
considered to be goodwill and, until June 30, 2001, was being amortized over 15
years using the straight-line method.

The Company reviews
goodwill when events or changes in circumstances indicate that the carrying
amount of goodwill may not be recoverable. We also review goodwill as required
by SFAS No. 142, Goodwill and Other Intangible Assets, which
requires that goodwill be tested annually using a two-step process. The first is
to identify any potential impairment by comparing the carrying value of
reporting units to their fair value. If a potential impairment is identified,
the second step is to compare the implied fair value of goodwill with its
carrying amount to measure the impairment loss. Reporting unit fair value is
estimated using the income approach, which assumes that the value of a reporting
unit can be computed as the present value of the assumed future returns of an
enterprise discounted at a rate of return that reflects the riskiness of an
investment. A significant increase in the rate at which the assumed future
returns are discounted could result in an unexpected impairment charge to
goodwill, which could have a negative impact on our operating results.

At June 30, 2003 and 2002,
net goodwill amounted to $4,986,030 and $4,891,421, respectively, with
accumulated amortization amounting to $521,962 for both years. The goodwill
resulted from the acquisition of substantially all of the assets of UltraHue,
Inc. We have completed all transitional and annual impairment tests necessary to
date and concluded that our goodwill is not impaired.

## Stock-Based Compensation

The Company has elected to
follow Accounting Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees and related interpretations in accounting for stock
options and awards. Accordingly, no compensation costs for stock options is
included in operating results since all awards were made at exercise prices at
or above their fair value on the dates of grants.

In December 2002, the FASB
issued SFAS No. 148, Accounting for Stock- Based Compensation - Transition
and Disclosure, amending FASB Statement No. 123, Accounting for Stock Based
Compensation. This statement amends SFAS No. 123 to provide alternative
methods of transition for an entity that voluntarily changes to the fair value
based method of accounting for stock- based employee compensation. It also
amends the disclosure provisions of SFAS No. 123 to require prominent disclosure
about the effects on operating results of an entitys accounting policy
decisions with respect to stock-based employee compensation. SFAS No. 148 also
amends APB 28, Interim Financial Reporting to require disclosure
about those effects in interim financial information. We adopted the disclosure
provisions for the year ended June 30, 2003.

The following table
illustrates the effect on results of operations if the Company had applied the
fair value recognition provisions of SFAS No. 123.

`Fiscal Year Ended
                                                              June 30,
                                                         2003        2002
                                                       --------    ---------
Net income (loss), as reported                         $245,391    $(859,048)

Stock-based employee compensation expense under
        fair value method, net of related tax effects  $(64,599)   $ (21,633)
                                                       --------    ---------
Pro forma net income (loss)                            $180,792    $(837,415)
                                                       ========    =========
Income/(Loss) per share:
         Basic, as reported                               $0.07       $(0.25)
                                                          =====       ======
         Basic, pro forma                                 $0.05       $(0.25)
                                                          =====       ======
               Diluted per share, as reported             $0.07       $ --
                                                          =====       ======
               Diluted per share, pro forma               $0.05       $ --
                                                          =====       ======`

---

## CAPITAL EXPENDITURES

We anticipate committing to
additional color product development programs. Costs of these programs during
the next twelve months are estimated to be up to $1,000,000.

## INFLATION

We have historically offset
any inflation in operating costs by a combination of increased productivity and
price increases, where appropriate. We do not expect inflation to have a
significant impact on our business in the future.

## SEASONALITY

We anticipate that our cash
flow from operations will be slightly better in the fall and winter months than
in the spring and summer months due to the sales cycles associated with our
Cadapult business. In the event that we are unable to generate sufficient cash
flows from operations, we may be required to utilize other cash reserves, if
any, or seek additional equity or debt financing to meet operating expenses, and
there can be no assurance that there will be any other cash reserves or that
additional financing will be available or, if available, on reasonable terms.

---

## ITEM 7.  
FINANCIAL STATEMENTS

## Financial
Report - June 30, 2003

`Independent Auditors' Report                                             F-1
Consolidated Balance Sheets                                              F-2
Consolidated Statements of Operations                                    F-3
Consolidated Statements of Changes in Shareholders' Equity               F-4
Consolidated Statements of Cash Flows                                    F-5
Notes to Consolidated Financial Statements                               F-7`

---

# INDEPENDENT
AUDITORS REPORT

To the Board of Directors and Shareholders of
Media Sciences International, Inc.

We have audited the
accompanying consolidated balance sheets of Media Sciences International, Inc.
and subsidiaries as of June 30, 2003 and 2002, and the related consolidated
statements of operations, changes in shareholders equity and cash flows
for the years then ended. These consolidated financial statements are the
responsibility of the Companys management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.

We conducted our audits in
accordance with auditing standards generally accepted in the United States of
America. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the
consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Media Sciences
International, Inc. and subsidiaries at June 30, 2003 and 2002, and the
consolidated results of their operations and their cash flows for the years then
ended in conformity with accounting principles generally accepted in the United
States of America.

| | /s/ WISS & COMPANY, LLPWISS & COMPANY, LLP
| | ------------------------------------------

Livingston, New Jersey
August 6, 2003

---

# MEDIA
SCIENCES INTERNATIONAL, INC.
AND
SUBSIDIARIES

# CONSOLIDATED
BALANCE SHEETS

`June 30,
                                                    ----------------------------
                                   ASSETS               2003            2002
                                   ------           ------------    ------------

CURRENT ASSETS:
  Cash and equivalents                              $     66,467    $     42,180
  Accounts receivable, less allowance for
    doubtful accounts of $35,000                       1,841,060       1,257,270
  Inventories                                          1,089,809       1,324,583
  Deferred income taxes                                1,000,000       1,000,000
  Prepaid expenses and other current assets              173,050          59,846
                                                    ------------    ------------
    Total Current Assets                               4,170,386       3,683,879
                                                    ------------    ------------

PROPERTY AND EQUIPMENT, NET                            1,362,734       1,778,497
                                                    ------------    ------------

OTHER ASSETS:
  Goodwill and other intangible assets, net            4,478,190       4,392,773
  Deferred income taxes                                   47,315         500,000
  Other assets                                            58,102          57,733
                                                    ------------    ------------
                                                       4,583,607       4,950,506
                                                    ------------    ------------

                                                    $ 10,116,727    $ 10,412,882
                                                    ============    ============


                      LIABILITIES AND SHAREHOLDERS' EQUITY
                      ------------------------------------

CURRENT LIABILITIES:
  Short-term debt                                   $  2,185,118    $  2,113,794
  Accounts payable                                     1,340,257       2,311,790
   Accrued expenses and other current liabilities        258,512         129,495
  Income tax payable                                     131,425            --
   Accrued product warranty                              250,000         500,000
  Accrued expense - supplier                             448,952         395,153
  Dividends payable                                      699,919         113,849
  Loan from investors                                    200,000         535,242
  Loan from officer                                      280,000         355,000
    Deferred revenues                                    196,234         230,297
                                                    ------------    ------------
    Total Current Liabilities                          5,990,417       6,684,620
                                                    ------------    ------------

OTHER LIABILITIES:
  Long-term debt, less current maturities                 39,081         194,336
  Loan from investors                                    400,000            --
  Loan from officer                                      195,000            --
   Accrued expense - supplier                               --           330,644
                                                    ------------    ------------
                                                         634,081         524,980
                                                    ------------    ------------

COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
  Series A Convertible Preferred stock,
     $.001 par value,
     Authorized 1,000,000 shares;
     issued and outstanding 547,500 shares                   547             547
  Common stock, $.001 par value,
     Authorized 20,000,000 shares;
     issued and outstanding 3,577,210
     shares in 2003 and 3,531,363 in 2002                  3,578           3,532
  Additional paid-in capital                           5,109,343       5,065,833
  Cost of 10,564 shares of common stock in treasury      (20,832)        (20,832)
  Retained earnings (deficit)                         (1,600,407)     (1,845,798)
                                                    ------------    ------------
    Total Shareholders' Equity                         3,492,229       3,203,282
                                                    ------------    ------------

                                                    $ 10,116,727    $ 10,412,882
                                                    ============    ============`

See accompanying notes to consolidated financial statements.

---

# MEDIA
SCIENCES INTERNATIONAL, INC.
AND
SUBSIDIARIES

# CONSOLIDATED
STATEMENTS OF OPERATIONS

`Year Ended June 30,
                                                     ---------------------------
                                                         2003           2002
                                                     ------------   ------------

NET SALES                                            $ 14,597,862   $ 13,844,318
                                                     ------------   ------------

COSTS OF GOODS :
  Cost of sales, excluding depreciation                 6,642,710      6,793,527
  Depreciation                                            532,403        447,313
                                                     ------------   ------------
       Total cost of goods                              7,175,113      7,240,840
                                                     ------------   ------------

GROSS PROFIT                                            7,422,749      6,603,478

OTHER COSTS AND EXPENSES :
        Selling, general and administrative             5,255,743      6,282,040
         Depreciation and amortization                    258,109        288,784
                                                     ------------   ------------
             Total other costs and expenses             5,513,852      6,570,824
                                                     ------------   ------------

INCOME FROM OPERATIONS                                  1,908,897         32,654

INTEREST EXPENSE, NET                                     448,623        409,857
                                                     ------------   ------------

INCOME (LOSS) BEFORE INCOME TAXES (CREDITS)             1,460,274       (377,203)

INCOME TAXES (CREDITS)                                    585,258       (147,670)
                                                     ------------   ------------

NET INCOME (LOSS)                                    $    875,016   $   (229,533)
                                                     ============   ============

PREFERRED STOCK DIVIDENDS                            $    629,625   $    629,515
                                                     ============   ============

INCOME (LOSS) APPLICABLE TO COMMON SHAREHOLDERS      $    245,391   $   (859,048)
                                                     ============   ============

BASIC WEIGHTED AVERAGE COMMON SHARES OUTSTANDING        3,565,748      3,484,057
                                                     ============   ============
DILUTED WEIGHTED AVERAGE COMMON SHARES OUTSTANDING      3,571,374           --
                                                     ============   ============


BASIC NET INCOME (LOSS) PER COMMON SHARE             $       0.07   $      (0.25)
                                                     ============   ============
DILUTED NET INCOME (LOSS) PER COMMON SHARE           $       0.07   $       --
                                                     ============   ============`

See accompanying notes to consolidated financial statements.

---

# MEDIA
SCIENCES INTERNATIONAL, INC.AND
SUBSIDIARIES

# CONSOLIDATED
STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY

`Common Stock      Preferred Stock              Additional    Retained        Total
                                    ------------------   ---------------   Treasury    Paid-in      Earnings     Shareholders'
                                     Shares     Amount   Shares   Amount    Stock      Capital      (Deficit)       Equity
                                    ---------   ------   -------  ------   --------   ----------   -----------   -------------

BALANCES, JUNE 30, 2001             3,477,805   $3,478   547,500  $  547   $(20,832)  $5,599,991   $(1,616,265)  $   3,966,919

YEAR ENDED JUNE 30, 2002:
  Issuance of stock for
     dividend payment                  53,558       54        --      --         --       51,985            --          52,039
  Issuance of warrants for
     services                              --       --        --      --         --       43,372            --          43,372
 Preferred stock dividend, 11.5%           --       --        --      --         --     (629,515)           --        (629,515)
 Net loss                                  --       --        --      --         --           --      (229,533)       (229,533)
                                    ---------   ------   -------  ------   --------   ----------   -----------   -------------
BALANCES, JUNE 30, 2002             3,531,363    3,532   547,500     547   (20,832)    5,065,833    (1,845,798)      3,203,282

YEAR ENDED JUNE 30, 2003:
 Issuance of stock for
     dividend payment                  45,847       46        --      --         --       43,510           --           43,556
 Preferred stock dividend, 11.5%           --       --        --      --         --           --     (629,625)        (629,625)
 Net income                                --       --        --      --         --           --      875,016          875,016
                                    ---------   ------   -------  ------   --------   ----------   -----------   -------------
BALANCES, JUNE 30, 2003             3,577,210   $3,578   547,500  $  547   $(20,832)  $5,109,343   $(1,600,407)  $   3,492,229
                                    =========   ======   =======  ======   ========   ==========   ===========   =============`

See accompanying notes to consolidated financial statements.

---

# MEDIA
SCIENCES INTERNATIONAL, INC.AND
SUBSIDIARIES

# CONSOLIDATED
STATEMENTS OF CASH FLOWS

`Year Ended June 30,
                                                      --------------------------
                                                         2003           2002
                                                      -----------    -----------

CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income (loss)                                   $   875,016    $  (229,533)
  Adjustments to reconcile net income (loss)
     to net cash flows from operating activities:
   Depreciation and amortization                          790,511        739,711
   Deferred income taxes                                  452,685       (152,000)
   Provision for bad debts                                118,220         77,896
   Changes in operating assets and liabilities:
    Accounts receivable                                  (702,010)       470,106
    Inventories                                           165,514       (230,152)
    Prepaid expenses and other current assets            (113,204)        23,740
    Other assets                                             (369)         7,525
    Dividends payable                                        --          (56,749)
    Accounts payable                                     (971,533)       921,825
    Accrued expenses and other current liabilites          10,442        (11,699)
    Accrued expense - supplier                           (276,844)      (158,203)
    Deferred revenues                                     (34,063)       (47,536)
                                                      -----------    -----------
      Net cash flows from operating activities            314,365      1,354,931
                                                      -----------    -----------

CASH FLOWS FROM INVESTING ACTIVITIES:

  Purchases of property and equipment                    (296,296)      (461,142)
  Purchase of intangible assets                           (94,608)          --
                                                      -----------    -----------
      Net cash flows from investing activities           (390,904)      (461,142)
                                                      -----------    -----------

CASH FLOWS FROM FINANCING ACTIVITIES:

  Note payable to bank, net                                90,947        (14,825)
  Payments on short-term debt, net                        (19,623)      (360,242)
  Payments on long-term debt                             (155,256)      (196,452)
  Net advances from officer                               120,000         30,000
                                                           64,758        135,242
  Preferred stock dividends                                  --         (577,476)
                                                      -----------    -----------
      Net cash flows from financing activities            100,826       (983,753)
                                                      -----------    -----------

NET CHANGE IN CASH AND EQUIVALENTS                         24,287        (89,964)


CASH AND EQUIVALENTS, BEGINNING OF YEAR                    42,180        132,144

                                                      -----------    -----------
CASH AND EQUIVALENTS, END OF YEAR                     $    66,467    $    42,180
                                                      ===========    ===========`

See accompanying notes to consolidated financial statements.

---

# MEDIA
SCIENCES INTERNATIONAL, INC.
AND
SUBSIDIARIES

# CONSOLIDATED
STATEMENTS OF CASH FLOWS

(Continued)

`Year Ended June 30,
                                                      --------------------------
                                                         2003           2002
                                                      -----------    -----------


SUPPLEMENTAL CASH FLOW INFORMATION:
  Interest paid                                       $   401,982    $   413,825
                                                      ===========    ===========
  Income taxes paid                                   $     1,148    $    11,130
                                                      ===========    ===========
  Issuance of common stock as dividend payment        $   43,556     $    52,039
                                                      ===========    ===========
  Acquisition of equipment by capital leases          $      --      $    56,106
                                                      ===========    ===========

  Issuance of warrants in connection with proceeds
     received on short - term borrowings              $      --      $    43,372
                                                      ===========    ===========
  Transfer of inventory to property and equipment     $    69,260    $   119,927
                                                      ===========    ===========`

See accompanying notes to consolidated financial statements.

---

# MEDIA
SCIENCES INTERNATIONAL, INC.
AND
SUBSIDIARIES

# NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS

## NOTE 1     -   NATURE OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Nature
of the Business 
Media Sciences International, Inc. and subsidiaries,
collectively referred to as the Company, manufacture and distribute
supplies for workgroup color printers. The Companys products include solid
ink sticks and color toner cartridges. The Company distributes its products
through an international network of dealers and distributors. The Company also
sells directly to end users through programs designed to foster the supplies
business. The Company has its corporate headquarters in New Jersey and has
offices in Redmond, Washington.

Name
Change 
On April 19, 2002, the Companys shareholders approved an
amendment to its Certificate of Incorporation, changing the corporate name from
Cadapult Graphic Systems, Inc. to Media Sciences International, Inc.

Change
of Organizational Structure 
On April 19, 2002, the Companys
shareholders voted to approve a structural change by agreement between Media
Sciences International, Inc. and a newly formed, wholly owned New Jersey
corporation named Cadapult Graphic Systems, Inc.

As a result of the change in corporate  structure,  Media  Sciences  International,  Inc. is now organized
with two  operating  subsidiaries:  Media  Sciences,  Inc.  and  Cadapult  Graphic  Systems,  Inc.  Media  Sciences
International,  Inc., as a parent corporation,  does not have a present intent to engage in substantive independent
business operations.  The Company intends to conduct substantially all of its operations through subsidiaries.

Principles
of Consolidation 
The consolidated financial statements include the accounts of
Media Sciences International, Inc. and its subsidiaries. All significant
intercompany balances and transactions have been eliminated in consolidation.

Estimates
and Uncertainties 
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America,
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results, as determined
at a later date, could differ from those estimates.

Revenue
Recognition 
Revenue is recognized at the point of shipment for goods
sold, and ratably through the duration of service contracts. Deferred revenue
consists principally of billings on service contracts prior to rendering related
services.

Cash
Equivalents 
Cash equivalents include all highly liquid short-term investments
purchased with original maturities of three months or less.

Concentration
of Credit Risk 
The Company does not use any derivatives and its financial
instruments that potentially subject the Company to concentration of credit risk
consist primarily of cash and unsecured trade receivables. The Company
maintains its cash balances in financial institutions which are insured by the
Federal Deposit Insurance Corporation up to $100,000 each. At various times
during the year, such balances may have exceeded the FDIC limit.

---

# MEDIA
SCIENCES INTERNATIONAL, INC.
AND
SUBSIDIARIES

# NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS

Concentrations of credit
risk with respect to all trade receivables are considered to be limited due to
the number of customers comprising the Companys customer base. The
Company performs ongoing credit evaluations of its customers financial
condition and does not require collateral. Management feels that credit risk
beyond the established allowance at June 30, 2003, is limited.

Financial
Instruments 
Financial instruments include cash, accounts receivable,
accounts payable, accrued expenses, and short-term and long-term debt. The
amounts reported for financial instruments are considered to be reasonable
approximations of their fair values. The fair value estimates presented here in
were based on market or other information available to management. The use of
different assumptions and/or estimation methodologies could have a material
effect on the estimated fair value amounts.

Vendor
Concentrations 
Purchases in 2003 from one vendor amounted to 11% of Cost of Goods Sold.

Major
Customers 
Sales to one customer as a percentage of total sales amounted to 11% and 12% in
2003 and 2002, respectively.

Inventories 
Inventories are stated at the lower of cost or market,
with costs being determined on a first-in, first-out method. Work-in-process and
finished goods include material costs, labor costs and manufacturing overhead.
The Company evaluates its inventories periodically to identify excess,
slow-moving and obsolete inventories and assess reserve adequacy. At June 30,
2003 and 2002, no reserve was deemed necessary.

Property
and Equipment 
Property and equipment are stated at cost. The Company provides for
depreciation using straight-line and accelerated methods by charges to income at
rates based upon the recovery periods of 3 to 7 years for furniture, equipment,
automobiles, tooling and molds over the useful lives or the lease term, if
shorter, for leasehold improvements.

Goodwill and Other  Intangible  Assets 
In July 2001, the Company elected early adoption of
Statement of Financial Accounting Standards No. 141, Business
Combinations, and No. 142, Goodwill and Other Intangible
Assets (SFAS 141 and 142). See New Accounting
Pronouncements below.

As of July 1, 2001, the
Company identified those intangible assets that remain separable under the
provisions of SFAS 141 and those that are to be included in goodwill. On the
date of adoption and at least annually, SFAS 142 requires testing of goodwill
for impairment. No indications of goodwill impairment were found during fiscal
2003.

In addition, the Company
assesses long-lived assets, including intangible assets, for impairment whenever
events or circumstances indicate that the carrying value may not be fully
recoverable by comparing the carrying value to future undiscounted cash flows.
To the extent that there is impairment, analysis is performed based on several
criteria, including, but not limited to, revenue trends, discounted operating
cash flows and other operating factors to determine the impairment amount.

Advertising
Expense 
The Company accounts for advertising costs in accordance with Statement of
Position 93-7, Reporting on Advertising Costs. Advertising expenses
are deferred until first use of the advertising. Deferred advertising costs at
June 30, 2003 and 2002 totaled approximately $128,000 and $32,000, respectively.
Advertising expenses for the years ended June 30, 2003 and 2002 totaled
approximately $400,000 and $370,000, respectively.

---

# MEDIA
SCIENCES INTERNATIONAL, INC.
AND
SUBSIDIARIES

# NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS

Income
Taxes 
Deferred income taxes reflect the net tax effect of temporary differences
between financial statement carrying amounts of existing assets and liabilities
and their respective tax bases and operating loss carry forwards.

Employee
Benefit Plan 
The Company has a 401(k) savings/retirement plan for all of
its eligible employees. The plan allows for employee contributions to be matched
by the Company. Contributions made by the Company for the years ended June 30,
2003 and 2002 were $23,000 and $22,500, respectively.

Earnings
(Loss) Per Share 
Basic earnings (loss) per share is based upon net income
(loss) less preferred dividends divided by the weighted average number of common
shares outstanding during the period. Diluted earnings per share is based on the
weighted average number of shares outstanding adjusted for the incremental
shares attributable to outstanding options, dilutive securities, warrants and
other potentially dilutive securities.

Stock
Options 
The Company accounts for stock option grants using the intrinsic
value based method prescribed by APB Opinion No. 25. Since the exercise price
equaled or exceeded the estimated fair value of the underlying shares at the
date of grant, no compensation expense was recognized in 2003 and 2002 for stock
option grants. The Company provides additional proforma disclosure of the
accounting impact as if it had adopted fair value treatment (see Note 7).

Recent Accounting Pronouncements 
In November 2002, the FASB issued FASB
Interpretation (FIN) No. 45, Guarantors Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others. FIN 45 requires that a liability be recorded in the
guarantors balance sheet upon issuance of a guarantee. In addition, FIN 45
requires disclosures about the guarantees that an entity has issued, including a
rollforward of the entitys product warranty liabilities. The Company does
not expect FIN 45 to have a material impact on its financial position, results
of operations or cash flows.

In
December 2002, the FASB issued SFAS No. 148, Accounting for Stock- Based
Compensation, Transition and Disclosure. SFAS No. 148 provides alternative
methods of transition for a voluntary change to the fair value based method of
accounting for stock-based employee compensation. SFAS No. 148 also requires
that disclosures of the pro forma effect of using the fair value method of
accounting for stock-based employee compensation be displayed more prominently
and in tabular format. Additionally, SFAS No. 148 requires disclosure of the pro
forma effect in interim financial statements. The transition and annual
disclosure requirements are effective for our 2003 fiscal year. The interim
disclosure requirements are now effective. The Company does not expect the
adoption of SFAS No. 148 to have a material impact on its financial position,
results of operations or cash flows.

In
January 2003, the FASB issued FIN 46, Consolidation of Variable Interest
Entities. This Interpretation clarifies the application of Accounting
Research Bulletin No. 51, Consolidated Financial Statements, to
certain entities in which equity investors do not have the characteristics of a
controlling financial interest or do not have sufficient equity at risk for the
entity to finance its activities without additional subordinated financial
support from other parties. FIN 46 applies to variable interest entities created
after January 31, 2003, and is effective as of July 31, 2003 for variable
interest entities created prior to February 1, 2003. The Company does not expect
the adoption of FIN 46 to have a material effect on its financial position,
results of operations or cash flows.

---

# MEDIA
SCIENCES INTERNATIONAL, INC.
AND
SUBSIDIARIES

# NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS

In
April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities. This statement amends SFAS
No. 133, Accounting for Derivative Instruments and Hedging
Activities, for implementation issues related to the definition of a
derivative and other FASB projects related to financial instruments. SFAS No.
149 requires that contracts with comparable characteristics be accounted for in
a similar fashion. SFAS No. 149 applies prospectively to contracts entered into
or modified after June 30, 2003 and for hedging relationships designated after
June 30, 2003. The Company does not expect the adoption of SFAS No. 149 to have
a material effect on its financial position, results of operations or cash
flows.

In
May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity. This
statement establishes standards for how an issuer classifies and measures
certain financial instruments with characteristics of both liabilities and
equity. SFAS No. 150 requires that financial instruments within the scope of
SFAS No. 150 be classified as a liability or an asset. SFAS No. 150 is effective
for all financial instruments entered into after May 31, 2003 and otherwise, the
beginning of the first interim period after June 15, 2003. The Company does not
expect the adoption of SFAS No. 150 to have a material effect on its financial
position, results of operations or cash flows.

## NOTE
2   INVENTORIES:

Inventories are summarized as follows:

`June 30,
                                                         -----------------------
                                                            2003         2002
                                                         ----------   ----------

      Raw materials                                      $  124,429   $   85,058
      Finished goods                                        965,380    1,239,525
                                                         ----------   ----------

                                                         $1,089,809   $1,324,583
                                                         ==========   ==========`

## NOTE 3  
PROPERTY AND EQUIPMENT:

Property and equipment are summarized as follows:

`June 30,
                                                         -----------------------
                                                            2003         2002
                                                         ----------   ----------

       Equipment                                         $1,361,238   $1,606,123
       Equipment at customer location                       951,109      774,102
       Furniture and fixtures                               329,510      472,819
       Automobiles                                           52,035       91,415
       Leasehold improvements                               223,664      242,289
       Tooling and molds                                    647,751      579,699
                                                         ----------   ----------
                                                          3,565,307    3,766,447
       Less: Accumulated depreciation and amortization    2,202,573    1,987,950
                                                         ----------   ----------

                                                         $1,362,734   $1,778,497
                                                         ==========   ==========`

---

# MEDIA
SCIENCES INTERNATIONAL, INC.
AND
SUBSIDIARIES

# NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS

## NOTE
4   GOODWILL AND OTHER INTANGIBLE ASSETS:

Goodwill and other intangible assets are summarized as follows:

`Life                June 30,
                                                      --------------------------
                                          (Years)        2003            2002
                                          -------     ----------      ----------
         Goodwill                           --        $4,986,030      $4,891,421
         Other                              1-5           46,000          97,000
                                                      ----------      ----------
                                                       5,032,030       4,988,421
         Less: Accumulated amortization                  553,840         595,648
                                                      ----------      ----------

                                                      $4,478,190      $4,392,773
                                                      ==========      ==========`

Intangible
asset amortization expense for the fiscal year 2003 was $9,192. The
components of other intangible assets include a covenant not to compete
associated with an acquisition and two acquired URLs. The value of our other
intangible assets is $46,000 less accumulated amortization of $31,879 at June
30, 2003 and $97,000 less accumulated amortization of $55,793 at June 30, 2002.

During the year ended June
30, 2003, $94,608 of goodwill related to the acquisition of substantially all of
the assets of UltraHue, Inc. on December 31, 2001 was recorded, and no goodwill
was impaired or written off. As of June 30, 2003, goodwill amounted to
$4,986,030, less accumulated amortization of $521,962.

Other intangible assets are
subject to amortization. During the fiscal year 2003, the Company acquired no
additional intangible assets.

## NOTE
5   DEBT:

The Companys borrowings consisted of the following:

`June 30,
                                                         -----------------------
                                                            2003         2002
                                                         ----------   ----------
    Short-term debt:
      Revolving line-of-credit with bank                 $1,779,862   $1,688,915
      Note payable relating to acquisition of UltraHue      250,000      183,904
      Note payable to officer                               280,000      355,000
       Notes payable to investors                           200,000      535,242
      Current maturities of long-term debt                  155,256      240,975
                                                         ----------   ----------

                                                         $2,665,118   $3,004,036
                                                         ==========   ==========

    Long-term debt:
      Long-term debt, less current maturities            $  39,081    $  194,336
       Note payable to officer                             195,000          --
      Note payable to investors                            400,000          --
                                                         ----------   ----------

                                                         $ 634,081    $  194,336
                                                         ==========   ==========`

---

# MEDIA
SCIENCES INTERNATIONAL, INC.
AND
SUBSIDIARIES

# NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS

The
Company has an agreement with a bank under which it can borrow up to $3,000,000
under a revolving line-of-credit, subject to availability of collateral.
Borrowings bear interest at 1.75% over the banks base rate, are payable on
demand and are collateralized by all assets of the Company. The line-of-credit
expires on October 31, 2006.

The
note payable relating to acquisition of UltraHue, Inc. bears interest at a rate
of 13% per annum and is due on demand.

Between
August 2000 and September 2003, the Company borrowed an aggregate of $450,000
from its President. The funds were used for general corporate purposes. The debt
is structured through two notes payable. One note in the amount of $255,000
bears an interest rate of 10% per annum and is payable in monthly installments
of interest only through May 2004. The second note, in the amount of $195,000
bears an interest rate of 20% per annum and is payable in monthly installments
of interest only through May 2005.

Long-term
debt consists of notes payable to various individuals in the aggregate of
$400,000, bearing 20% interest rates, and payable in quarterly installments of
interest only through June of 2005. In addition, long-term debt includes
$195,000 payable to our President as described above, and various capital
leases, totaling $186,470. The capital leases bear interest rates of between 10%
and 14% per annum and mature through June 30, 2005 (Note 8).

During
November and December 2002, the Company borrowed an aggregate of $200,000 from
several individuals. These notes are payable during December 2003 and bear
interest at a rate of 20-23% per annum.

Long-term
debt at June 30, 2003 matures as follows:

`Year Ending June 30,
                     --------------------

                               2004                                 155,235
                               2005                                 634,081
                                                                -----------

                                                                $   789,337
                                                                ===========`

## NOTE
6   INCOME TAXES:

The components of the income tax expense (credit) are summarized as follows:

`Year Ended June 30,
                                                --------------------------
                                                    2003           2002
                                                -----------    -----------

          Current:
            Federal                             $      --      $      --
            State                                   132,573          4,330
                                                -----------    -----------
          Total Current                             132,573          4,330
                                                -----------    -----------

          Deferred:
            Federal                                 452,685       (122,000)
            State                                     --           (30,000)
                                                -----------    -----------
          Total Deferred                            452,685       (152,000)
                                                -----------    -----------

          Income Tax Expense (Credit)           $   585,258    $  (147,670)
                                                ===========    ===========`

---

# MEDIA
SCIENCES INTERNATIONAL, INC.
AND
SUBSIDIARIES

# NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS

The
Company recognizes deferred tax assets, net of applicable reserves, related to
net operating loss carry forwards and certain temporary differences. The Company
is required to recognize a future tax benefit to the extent that realization of
such benefit is more likely than not. Otherwise, a valuation allowance is
applied. At June 30, 2003, the Company believes that the more likely than
not criteria have been met, and accordingly, the Company has recorded a
deferred tax asset to recognize a future tax benefit.

The
Company has available federal net operating loss carry forwards of approximately
$3,000,000, which expire through 2022.

A
reconciliation of income tax expense (benefit) provided at the federal statutory
rate (34%) to income tax expense (benefit) is as follows:

`Year Ended June 30,
                                                       --------------------------
                                                           2003           2002
                                                       -----------    -----------

          Income tax expense (benefit) computed
            at federal statutory rate                  $   496,493    $  (129,000)
          State income taxes (net of federal benefit)       87,617        (23,000)
          Other                                              1,148          4,330
                                                       -----------    -----------

                                                       $   585,258    $  (147,670)
                                                       ===========    ===========`

Significant components of
the Companys deferred tax assets are as follows:

`Year Ended June 30,
                                                       --------------------------
                                                           2003           2002
                                                       -----------    -----------

           Net operating loss carryforwards            $ 1,200,000    $ 1,080,000
            Accruals and reserves                         (152,685)       420,000
                                                       -----------    -----------

                 Total deferred tax assets             $ 1,047,315    $ 1,500,000
                                                       ===========    ===========`

---

# MEDIA
SCIENCES INTERNATIONAL, INC.
AND
SUBSIDIARIES

# NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS

## NOTE
7   SHAREHOLDERS EQUITY:

## a)     Stock Compensation Plan:

| | The
Company has an incentive stock option (the 1998 Plan), pursuant to
which 500,000 shares of common stock have been reserved. The stock options
(which may be incentive stock options within the meaning of Section
422 of the Internal Revenue Code of 1986, as amended) entitle the holder to
purchase shares of the Companys common stock for up to ten years from the
date of grant (five years for persons owning more than 10 percent of the total
combined voting power of the Company) at a price not less than the fair market
value (110% of fair market value for persons owning more than 10% of the
combined voting power of the Company) of the common stock on the date of grant.
In general, any employee, director, officer or exclusive agent of, advisor or
consultant to, the Company or a related entity, is eligible to participate in
the Plan. The stock options are nontransferable, except upon death.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Share option activity for the Plan since July 1, 2001, follows:
| | ---------------------------------------------------------------

`Weighted
                                                                     Average
                                                Outstanding      Exercise Price
                                                -----------      --------------

             Balance at July 1, 2001                273,726          $2.03

             Year ended June 30, 2002:
                 Granted                             37,502           1.82
                 Exercised                             --             --
                 Cancelled                           (6,500)          2.26
                                                -----------          -----

             Balance at June 30, 2002               304,728           2.00

             Year ended June 30, 2003:
                 Granted                             98,401           0.57
                 Exercised                             --             --
                 Cancelled                          (64,723)          1.36
                                                -----------          -----

             Balance at June 30, 2003               338,406          $1.70
                                                ===========          =====`

---

# MEDIA
SCIENCES INTERNATIONAL, INC.
AND
SUBSIDIARIES

# NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS

| | The following table summarizes  information about  outstanding and exercisable  options at June 30,
                2003:
| | -------------------------------------------------------------------------------------------------------------------------

`Options Outstanding                             Options Exercisable
---------------------------------------------------------  ---------------------------
                                               Weighted
                                               Average
                                 Weighted      Remaining                  Weighted
Range of         Number           Average     Contractual    Number        Average
Exercise Prices  Outstanding  Exercise Price  Life-Years   Exercisable  Exercise Price
---------------  -----------  --------------  -----------  -----------  --------------

$0.43 to $0.65        94,901      $0.57          9.54         45,000        $0.54
$1.00 to $2.00       140,355       1.71          5.97        133,687         1.71
$2.01 to $4.00       103,150       2.74          6.44        103,150         2.74
                     -------       ----          ----        -------         ----
                     338,406      $1.70          7.11        281,837        $1.90
                     =======      =====          ====        =======        =====`

| | Non Plan Options:
| | -----------------

| | During the year ended June
30, 2003, the Company granted its President five-year stock options to purchase
up to 500,000 shares and are exercisable at $1.00 per share and expire in June
2008. Options to purchase 250,000 shares vested immediately and Options to
purchase an additional 250,000 shares vest ratably over the period July 1, 2003
through June 30, 2005.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | During the year ended June
30, 1999, the Company granted two employees five-year stock options to purchase
up to 100,000 shares each, which vested upon the Company attaining certain
specified milestones and are exercisable at $1.25 per share and expire in March
2004. A total of 200,000 options are vested at June 30, 2003.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In December 1999, the
Company granted two employees five year stock options to purchase up to 50,001
shares each which vested ratably over three years, and are exercisable at $1.27
per share and expire in December 2004. A total of 100,002 options are vested at
June 30, 2003.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | During the year ended June
30, 2001, the Company granted an employee five year stock options to purchase up
to 100,000 shares of which 100,000 were vested as of June 30, 2003. The options
are exercisable at $1.25 per share and expire in June 2006.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | During the year ended June
30, 2003, the Company granted five employees five-year stock options to purchase
up to 25,000 shares each, which vest on April 6, 2004 and are exercisable at
$0.50 per share.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

# MEDIA
SCIENCES INTERNATIONAL, INC.
AND
SUBSIDIARIES

# NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS

| | Proforma Disclosure:
| | --------------------

| | The Company follows the
intrinsic method of Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees (APB 25) and related interpretations in
accounting for its employee stock options because, as discussed below, Financial
Accounting Standards Board Statement No. 123, Accounting for Stock-Based
Compensation (FAS 123) requires use of option valuation models that were
not developed for use in valuing employee stock options. FAS 123 permits a
company to elect to follow the intrinsic method of APB 25 rather than the
alternative fair value accounting provided under FAS 123, but requires pro forma
net income and earnings per share disclosures as well as various other
disclosures not required under APB 123 for companies following APB 25. The
Company has adopted the disclosure provisions required under Financial
Accounting Standards Board Statement No. 148, Accounting for Stock-Based
Compensation  Transition and Disclosure (FAS 148). Under APB 25,
because the exercise price of the Companys stock options equals the market
price of the underlying stock on the date of grant, no compensation expense was
recognized.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Pro forma information
regarding net income and earnings per share is required by FAS 123 and FAS 148,
and has been determined as if the Company had accounted for its employee stock
options under the fair value method of that Statement.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The fair value of options
granted in 2003 and 2002 were estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted-average
assumptions, respectively: risk-free interest rates of 6.0%, dividend yield of
0.0%, volatility factors of the expected market price of the Companys
common stock of 74% in 2003 and 72% in 2002, and a weighted-average expected
life of the options of five years.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The Black-Scholes option
valuation model was developed for use in estimating the fair value of traded
options which have no vesting restrictions and are fully transferable. In
addition, option valuation models require the input of highly subjective input
assumptions including the expected stock price volatility. Because the
Companys employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in
managements opinion, the existing models do not necessarily provide a
reliable measure of the fair value of its employee stock options.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

# MEDIA
SCIENCES INTERNATIONAL, INC.
AND
SUBSIDIARIES

# NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS

| | For
purposes of pro forma disclosures, the estimated fair value of options is
amortized to expense over the options vesting period. The Companys
pro forma information follows:
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

`Fiscal Year Ended
                                                           June 30,
                                                       2003         2002
                                                    ---------    ---------
Net income (loss), as reported                      $ 245,391    $(859,048)

Stock-based employee compensation expense under
     fair value method, net of related tax effects  $ (64,599)   $ (21,633)
                                                    ---------    ---------
Pro forma net income (loss)                         $ 180,792    $(837,415)
                                                    =========    =========

Income/(Loss) per share:
     Basic, as reported                             $    0.07    $   (0.25)
                                                    =========    =========
     Basic, pro forma                               $    0.05    $   (0.25)
                                                    =========    =========
           Diluted per share, as reported           $    0.07    $    --
                                                    =========    =========
           Diluted per share, pro forma             $    0.05    $    --
                                                    =========    =========`

## b)     Common Stock:

| | During
the year ended June 30, 2002, the Company issued 53,558 shares of its common
stock valued at $52,039 in lieu of cash payments for dividends on its Series A
Preferred Stock.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | During
the year ended June 30, 2003, the Company issued 45,847 shares of its common
stock valued at $43,556 in lieu of cash payments for dividends on its Series A
Preferred Stock.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

## c)     Warrants:

| | In
August 1998 and February 1999, the Company issued 105,000 warrants to purchase
its common stock between $4.00-$5.00 per share in exchange for legal services
which were subsequently capitalized. The warrants, which had a value of $20,510,
using the Black-Scholes pricing model, expire through February 15, 2004.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
October 1999, the Company issued 30,000 warrants to purchase its common stock at
between $3.00 - $4.00 per share in exchange for investor relation services which
were subsequently capitalized. The warrants, which were valued at approximately
$100,000 using the Black-Scholes pricing model, were recognized as a cost of
issuance of the Series A Preferred shares and expire on September 29, 2004.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
June 2001, the Company issued 200,000 warrants to purchase its common stock at
$1.00 per share in consideration for consulting services. The warrants, which
were valued at $25,000, expire on May 31, 2006.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
June 2002, the Company issued 87,500 warrants to purchase its common stock at
$1.00 per share in connection with its notes payable. The warrants were valued
at $43,372 and expire in June 2007.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

# MEDIA
SCIENCES INTERNATIONAL, INC.
AND
SUBSIDIARIES

# NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS

## d)     Preferred Stock:

| | The
Companys Certificate of Incorporation authorizes the issuance of up to
5,000,000 shares of Preferred Stock. The Board of Directors is authorized to
issue shares of Preferred Stock from time to time in one or more series and to
establish and designate any such series and to fix the number of shares and the
relative conversion rights, voting rights, terms of redemption and liquidation.
In December 1999, the Board authorized the issuance of up to 1,000,000 shares of
Series A Preferred Stock.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On
March 10, 2000, the Company completed a private placement wherein it sold
550,000 units for $10.00 per unit representing 550,000 shares of its Series A
Preferred Stock and 1,100,000 warrants exercisable for five years to purchase
one share of common stock for $4.50 per share. Net proceeds received from the
sale totaled $4,566,549.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Dividends
on the Series A Preferred Stock accrue at a rate of 11.5% per annum and are
payable quarterly. Each Series A share was convertible at the option of the
holder at a rate of 3.077 shares of common stock for one Series A share. In
December 2001, the rate of conversion of the Class A Preferred Stock changed to
five shares of common stock for one Series A Share of Preferred. The conversion
price will adjust again in December 2003. The conversion price cannot be less
than $2.00 per share.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company has the right to call the Series A shares at $15.00 per share, at any
time. Holders have the right to convert upon receipt of the call notice.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
connection with this private placement, the placement agent received a
commission and non-accountable expense allowance equal to 13% of the proceeds of
the offering, five year warrants to purchase up to 236,500 shares of the
Companys common stock at $1.65 per share and up to 590,000 shares of the
Companys common stock at $3.75 per share. The value of the warrants was
recognized as a cost of issuance of the Series A shares.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | During
the year ended June 30, 2001, holders of 2,500 shares of Series A Preferred
Stock converted the Series A Preferred Stock into 7,692 shares of the
Companys common stock.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

## e)     Treasury Stock:

| | During
the year ended June 30, 2001, the Company purchased 10,564 shares of its common
stock, valued at $20,832, in connection with the exercise of employee stock
options.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

# MEDIA
SCIENCES INTERNATIONAL, INC.
AND
SUBSIDIARIES

# NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS

## NOTE
8   COMMITMENTS AND CONTINGENCIES:

Leases
 The Company leases its premises under lease agreements which expire
through 2011 and equipment under operating leases that expire through 2006. As
of June 30, 2003, the Companys property under capital leases, which is
included in property and equipment, has a cost of $710,873 and accumulated
depreciation of $486,798 and consists of printers placed at customer locations
and manufacturing equipment.

Future minimum lease payments are as follows:

`Capital Leases
                                                                 Included
                                                                in Property      Operating
                 Year Ending June 30,                          and Equipment      Leases
                 --------------------                          -------------    -----------

                      2004                                           198,456        467,169
                      2005                                            40,089        328,839
                      2006                                              --          309,931
                      2007                                              --          259,947
                      2008 and thereafter                                         1,018,126
                                                               -------------    -----------

         Total future minimum lease payments                         238,545     $2,384,012
                                                                                ===========
         Less: Amount representing interest                           52,075
                                                               -------------
         Present value of minimum lease payments (Note 5)            186,470
         Less:  Current maturities                                   149,001
                                                               -------------
         Non-current                                           $      37,469
                                                               =============`

Rent
expense amounted to $267,683 and $268,579 for the years ended June 30, 2003 and
2002, respectively.

Employment
Agreement On July 1, 2003, the Company entered into a five-year
employment agreement with its President for a base salary of $200,000 per annum
subject to certain adjustments.

Litigation 
The Company is a defendant in legal proceedings arising in the ordinary
course of its business activities. Although the ultimate disposition of these
proceedings is not presently determinable, management does not expect the
outcome to have a material adverse effect on the Companys financial
position.

---

# MEDIA
SCIENCES INTERNATIONAL, INC.
AND
SUBSIDIARIES

# NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS

## NOTE
9  SUPPLIER AGREEMENT:

On
May 4, 2001, the Company entered into an agreement with a supplier, whereby,
beginning May 1, 2001, the Company was required to pay $.50 per ink stick sold,
increasing to $.75 on May 1, 2002, $1.00 on May 1, 2003 and $1.50 on May 1,
2004. The present value, $884,000, of the maximum commitment under the
agreement, $1,000,000, was recorded as a liability at June 30, 2001. At June 30,
2003, the balance owed by the Company was $448,952.

## NOTE
10  RECALL AND WARRANTY EXPENSES:

Media
Sciences provides a warranty for all of its consumable supply products. The
Companys warranty stipulates that the Company will pay reasonable and
customary charges for the repair of a printer needing service as a result of
using the Companys products. The Company estimates the costs that may be
incurred and records a liability in the amount of such costs at the time product
revenue is recognized. Factors that may affect the warranty include the number
of units shipped to customers, historical and anticipated rates of warranty
claims and cost per claim. The Company periodically assesses the adequacy of its
recorded warranty liability and adjusts the amount as necessary. These expenses
are classified as Selling, General and Administrative costs.

In
January 2002, the Company recalled all solid ink products manufactured between
May 2001 and January 2002. It was discovered that the use of the Companys
solid ink sticks manufactured during that time period could cause printer
reliability issues. Management believes that it has resolved the problem. In
addition, two independent test laboratories have tested the reliability of the
Companys solid ink and have found no reliability issues associated with
the use of the Companys solid ink products.

Changes in accrued product
warranty during the years ended June 30, 2003 and 2002 are as follows:

`June 30,
                                                   2003           2002
                                                -----------    -----------

Warranty reserve at the beginning of the year   $   500,000    $   400,000

   Warranties accrued during the period           1,329,263      2,932,723
   Proceeds for product liability insurance            --        1,000,000
   Warranties settled during the period          (1,579,263)    (3,832,723)
                                                -----------    -----------
Net change in warranty reserve                  $  (250,000)   $   100,000

Warranty reserve at June 30,                    $   250,000    $   500,000
                                                ===========    ===========`

The
Company has filed a claim under its umbrella liability policy for the
unreimbursed portion of the warranty expenses. The insurance carrier has not yet
taken a coverage position on this claim.

Even
though management believes that the recall is complete, the Company will
continue to receive warranty claims associated with the recalled ink and other
warranty expenses for products sold not under the recall. While the Company
believes that the reserve should be adequate to resolve the remaining claims, it
is possible that the warranty claims may exceed the accrual, and therefore be
expensed in future periods.

---

# MEDIA
SCIENCES INTERNATIONAL, INC.
AND
SUBSIDIARIES

# NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS

## NOTE
11  EARNINGS (LOSS) PER COMMON SHARE:

Basic
earnings per common share is computed using the weighted average number of
common shares outstanding. Diluted earnings per common share is computed using
the weighted average number of shares outstanding as adjusted for the
incremental shares attributed to outstanding options and warrants to purchase
common stock , and other potentially dilutive securities.

The
following table sets forth the computation of basic and diluted earnings per
common share:

`Year Ended June 30,
                                                              -------------------------
                                                                 2003          2002
                                                              -----------   -----------
Numerator:
  Income (loss) applicable to common shareholders - basic     $   245,391   $  (859,048)
                                                              ===========   ===========

  Income (loss) applicable to common shareholders - diluted   $   245,391   $  (859,048)
                                                              ===========   ===========

Denominator:
  Denominator for basic earnings per common share:
    Weighted average shares                                     3,565,748     3,484,057

  Effect of dilutive securities -
    Conversion of preferred stock to common                          --            --
    Stock options and warrants                                      5,626          --
                                                              -----------   -----------

  Denominator for diluted earnings per common share             3,571,374     3,484,057
                                                              ===========   ===========

  Earnings (loss) per common share:
    Basic                                                          $ 0.07        $(0.25)
                                                                   ======        ======

    Diluted                                                        $ 0.07        $ --
                                                                   ======        ======`

The
conversion of the Series A convertible preferred stock has been excluded from
the computation of diluted earnings per share for the year ended June 30, 2003.
Such conversion, when taking into account the additional net income generated to
the common shareholders by the elimination of the dividend, would have been
anti-dilutive.

---

# MEDIA
SCIENCES INTERNATIONAL, INC.
AND
SUBSIDIARIES

# NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS

The
following warrants and options to purchase common stock were excluded from the
computation of diluted earnings per share for the years ended June 30, 2003
because their exercise price was greater than the average market price of the
common stock for those periods :

`Year Ended June 30,
                                                              2003       2002
                                                            --------   --------

            Anti-dilutive warrants and options              3,260,839      --
                                                            =========  ========`

## NOTE
12  RELATED PARTY TRANSACTIONS:

Occasionally,
the Company borrows funds from its President for general corporate purposes. At
June 30, 2003 and 2002 the amount due to officer was $450,000 and $355,000,
respectively (note 5).

---

## ITEM 8.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
                  AND FINANCIAL DISCLOSURE

Not applicable.

---

# PART III

## ITEM 9.    DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
           COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

## Our Management

The persons listed in the
table below are our present directors and executive officers.

`----------------  ---   ------------------------------------------------------------
Name              Age   Position
----------------  ---   ------------------------------------------------------------
Michael W. Levin   38   Chief Executive Officer, President and Chairman of the Board
Frances Blanco     42   Vice President Marketing and Investor Relations, Treasurer,
                             Secretary and Director
Duncan Huyler      42   Vice President Operations and Technical Services
Duncan Yates       33   Vice President Sales
Denise Hawkins     34   Vice President and Controller
Paul C. Baker      66   Director
Edwin Ruzinsky     70   Director
Donald Gunn        51   Director and Vice President of Media Sciences, Inc.
Henry Royer        71   Director
Sagiv Shiv         46   Director
----------------  ---   ------------------------------------------------------------`

Our directors are elected
annually to serve for one year and hold office until the next annual meeting of
the shareholders and until their successors are elected and qualified. Our Board
of Directors may increase the size of the Board of Directors. Any director who
fills a position created by the Board of Directors serves until the next annual
meeting of the shareholders. Our officers are elected by the Board of Directors
at the first meeting after each annual meeting of our shareholders, and hold
office until their death, resignation or removal from office.

## Management
Profile

Michael W. Levin, Chief Executive Officer, President and Chairman of the Board:

Michael W. Levin has served
as our Chief Executive Officer, President and Chairman of the Board since June
18, 1998. Mr. Levin serves on the compensation committee. Before June 1998, he
had served as President, Treasurer, Secretary and Chairman of Media
Sciences predecessor, Cadapult Graphic Systems Inc. (CGSI)
since 1987, when he founded CGSI while attending Lehigh University. He is
responsible for a senior management team as well as merger and acquisition
activity and corporate finance. In 2002, Mr. Levin was recognized in Business
News New Jerseys annual 40 under 40 issue, which profiles the
states outstanding business leaders under the age of 40. He also was
selected as the honorary annual fundraising chairman for the Childrens
Cancer Research Fund of New York Medical College in 1999. In 1987, Mr. Levin
graduated summa cum laude from Lehigh University, receiving a Bachelor of
Science Degree in Mechanical Engineering.

---

Frances Blanco, Vice President of Marketing and Investor Relations, Treasurer, Secretary and Director:

Frances Blanco has served
as our Vice President of Marketing and Investor Relations, Treasurer, Secretary
and a Director since June 18, 1998. From 1993 to June 18, 1998, she served as
Vice President of Marketing and Investor Relations, Treasurer, Secretary and a
director of CGSI. Blanco manages all aspects of marketing, including brand
identity, demand creation and vendor relationships for us as well as investor
relations. From 1984 through 1989, Blanco was a Reseller Account Manager at
Lotus, where she designed and implemented tactical channel programs. From August
1989 through June 1993, Blanco served as a Business Development Manager at
Tektronix, Inc., where she was responsible for the development of color printing
standards in strategic customers. She earned a Bachelor of Science degree in
Marketing from Bentley College in 1982 and a Masters of Business Administration
degree from Boston College in 1985.

Duncan Huyler, Vice President of Operations and Technical Services:

Duncan Huyler has served as
our Vice President of Operations and Technical Services since June 18, 1998.
From 1993 to June 18, 1998, he served as Vice President of Technical Services
for CGSI. Huyler manages all technical and customer service aspects for
us, as well as operational management including IT,
telecommunications, purchasing and internal controls. From May 1983 through
October 1987, Huyler served as an officer in the U.S. Army. From September 1988
through August 1993, Huyler worked for The May Department Stores Company
and Lord & Taylor, where his positions included Senior Financial Analyst and
Director of Systems. Huyler graduated from Cornell University in 1983 with a
Bachelor of Science degree in Business and earned a Masters of Business
Administration from the University of Louisville in 1987.

Duncan Yates, Vice President of Sales:

Duncan Yates has served as
Vice President of Sales since July 2000. Prior to July 2000, Yates served as the
Regional Sales Manager for Cadapult Graphic Systems, which he joined in 1993.
Yates manages all aspects of direct sales for Media Sciences value added
reseller business, including achieving quarterly revenue and gross profit
targets, developing sales plans and strategies, hiring and training sales staff,
and implementing vertical market pilot programs. Yates is also responsible for
technology reseller development. Yates is a 1992 graduate of Western Maryland
College with a Bachelor of Science degree in Political Science.

Denise Hawkins, Vice President and Controller:

Denise Hawkins has served
as Vice President for Media Sciences since February 12, 2003. Ms. Hawkins
manages the accounting aspects of the business while working closely with the
President and senior management team. She is a Certified Public Accountant and a
Certified Management Accountant. She began her employment with the company in
July of 2001 as the Controller. Ms. Hawkins graduated from the State University
of New York-The College at New Paltz with a Bachelor of Science degree in
Accountancy in 1990 and graduated from Marist College in 1998 with a Masters in
Business Administration in Finance. Prior to her position at Media Sciences, Ms.
Hawkins was the controller for NFK Excavating and Construction, Inc.(2000-2001),
Horizon Medical Group, PC (1998-2000) and VAC Service Corp.(1992-1998). She is
currently serving as the Treasurer for the Board of Helping Hands Christian
Pre-School. Ms Hawkins is affiliated with the New Jersey State Society of
Certified Public Accountants, the Institute of Management Accountants and the
Society for Human Resource Management.

Paul C. Baker, Director:

Paul C. Baker has served as
a Director since June 18, 1998. Mr. Baker is the chairman of the Compensation
committee and also serves on the audit committee. From 1986 to 2000 he was
President of Sherwood Partners, Inc., a venture capital and management
consulting company, which he founded, that focused on developing companies with
high growth potential. From 2000 to present, he has been General Partner of PCB
Associates, LLC which performs similar services. Prior to 1986, Baker held
various management positions during 25 years of employment with American
Cyanamid Co., including President of Cyanamids Shulton, Inc. subsidiary
from 1977 to 1979 and Group Vice President of Cyanamid from 1979 to1984. Baker
graduated from Lehigh University in 1959 and 1960 with degrees in Engineering
and Liberal Arts and received his MBA degree from Fairleigh Dickinson
University in 1963

---

Edwin Ruzinsky, Director:

Mr. Ruzinsky has served as a Director since August 27, 1999 and is the chairman
of the Audit committee. He is a Certified Public Accountant and a Certified
Management Consultant. Prior to his retirement on June 1, 1996 as a Partner in
Deloitte Consulting LLC, a wholly-owned subsidiary of Deloitte & Touche LLP, he
served for many years as the firm's National Director-Media Industry Services.
He previously served Times Mirror Company as Vice President of Finance &
Administration/Book Publishing Group and Parent's Magazine Enterprises, Inc. as
Chief Accounting Officer. Mr.Ruzinsky continues serving as a member of the Pace
University/Dyson School of Liberal Arts & Sciences/Master of Science in
Publishing Advisory Board. He is currently a member of the Boards of Dowden
Health Media, Inc., a provider of specialized publications and customized
communication products for healthcare professionals and consumers, and of
Gentis, Inc., engaged in the research and development of therapeutic products
for the repair and regeneration of human tissues (such as cartilage tissue and
intervertebral disc tissue) through the use of scaffolds that beneficially
affect progenitor and other cells at the site of repair or regeneration.

Donald Gunn, Director:

Donald Gunn has served as a
Director since December 23, 1999. Since December 13, 1999, he has served as Vice
President of Media Sciences, Inc. Gunn manages product development and strategic
major account relationships for Media Sciences. He founded ultraHue, Inc., a
manufacturer of ink and toner products for computer printers in March 1996. He
served as President and Chief Executive Officer of ultraHue until we acquired
ultraHue on December 13, 1999. From June 1997 to November 1998, he served as the
Western Sales Manager for Invention Machine Corporation, a Boston based provider
of software designed to aid engineers in the development of engineering
solutions. From August 1995 to May 1997, he worked as Regional Manager for the
Pacific Northwest for 3D Systems, located in Valencia, California, a company
that produces stereo lithography machines. From October 1987 to August 1995, he
worked for the Color Printer Division of Tektronix, Inc., located in
Wilsonville, Oregon, in various sales and marketing positions, including Major
Account Manager and VAR Account Manager for the Western United States. From July
1986 to October 1987, he worked as a sales manager for Silma, Inc., located in
Santa Clara, California, a company that produced software for industrial
equipment. From January 1985 to June 1986, he was the Western Area Sales Manager
for AAB Robotics, located in Fort Collins, Colorado, a company that produced
equipment for the welding industry. He received a Bachelors of Science degree in
Electrical Engineering from the University of Illinois in 1974.

Henry Royer, Director:

Henry Royer has served as a
Director since December 23, 1999. Mr. Royer serves on the
Compensation committee. From 1965 to 1983, Mr. Royer held several positions at First National Bank
of Duluth, serving as Executive Vice President/Loans when he left First
National Bank. He then joined The Merchants National Bank of Cedar Rapids, now
named US Bank Cedar Rapids, N.A., where he served as Chairman and President
until August 1994. From September 1994 through December 31, 1997, he served as
the President and Chief Executive Officer of River City Bank, Sacramento,
California. He served as an Independent Trustee of Berthel Growth & Income
Trust I from its date of inception in 1995 through February 5, 1999, when he
resigned to join Berthel Fisher & Company Planning Inc., and was elected
President of Berthel Trust in July 1999. He was elected President of Berthel
SBIC, LLC in August 1999. He currently serves as Chairman of the board of Cedar
Rapids Bank and Trust and as a member of the board of QCRH a bank holding
company. He also serves on various Boards of privately held companies. He
graduated in 1953 from Colorado College with a B.A. in Money and Banking.

Sagiv Shiv, Director:

Sagiv Shiv has served as a Director since January 21, 2003.  Dr. Shiv is a member of the audit committee.   Dr.
Shiv is currently a Managing Director at Punk Ziegel and Company, a full service investment bank, which he joined
in 2001, that provides services centered around emerging, high growth companies.  Prior to joining Punk Ziegal,
from 1999 to 2001, he worked at Ryan, Beck & Co., where he was a director.  From 1997 to 1999, he worked at
Josepthal & Co., Inc., where he was a vice president. Dr. Shiv has also served as Chief Financial Officer for
both the Plastiflex Group, an international manufacturing company, from 1993 to 1997, and The Petroglas Group, a
diversified holding company, from 1987 to 1993.  In addition, Dr. Shiv has extensive experience in international
business, international treasury management, mergers and acquisitions, and project finance.  He holds a B.Sc. and
Ph.D. Degrees in Finance and Commercial Economics from Pacific Western University.

---

## Board
Committees and Meetings

During the fiscal year that
ended on June 30, 2003, the Board of Directors held five meetings. During this
period, all of the directors serving on the Board at the time attended or
participated in more than 75% of the aggregate of the total number of meetings
of the Board of Directors.

We have an Audit Committee,
which through the review of our 2003 fiscal year financials consisted of the
following members of the Board of Directors: Edwin Ruzinsky, Paul Baker and
Sagiv Shiv. Mr. Ruzinsky is a financial expert. The function of the Audit
Committee includes reviewing internal financial information, monitoring cash
flow, budget variances and credit arrangements, reviewing the audit program of
Media Sciences, reviewing with Media Sciences independent accountants the
results of all audits upon their completion, annually selecting and recommending
independent accountants, overseeing the quarterly unaudited reporting process
and taking such other action as may be necessary to assure the adequacy and
integrity of all financial information distribution by Media Sciences. Each
member of the Audit Committee is independent as defined under the American Stock
Exchanges listing standards. The Audit Committee consists of non-employee
directors whom Media Sciences has determined are free of any relationship that
could influence their judgement as a committee member and are not associated
with a major vendor to, or a customer of, Media Sciences. The Audit Committee
met two times in connection with fiscal year 2003.

We have a Compensation
Committee, which has consisted of the following members of the Board of
Directors: Paul Baker, Henry Royer and Michael W. Levin. The function of the
Compensation Committee is to make determinations concerning salaries and
incentive compensation for our officers and employees.

Members of the Audit
Committee and Compensation Committee are selected each year by our Board of
Directors after our annual stockholders meeting. Selection to a committee
of the Board of Directors is determined by the majority vote of the Board of
Directors. The Board of Directors intends to elect incumbent directors who are
re-elected to the Board of Directors to continue to serve on the committees they
presently serve.

## Section 16(a)
Beneficial Ownership Reporting Compliance

Section 16(a) of the
Securities Exchange Act of 1934 requires Media Sciences directors and
executive officers, and persons who own more than ten percent of Media
Sciences common stock, to file with the SEC initial reports of beneficial
ownership and reports of changes in beneficial ownership of Media Sciences
common stock. Such persons are also required by SEC regulations to furnish Media
Sciences with copies of all such Section 16(a) forms they file. Based solely on
a review of the copies of such reports furnished to Media Sciences, Media
Sciences is not aware of any material delinquencies in the filing of such
reports.

---

## ITEM 10.  
EXECUTIVE COMPENSATION

## Summary
Compensation Table

The table below sets forth
information concerning the annual and long-term compensation during our last
three fiscal years of our Chief Executive Officer and all of our other officers
(Named Executive Officers).

`---------------------------  --------  --------  -----------  ----------------  ------------
                                                              Long Term
                                                              Compensation
                                    Annual Compensation       Awards
                                                              Securities
                                                              Underlying        All Other
Name and Principal Position  Year      Salary    Bonus        Options/SARS (#)  Compensation
---------------------------  --------  --------  -----------  ----------------  ------------
Michael W. Levin             2003      $150,000  $15,000 (a)  500,000 (b)       $2,593
Chief Executive Officer      2002      $150,000  $15,000 (c)        0           $2,625
and President                2001      $150,490       $0            0           $2,490

Frances Blanco               2003      $100,000  $15,000 (a)   25,000 (d)       $2,872
Vice President, Treasurer    2002      $100,000  $15,000 (c)        0           $2,787
and Secretary                2001       $90,000       $0      100,000 (e)       $2,625

Duncan Huyler                2003      $107,185   $8,000 (a)   25,000 (d)       $  888
Vice President               2002      $107,185   $8,000 (c)        0           $  223
                             2001      $105,485       $0      100,000 (e)       $2,637

Duncan Yates                 2003      $116,845  $15,000 (a)   25,000 (d)       $  938
Vice President               2002      $118,184  $15,000 (c)        0           $1,012
                             2001      $110,000  $10,000      100,000 (f)       $  938

Donald Gunn                  2003      $ 90,833  $10,000       25,000 (d)       $2,087
Vice President of            2002      $ 80,000       $0       50,001 (g)       $1,510
Media Sciences, Inc.         2001      $ 80,000       $0            0           $1,681

Denise Hawkins               2003 (h)  $ 51,731       $0            0           $  647
---------------------------  --------  --------  -----------  ----------------  ------------`

|(a) | Refers to bonus compensation, including deferred bonus of $15,000 for each of Levin, Blanco and Yates,
         and of $8,000 for Huyler.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------

|(b) | Refers to stock options granted in June 2003, pursuant to an employment agreement effective as of July
         1, 2003.  The stock options  are exercisable at $1.00 per share and expire in June 2008.  Options to
         purchase 250,000 shares vested immediately and options to purchase an additional 250,000 shares vest
         ratably over the period July 1, 2003 through June 30, 2005.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(c) | Refers to bonus compensation, including deferred bonus of $7,500 for each of Levin, Blanco and Yates,
         and of $4,000 for Huyler.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------

|(d) | On April 7, 2003, we issued to each of Duncan Huyler, Frances Blanco, Duncan Yates and Donald Gunn,
         stock options to purchase 25,000 shares of common stock.  The stock options vest on April 6, 2004 and
         are exercisable until April 5, 2008 at $0.50 per share.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(e) | Refers to stock options granted in fiscal year 1999 and reissued in fiscal year 2001.  Each of Frances
         Blanco and Duncan Huyler have five-year stock options to purchase up to 100,000 shares of common stock,
         subject to vesting only after we achieve certain corporate levels of earnings:  stock options to acquire
         25,000 shares can be exercised following the first fiscal year that our earnings before interest, taxes,
         depreciation and amortization exceed each of $500,000, $1,000,000, $1,500,000 and $2,000,000.  For each
         of Blanco and Huyler, stock options to purchase 50,000 shares vested based upon the achievements of the
         first two vesting criteria in the 2000 fiscal year, stock options to purchase an additional 25,000
         shares vested based upon the achievement of the third vesting criteria in the 2002 fiscal year, and
         stock options to purchase an additional 25,000 shares vested due to the achievement of the fourth
         vesting criteria in fiscal year ended 2003.  The exercise price is $1.25 per share.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

|(f) | Refers to stock options to purchase up to 100,000 shares of common stock, of which stock options to
         acquire 50,000 shares vested immediately and stock options to acquire an additional 50,000 shares
         subject to vesting only after we achieve certain corporate levels of earnings:  stock options to acquire
         25,000 shares can be exercised following the first fiscal year that our earnings before interest, taxes,
         depreciation and amortization exceed each of $1,500,000 and $2,000,000.  Stock options to purchase an
         additional 25,000 shares vested based upon the achievement of the first vesting criteria in the 2002
         fiscal year, and stock options to purchase an additional 25,000 shares vested based upon the achievement
         of the second vesting criteria in the 2003 fiscal year.  The exercise price is $1.25 per share.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(g) | Refers to stock options, granted in fiscal year 2000 and reissued in fiscal year 2002, to purchase
         50,001 shares of our common stock, subject to vesting over a three year period, exercisable for five
         years at $1.27 per share.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(h) | Became an officer on February 12, 3003.  Her reported fiscal year 2003 compensation covers the full
         fiscal year.
|--- | -------------------------------------------------------------------------------------------------------------------------

## Stock Option
Information

# Option
Grants in Fiscal 2003

The table below sets forth
information concerning stock options granted during the fiscal year ended June
30, 2003 to the Named Executive Officers. The percentage of total stock options
is based on 719,901 stock options granted to officers, directors, and employees
during the 2003 fiscal year.

`----------------  ----------  --------------  -----------  ----------
                  Number of
                  Securities  Percent of
                  Underlying  Total Options
                  Options     Granted to      Exercise of
                  Granted     Employees in    Base Price   Expiration
Name              (#)         Fiscal Year     ($/Sh)       Date
----------------  ----------  --------------  -----------  ----------
Michael W. Levin     500,000          69.5%         $1.00     6-30-08
Frances Blanco        25,000           3.5%         $0.50      4-5-08
Duncan Huyler         25,000           3.5%         $0.50      4-5-08
Duncan Yates          25,000           3.5%         $0.50      4-5-08
Donald Gunn           25,000           3.5%         $0.50      4-5-08
----------------  ----------  --------------  -----------  ----------`

# Option
Exercises in Fiscal 2003 and Year End Option Values

The following table sets
forth information concerning the value of unexercised stock options at June 30,
2003 for the Named Executive Officers. The dollar values of the options was
determined by multiplying the number of stock options by the difference between
the fair market value of a share of common stock underlying an option and the
exercise price of the option. Out-of-the-money options are reported as having a
dollar value of $0. The last sale price of a share of our common stock on June
27, 2003 was $0.45, as reported by AMEX.

---

`-----------------  -----------  --------  ----------------------------  --------------------------
                   Number of
                   Shares                 Number of Unexercised         Value of Unexercised
                   Acquired     Value     Securities Underlying         In-the-Money Options
Name               on Exercise  Realized  Options at Fiscal Year End    at Fiscal Year End
                                          ----------------------------  --------------------------
                                          Exercisable    Unexercisable  Exercisable  Unexercisable
-----------------  -----------  --------  -----------    -------------  -----------  -------------
Michael W. Levin             0         0      250,000          250,000           $0             $0
Frances Blanco               0         0      107,741           25,000           $0             $0
Duncan Huyler                0         0      109,265           25,000           $0             $0
Duncan Yates                 0         0      125,430           25,000           $0             $0
Donald Gunn                  0         0       50,001           25,000           $0             $0
-----------------  -----------  --------  -----------    -------------  -----------  -------------`

## Director
Compensation

We have a compensation plan
for our independent directors. Commencing fiscal year 2004, eligible outside
directors are paid $5,000 per year, payable quarterly, for attendance at regular
and special meetings and may be reimbursed for their reasonable out-of-pocket
expenses incurred in connection with their attendance at meetings of the Board
of Directors and for other expenses incurred in their capacity as directors of
Media Sciences. Outside directors are granted ten year stock options under the
incentive stock option plan to purchase 10,000 shares of common stock,
exercisable at the fair market value on the date of appointment to the Board.
Outside directors will also be granted, annually, additional stock options to
purchase 5,000 shares of common stock. Previously, eligible outside directors
were paid $3,000 per year and reimbursed for their reasonable out-of-pocket
expenses, and granted stock options to purchase 10,000 shares of common stock,
exercisable at the fair market value on the date of appointment to the Board,
and an additional stock options to purchase 5,000 shares of common stock in each
July for continued service on the Board.

## Employment
Agreement with Named Executive Officer

Michael W. Levin serves as
our Chief Executive Officer and President pursuant to a five-year employment
agreement that began as of July 1, 2003. His current annual salary for fiscal
year 2004 is to be $200,000. We granted him 500,000 five-year stock options to
purchase 500,000 shares of common stock. The exercise price for the stock
options is $1.00 per share. Stock options to purchase 250,000 shares vested
immediately and stock options to purchase an additional 250,000 shares are to
vest ratably over the period July 1, 2003 through June 30, 2005 These stock
options are cumulative and are subject to anti-dilution rights. .

He is also entitled to
receive:

|o | death benefits of $100,000;                                                                                                            
|- | ---------------------------------------------------------------------------------------------------------------------------------------
|o | a fifteen-year term life insurance policy for $2,000,000;                                                                              
|o | a luxury automobile;                                                                                                                   
|o | reimbursement for reasonable travel and other business related expenses;                                                               
|o | six weeks vacation; and                                                                                                                
|o | medical and dental insurance; and                                                                                                      
|o | participation
in any employee plan, perquisite and other benefits made available to Media
Sciences employees or management in general.

We may also award him an annual performance bonus or other bonus as determined by the Board of Directors.

---

If we undergo a
change of control, we must pay him an amount equal to 290% of his
base compensation. He has the right to terminate his employment if we undergo a
change in control. As defined in his employment agreement, a change of control
refers to:

|o | a change in our ownership or management that is required to be reported under the federal securities
         laws;
|- | -------------------------------------------------------------------------------------------------------------------

|o | the acquisition, other than directly from Media Sciences, of 25% or more of our
common stock or our voting securities by persons other than Media Sciences or
Levin;
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------

|o | a change in a majority of the current Board of Directors, excluding a Board
approved change that does not result from a proxy contest;
|- | --------------------------------------------------------------------------------------------------------------------------------------

|o | a reorganization, merger, consolidation or sale of substantially all of our
assets, after which our shareholders do not own, in the same proportion, more
than 50% of the voting power, after which a majority of the board of directors
changes, and after which a new shareholder beneficially owns 25% or more of the
voting power; or
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|o | shareholder approval of our liquidation or dissolution.
|- | -------------------------------------------------------

## Stock Option
Plan

Under our incentive stock
option plan for employees, which was adopted by our Board of Directors and
approved by our shareholders in 1998, we reserved 500,000 shares of our common
stock for issuance pursuant to exercises of incentive stock options. An
incentive stock option entitles the holder to purchase a share of our common
stock at a purchase price equal to the fair market value of the common stock on
the day of grant. As of June 30, 2003, under this stock option plan, option
holders have exercised options to purchase 35,917 shares of common stock, and we
had outstanding stock options to purchase 338,406 shares of common stock,
exercisable, subject to vesting, for five or ten years from the date of grant at
prices of $0.43 to $4.00. If we undergo a change of control, the
incentive based stock options shall vest immediately.

## Employee
Profit Sharing Plan

We have a tax-qualified
employee paired profit sharing plan sponsored by Scudder Financial Services,
Inc. This 401(k) plan covers all of our employees that have been employed for at
least six months and meet other age and eligibility requirements. Under the
401(k) plan, employees may choose to reduce their current compensation by up to
15% each year and have that amount contributed to the 401(k) plan. We make
matching contributions equal to 25% of the employees contribution. In our
discretion, we may contribute unmatched contributions. The 401(k) plan qualifies
under Section 401 of the Internal Revenue Code, so that we can deduct
contributions by employees or by us. Employee contributions to the 401(k) plan
are fully vested at all times, and our contributions, if any, vest at the rate
of 25% after two years and after two years at the rate of 25% a year until fully
vested.

---

## ITEM 11.  
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

## Security Ownership
of Certain Beneficial Owners

The table below sets forth,
as of August 25, 2003, the shares of our common stock beneficially owned by each
person known to us to be the beneficial owner of more than five percent of our
outstanding shares of common stock, except that the security ownership of
management is provided in a separate table. This information was determined in
accordance with Rule 13(d)-3 under the Securities Exchange Act of 1934, and is
based upon the information provided by the persons listed below.

All persons named in the
table have the sole voting and dispositive power with respect to common stock
beneficially owned. Beneficial ownership of shares of common stock that are
acquirable within 60 days upon the exercise or conversion of stock options,
warrants, preferred stock, or other convertible securities are listed
separately. For each person named in the table, the calculation of percent of
class gives effect to those acquirable shares.

`----------------------------------------  -------------------    -----------------   --------
                                                                 Additional Shares
Name and Address                          Amount and Nature      Acquirable Within   Percent
of Beneficial Owner                       of Beneficial Owner    60 days             of Class
----------------------------------------  -------------------    -----------------   --------

Berthel SBIC, LLC                                      82,535          848,000 (a)      21.0%
  100 Second Street SE,
  Cedar Rapids, Iowa 52407
General Conference Corp. of Seventh-Day                28,750          350,000 (b)       9.6%
Adventists
  12501 Old Columbia Pike
  Silver Springs, MD 20904
Charles C. and Charles F. Bearoff                           0          350,000 (c)       8.9%
  P.O. Box 37
  Bridgeport, PA 19405
Brookstreet Securities Corporation                          0          270,900 (d)       7.0%
  2361 Campus Drive #210
  Irvine, CA 92612
David L. Rosier                                             0          263,850 (e)       6.9%
  c/o Brookstreet Securities Corporation
  2361 Campus Drive #210
  Irvine, CA 92612
----------------------------------------  -------------------    -----------------   --------`

|(a) | Includes shares of common stock which may be acquired upon the conversion of 100,000 series A preferred
         stock shares, at an assumed conversion rate of one preferred stock share into five shares of common
         stock, the exercise of options to acquire 25,000 shares, and the exercise of warrants to acquire 323,000
         shares.  The beneficial owners of Berthel SBIC are:  Thomas J. Berthel, Chief Executive Officer and
         Chairman; Ronald O. Brendengen, Chief Financial Officer and Chief Operation Officer; Henry Royer,
         President; Leslie D. Smith, Secretary; and Julie K. Driscoll, Assistant Secretary.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(b) | Includes shares of common stock which may be acquired upon the conversion of 50,000 series A preferred
         stock shares, at an assumed conversion rate of one preferred stock share into five shares of common
         stock, and the exercise of warrants to acquire 100,000 shares.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(c) | Includes shares of common stock which may be acquired upon the conversion of 50,000 series A preferred
         stock shares, at an assumed conversion rate of one preferred stock share into five shares of common
         stock, and the exercise of warrants to acquire 100,000 shares.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(d) | Includes shares of common stock which may be acquired upon the exercise of stock options to acquire
         15,000 shares and the exercise of warrants to acquire 255,900 shares.  The beneficial owner of
         Brookstreet Securities Corporation is Stanley Brooks.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(e) | Includes shares of common stock which may be acquired upon the exercise of warrants to acquire 263,850
         shares.
|--- | -----------------------------------------------------------------------------------------------------------------------

---

## Security
Ownership of Management

The table below sets forth,
as of August 25, 2003, 2003, the shares of our common stock beneficially owned
by each of our officers and directors, and by all of our officers and directors
as a group. This information was determined in accordance with Rule 13(d)-3
under the Securities Exchange Act of 1934, and is based upon the information
provided by the persons listed below.

All persons named in the
table have the sole voting and dispositive power with respect to common stock
beneficially owned. Beneficial ownership of shares of common stock that are
acquirable within 60 days upon the exercise or conversion of stock options,
warrants, or other convertible securities are listed separately. For each person
named in the table, the calculation of percent of class gives effect to those
acquirable shares.

The address of each of the
persons named in the table is c/o Media Sciences International, Inc., 40
Boroline Road, Allendale, New Jersey 07401, except for Henry Royer whose address
is c/o Berthel SBIC, 100 Second Street SE, Cedar Rapids, Iowa 52407.

`----------------------------------------  -------------------    -----------------   --------
                                                                 Additional Shares
Name and Address                          Amount and Nature      Acquirable Within   Percent
of Beneficial Owner                       of Beneficial Owner    60 days             of Class
----------------------------------------  -------------------    -----------------   --------
Michael W. Levin                                    1,518,450         250,000  (a)      46.2%
Frances Blanco                                         40,775         107,741  (b)       4.0%
Duncan Huyler                                          40,775         109,265  (b)       4.1%
Duncan Yates                                           20,300         125,430  (b)       3.9%
Denise Hawkins                                              0           6,668  (c)       0.2%
Paul Baker                                             67,500          95,500  (d)       4.4%
Edwin Ruzinsky                                         20,000          35,000            1.5%
Donald Gunn                                            25,000          50,001  (b)       2.1%
Henry Royer                                            82,535         848,000  (e)      21.0%
Sagiv Shiv                                                  0          10,000            0.3%
----------------------------------------  -------------------    -----------------   --------
All present officers and directors
as a group (10 persons)                             1,815,335       1,637,605           66.2%
----------------------------------------  -------------------    -----------------   --------`

|(a) | Does not include stock options, scheduled to vest ratably over the period July 1, 2003 through June 30, 2005,
exercisable into 250,000 shares.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------

|(b) | Does not include stock options, scheduled to vest in April 2004, issued to each of Duncan Huyler,
         Frances Blanco, Duncan Yates and Donald Gunn, exercisable into 25,000 shares each.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(c) | Does not include stock options, scheduled to vest in July 2004, exercisable into 3,334 shares.
|--- | ----------------------------------------------------------------------------------------------

|(d) | Assumes beneficial ownership of warrants held by spouse to purchase 12,500 shares of common stock,
         expiring on June 12, 2007.
|--- | --------------------------------------------------------------------------------------------------------------------------------------

|(e) | Henry Royer's reported beneficial ownership refers to the beneficial ownership of Berthel SBIC.
|--- | -----------------------------------------------------------------------------------------------

## Changes in
Control

We do not have any arrangements that may result in a change in control.

---

## ITEM 12.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

On March 3, 1999, we issued
to each of Blanco and Huyler, pursuant to employment agreements, five-year stock
options, reissued on May 6, 2001, to purchase up to 100,000 shares of common
stock, subject to vesting only after we achieve certain corporate levels of
earnings: stock options to acquire 25,000 shares can be exercised following the
first fiscal year that our earnings before interest, taxes, depreciation and
amortization exceed each of $500,000, $1,000,000, $1,500,000 and $2,000,000. The
stock options are exercisable at $1.25 per share and expire on March 3, 2004.

On December 13, 1999,
Donald Gunn, an officer, director and controlling shareholder of ultraHue,
became Vice President of Media Sciences. Under a three year employment
agreement, we issued him stock options, reissued on December 14, 2001, to
purchase 50,001 shares of our common stock, subject to vesting on each of the
three anniversary dates of employment, exercisable for five years at $1.27 per
share. On December 23, 1999, Mr. Gunn was elected to serve on our Board of
Directors.

On July 3, 2000, we granted
Paul Baker, in connection with serving on our Board of Directors, stock options
to purchase 5,000 shares of common stock, exercisable at $2.19 per share and
expiring on July 3, 2010.

On July 3, 2000, we granted
Edwin Ruzinsky, in connection with serving on our Board of Directors, stock
options to purchase 5,000 shares of common stock, exercisable at $2.19 per share
and expiring on July 3, 2010.

On July 3, 2000, we granted
Berthel SBIC, in connection with serving on our Board of Directors through its
nominee Henry Royer, stock options to purchase 5,000 shares of common stock,
exercisable at $2.19 per share and expiring on July 3, 2010.

Pursuant to an oral
employment agreement effective as of July 2000, and as amended September 7,
2000, we issued to Duncan Yates stock options, reissued on May 6, 2001, to
purchase up to 100,000 shares of common stock, of which stock options to acquire
50,000 shares vested immediately and stock options to acquire an additional
50,000 shares are subject to vesting upon us attaining certain specified
corporate milestones. The stock options are exercisable at $1.25 per share and
expire on July 1, 2005.

On July 28, 2000, we
granted Brookstreet Securities Corporation, in connection with serving on our
Board of Directors through its nominee Stanley Brooks, stock options to purchase
10,000 shares of common stock, exercisable at $2.25 per share and expiring on
July 28, 2010.

Between August 2000 and
September 2003, we borrowed an aggregate of $450,000 from the companys
President. The funds were used for general corporate purposes. The debt is
structured through two notes payable. The first note, in the amount of $255,000,
bears an interest rate of 10% per annum and is payable in monthly installments
of interest only through May 2004. The second note, in the amount of $195,000,
bears an interest rate of 20% per annum and is payable in monthly installments
of interest only through May 2005.

On May 31, 2001, we issued
warrants to purchase up to 200,000 shares of our common stock at $1.00 per share
to Consonant Services Group in consideration for consulting services. Consonant
Services Group a joint venture of which Paul Baker, a director of Media
Sciences, is a member and the beneficial owner of 25,000 warrants issued to
Consonant Services Group. The warrants, which were valued at $25,000, based on
the value of consulting services received, expire on May 31, 2006.

On June 5, 2001, we issued
a $400,000 promissory note and warrants to purchase up to 200,000 shares of our
common stock at $1.00 per share to Consonance Services Group. The note matured
on June 5, 2003 and bore a simple interest at the rate of 12% per year. The note
was secured by a security agreement which covered all corporate assets. Two
members of this investor group were persons who bear the following relationships
with Media Sciences or with our officers and directors: Paul Baker is a director
of Media Sciences and Mitchell Baker is the son of Paul Baker. On June 5, 2003,
we repaid the $400,000 note due to the Consonance Services Group, through the
issuance of eight, $50,000 promissory notes, due on June 5, 2005 and bearing a
simple interest rate of 20%, payable quarterly, to the eight individuals
comprising the Consonance Group. These notes are unsecured.

---

On July 2, 2001, we granted
options to purchase 5,000 shares of common stock, exercisable for ten years at
$2.00 per share to each of Paul Baker, Berthel SBIC, Brookstreet Securities
Corporation, and Ed Ruzinsky in connection with their services on the Board of
Directors.

On July 16, 2001, we
granted options to purchase 10,002 shares of common stock, vesting over three
years and exercisable for ten years at $1.70 per share, to Denise Hawkins under
our employee stock option plan. On February 12, 2003 her position was made an
executive position.

On September 11, 2001, our
Board of Directors voted to offer our preferred shareholders the option to
receive payment-in-kind, through a common stock issuance at $1.10 per share, the
fair market value of our common stock on that date. On September 17, 2001,
Berthal SBIC elected to its dividend payment through the payment-in-kind,
totaling $57,500 and consisting of 52,273 shares of stock for the two periods
ending March 31, 2001 and June 30, 2001.

On December 27, 2001,
December 28, 2001 and January 11, 2002, Michael W. Levin purchased for the sum
of $10,300 an aggregate of 10,000 shares of Media Sciences common stock in the
open market at prices from $1.00 to $1.05 per share.

On May 22, 2002, Edwin
Ruzinsky purchased 10,000 shares of Media Sciences common stock for $12,180 in
the open market.

On June 14, 2002, we issued
short-term promissory notes aggregating $175,000 and warrants to purchase up to
87,500 shares of our common stock exercisable for five years at $1.00 per share
to seven note holders: Paul Levin, Frank and Edna Blanco, Nathan D. Watters,
Adam H. Watters, Mitchell Baker, Esther Baker, and Harold and Marsha Kugelman.
The notes matured in December 2002 and bore simple interest at the rate of 12%
per year. In December 2002, we repaid the $175,000 borrowed in June through cash
principal payments of $75,000 and through the issuance of new, one-year notes
aggregating $100,000 and bearing simple interest of 20%, payable quarterly. The
note holders were persons who bear the following relationships with Media
Sciences or with our officers and directors: Paul Levin is the father of Michael
W. Levin, President and Chairman of Media Sciences; Frank and Edna Blanco are
the parents of Frances Blanco, Vice President and a director of Media Sciences;
Mitchell Baker is the son of Paul Baker, a director of Media Sciences; and
Esther Baker is the wife of Paul Baker. Three of the four new note holders are
persons who bear the following relationships with Media Sciences or with our
officers and directors: Paul Levin is the father of Michael W. Levin, President
and Chairman of Media Sciences; Frank and Edna Blanco are the parents of Frances
Blanco, Vice President and a director of Media Sciences; and Mitchell Baker is
the son of Paul Baker, a director of Media Sciences. Each of Michael W. Levin,
Frances Blanco, and Paul Baker disclaims beneficial ownership of these notes and
related warrants, except that Paul Baker may be deemed the beneficial owner of
the $25,000 note and 12,500 warrants acquired by his wife as part of the
transaction.

On September 24, 2002, the
Board of Directors made a determination, based on the achievement of certain
corporate milestones in fiscal year ended 2002, that certain management
personnel are deemed vested as of June 30, 2002, with the following options:
Michael Levin, with 125,000 options exercisable at $1.375 per share; and each of
Frances Blanco, Duncan Huyler and Duncan Yates, with 25,000 options exercisable
at $1.25 per share. These options were previously granted under terms of the
respective recipients employment agreements under certain vesting
conditions in connection with the company attaining certain specified corporate
milestones. As of June 30, 2003, the Board of Directors made a determination,
based on the achievement of certain corporate milestones in fiscal year ended
2003, that certain management personnel are deemed vested as of June 30, 2003,
with additional options, as follows: each of Frances Blanco, Duncan Huyler and
Duncan Yates, with 25,000 options exercisable at $1.25 per share. These options
were previously granted under terms of the respective recipients
employment agreements under certain vesting conditions in connection with the
company attaining certain specified corporate milestones. Previously issued
options to Michael Levin, pursuant to an employment agreement effective as of
May 1, 1998, and as amended September 1, 1998, to purchase up to 500,000 shares
of common stock, subject to vesting upon Media Sciences attaining certain
specified corporate milestones based upon corporate earnings, exercisable for
five years at $1.375 per share, have expired.

---

On September 24, 2002, we
granted options to purchase 5,000 shares of common stock, exercisable for ten
years at $0.65 per share to each of Paul Baker, Berthel SBIC, and Ed Ruzinsky in
connection with their services on the Board of Directors.

In October 2002, we
borrowed $100,000 from Paul Baker, a director of Media Sciences. This loan
matures in October 2003 and carries a 23% interest rate, with interest due
monthly.

On November 19, 2002, Edwin Ruzinsky purchased 10,000 shares of Media Sciences common stock for $6,500 in the
open market.

In December 2002, we
borrowed $25,000 from Duncan Yates, an officer. This loan matures in December
2003 and carries a 23% interest rate, with interest due monthly.

The terms of the loans from
our officers, directors, and others having relationships with our officers and
directors were determined by the Board of Directors in light of our financial
condition, the terms of previous borrowings from such persons, and the terms on
which short-term loans were available from public resources. The terms of these
loans were deemed fair to the company and viewed as arms length
transactions. There are no ongoing contractual or other commitments with any of
these persons resulting from these transactions, and there is no representation
or assurances made that any of these persons will make any further loans to us.

On January 1, 2003, we
granted options to purchase 10,000 shares of common stock, exercisable for ten
years at $0.60 per share to Sagiv Shiv in connection with his services on the
Board of Directors.

On April 7, 2003, we issued
to each of Duncan Huyler, Frances Blanco, Duncan Yates and Donald Gunn, stock
options to purchase 25,000 shares of common stock. The stock options vest on
April 6, 2004 and are exercisable until April 5, 2008 at $0.50 per share.

On May 6, 2003, we granted
options to purchase 10,000 shares of common stock, exercisable for ten years at
$0.43 per share to each of Paul Baker and Ed Ruzinsky in connection with their
services on the Board of Directors.

In June 2003, pursuant to
an employment agreement effective as of July 1, 2003, we issued to Michael Levin
stock options to purchase up to 500,000 shares of common stock, exercisable at
$1.00 per share and expiring in June 2008. Options to purchase 250,000 shares
vested immediately and options to purchase an additional 250,000 shares vest
ratably over the period July 1, 2003 through June 30, 2005.

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## ITEM 13.            EXHIBITS AND REPORTS ON FORM 8-K

## Exhibits

Exhibits required to be
filed by Item 601 of Regulation SB are included in Exhibits to this Report as
follows:

`Exhibit   Description
-------   -----------

2           Agreement of Change in Corporate Structure (Incorporated by
            reference to Exhibit 2 of Quarterly Report on Form 10-QSB filed on
            May 15, 2002).
3(i)(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).
3(i)(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).
3(i)(3)     Certificate of Incorporation of Media Sciences, Inc. (Incorporated
            by reference to Exhibit 3(i)(6) of Annual Report on Form 10-KSB
            filed on September 28, 1999).
3(i)(4)     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).
3(i)(5)     Certificate of Incorporation of Cadapult Graphic Systems, Inc. (a
            New Jersey corporation) (Incorporated by reference to Exhibit
            3(i)(2) of Quarterly Report on Form 10-QSB filed on May 15, 2002).
3(i)(6)*    Certificate of Amendment of Certificate of Designation of Series A
            Preferred Stock 3(ii) By-Laws (Incorporated by reference to Exhibit
            3.2 of Quarterly Report on Form 10-QSB/A filed on September 1,
            1998).
4.1         Specimen of common stock certificate (Incorporated by reference to
            Exhibit 4.7 of Form 8-A filed on August 8, 2000).
4.2         Specimen of preferred stock certificate (Incorporated by reference
            to Exhibit 4.8 of Form 8-A filed on August 8, 2000).
4.3         1998 Incentive Plan (Incentive Stock Option Plan) (Incorporated by
            reference to Exhibit 4.1 of Annual Report on Form 10-KSB filed on
            September 28, 1999).
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         Form of Warrant Certificate for Purchasers of Units (Incorporated by
            reference to Exhibit 4.6 of Registration Statement on Form SB-2,
            Registration Number 333-91005, originally filed on November 15,
            1999).
10.1        Lease Agreement (Incorporated by reference to Exhibit 10.13 of
            Annual Report on Form 10-KSB filed on or about September 28, 2000).
10.2        Amended Employment Agreement of Michael W. Levin dated as of
            September 1, 1998 (Incorporated by reference to Exhibit 10.4 of
            Annual Report on Form 10-KSB filed on September 28, 1999).
10.3        Amended Employment Agreement of Duncan Huyler (Incorporated by
            reference to Exhibit 3.2 of Quarterly Report on Form 10-QSB filed on
            May 4, 1999).
10.4        Amended Employment Agreement of Frances Blanco (Incorporated by
            reference to Exhibit 3.3 of Quarterly Report on Form 10-QSB filed on
            May 4, 1999).
10.5        Credit and Security Agreement (Incorporated by reference to Exhibit
            3.1 of Quarterly Report on Form 10-QSB filed on or about May 4,
            1999).
10.6        Agreement with Consonant Services Group (Incorporated by reference
            to Exhibit 10.6 of Registration Statement on Form SB-2, Registration
            Number 333-83668, filed on March 4, 2002).
10.7        Form of Amended Option Agreement with Michael Levin (Incorporated by
            reference to Exhibit 10.7 of Registration Statement on Form SB-2,
            Registration Number 333-83668, filed on March 4, 2002).`

---

`10.8        Form of Amended Option Agreement with Frances Blanco (Incorporated
            by reference to Exhibit 10.8 of Registration Statement on Form SB-2,
            Registration Number 333-83668, filed on March 4, 2002).
10.9        Form of Amended Option Agreement with Duncan Huyler (Incorporated by
            reference to Exhibit 10.9 of Registration Statement on Form SB-2,
            Registration Number 333-83668, filed on March 4, 2002).
10.10       Form of Amended Option Agreement with Duncan Yates (Incorporated by
            reference to Exhibit 10.10 of Registration Statement on Form SB-2,
            Registration Number 333-83668, filed on March 4, 2002).
10.11       Form of Warrant Agreement with Consonant Services Group
            (Incorporated by reference to Exhibit 10.11 of Registration
            Statement on Form SB-2, Registration Number 333-83668, filed on
            March 4, 2002).
10.12       Form of Amended Option Agreement with Donald Gunn (Incorporated by
            reference to Exhibit 10.12 of Registration Statement on Form SB-2,
            Registration Number 333-83668, filed on March 4, 2002).
10.13       Form of Amended Option Agreement with Randy Hooker (Incorporated by
            reference to Exhibit 10.13 of Registration Statement on Form SB-2,
            Registration Number 333-83668, filed on March 4, 2002).
10.14       Form of Promissory Note issued in June 2002 (Incorporated by
            reference to Exhibit 10.14 of Annual Report on Form 10-KSB filed on
            October 15, 2002).
10.15       Form of Warrants issued in June 2002 (Incorporated by reference to
            Exhibit 10.14 of Annual Report on Form 10-KSB filed on October 15,
            2002).
10.16*      Form of Employment Agreement
10.17*      Form of Loan and Security Agreement
10.18*      Audit Committee Charter
10.19*      Compensation Committee Charter
11*         Statement Concerning Computation of Per Share Earnings is hereby
            incorporated by reference to "Financial Statements" of Part II -
            Item 7, contained in this Form 10-KSB.
21*         Subsidiaries of the Registrant
31*         Certifications Pursuant to Securities Exchange Act Rule
            13a-14(a)/15d-14(a)
32*         Certifications Pursuant to Securities Exchange Act Rule 13a-14(b)
            and 18 U.S.C. Section 1350
__________

*    Filed herewith.`

## Report on Form
8-K

Not applicable.

---

## ITEM 14.            CONTROLS AND PROCEDURES

Based on their evaluation
as of a date within 90 days of the filing date of this Annual Report on Form
10-KSB, Media Sciences principal executive officer and principal financial
officer have concluded that Media Sciences disclosure controls and
procedures as defined in Rules 13a-14(c) and 15d-14(c) under the Securities
Exchange Act of 1934 are effective to ensure that information required to be
disclosed by Media Sciences in reports that it files or submits under the
Exchange Act is recorded, processed, summarized and reported within the time
periods specified in Securities and Exchange Commission rules and forms.

There were no significant
changes in Media Sciences internal controls or in other factors that could
significantly affect these controls subsequent to the date of their evaluation
and up to the filing date of the Annual Report on Form 10-KSB. There were no
significant deficiencies or material weaknesses, and therefore there were no
corrective actions taken.

It should be noted that any
system of controls, however well designed and operated, can provide only
reasonable, and not absolute, assurance that the objectives of the system are
met. In addition, the design of any control system is based in part upon certain
assumptions about the likelihood of future events. Because of these and other
inherent limitations of control systems, there can be no assurance that any
design will succeed in achieving its stated goals under all potential future
conditions, regardless of how remote.

---

# SIGNATURES

In
accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the
registrant caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.

| | MEDIA SCIENCES INTERNATIONAL, INC.
| | ----------------------------------

| | By:      /s/ Michael W. Levin
      Michael W. Levin
      Chief Executive Officer and President
| | ------------------------------------------------------------------------------------------------

| | Dated:  September 12, 2003
| | --------------------------

In
accordance with the Exchange Act of 1934, this report has been signed below by
the following persons on behalf of the registrant and in the capacities
indicated:

|SIGNATURES | TITLE | DATE
|---------- | ----- | ----

|/s/ Michael W. LevinMichael W. Levin | Chairman of the Board, President and Chief Executive Officer | September 12, 2003
|------------------------------------ | ------------------------------------------------------------ | ------------------

|/s/ Frances BlancoFrances Blanco | Director, Vice President, Secretary and Treasurer | September 12, 2003
|-------------------------------- | ------------------------------------------------- | ------------------

|/s/ Duncan HuylerDuncan Huyler | Vice President | September 12, 2003
|------------------------------ | -------------- | ------------------

|/s/ Denise HawkinsDenise Hawkins | Vice President and Controller(Principal Financial Officer) | September 12, 2003
|-------------------------------- | ---------------------------------------------------------- | ------------------

|/s/ Paul C. BakerPaul C. Baker | Director | September 12, 2003
|------------------------------ | -------- | ------------------

|/s/ Donald GunnDonald Gunn | Director | September 12, 2003
|-------------------------- | -------- | ------------------

---