---

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

FORM 10-QSB/A(Amendment No. 2)

| | x | QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE     ACT OF 1934
| | - | -------------------------------------------------------------------------------------

For the
quarterly period ended December 31, 2004

| | o | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
| | - | ---------------------------------------------------------------

For the transition period from __________ to __________.

Commission file number: 0-21853

---

MEDIA SCIENCES INTERNATIONAL, INC.(Exact name of registrant as specified in its charter)

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

8 Allerman
Road, Oakland, NJ 07436
(Address of principal executive offices)

(201) 677-9311
(Issuer's telephone number)

40 Boroline
Road, Allendale, NJ 07401
(Former name, former address and former fiscal year, if changed since last report)

---

Check whether the issuer
(1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 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 past 90 days. Yes [ X ] No [ ]

As of February 10, 2005,
the issuer had 10,048,544 shares of common stock outstanding.

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

---

INTRODUCTORY NOTE

In this Amendment No. 2 to our
Quarterly Report on Form 10-QSB/A (the Second Amendment) for the quarter ended
December 31, 2004, we further amend the following items set forth in our Amendment No. 1
to our Quarterly Report on Form 10-QSB/A (the First Amendment) filed on July
22, 2005:

Part I. Financial Information, Item 3
        
Part II.  Other Information, Item 6

The First Amendment restated our
consolidated financial statements for the periods ended December 31, 2004 and 2003 and the
related disclosures. The following items were amended in the First Amendment as a result
of the restatement:

Part I. Financial Information, Items 1, 2 and 3
        
Part II.  Other Information, Item 6

In connection with the preparation of
the Quarterly Report on Form 10-QSB of the Company for the quarter ended March 31, 2005,
the Companys current independent registered public accounting firm brought to the
attention of the Company that certain of the Companys issued and outstanding stock
options are subject to variable plan accounting treatment under the Financial Accounting
Standards Boards Interpretation 44, Accounting for Certain Transactions
Involving Stock Compensation an Interpretation of Accounting Principles Board Opinion No.
25 (APB 25) (Issue Date 3/00). Accordingly, certain previously
unrecognized compensation expenses should have been recognized in certain of the
Companys previously issued financial statements. After reviewing the matter with its
current and former independent registered public accounting firms, the Company has
identified certain non-cash adjustments that necessitated the restatement of its financial
statements for each of the first two quarters in the fiscal year ending June 30, 2005 and
for the fiscal year ended June 30, 2004 and for the quarters within the fiscal year ended
June 30, 2004.

These non-cash adjustments reflect
variable plan accounting treatment of the affected stock options for the relevant periods,
resulting from cashless exercise provisions applicable to options held by employees and
directors. Under variable plan option accounting, non-cash compensation expense is
increased or decreased as a result of changes in the market price of the Companys
common stock. The restatement adjustment for the three and six months ended December 31,
2004 resulted in an increase (decrease) in selling, general and administrative expenses of
$(25,867) and $49,642, respectively. Net income for the three and six months ended
December 31, 2004 increased (decreased) by $13,527 and $(40,002), respectively. The
restatement adjustment for the three and six months ended December 31, 2003 resulted in an
increase in selling, general and administrative expenses of $1,384 and $111,959,
respectively. Net income for the three and six months ended December 31, 2003 increased
(decreased) by $1,341 and $(87,584), respectively. On May 10, 2005, the Board of Directors
of the Company rescinded the cashless exercise provisions for all of the Companys
outstanding option grants. Consequently, the Companys stock options will no longer
be subject to variable plan accounting treatment after the fiscal year ended June 30,
2005.

Except as discussed above, we have
not modified or updated disclosures presented in the original Quarterly Report on Form
10-QSB, filed on February 14, 2005, except as required to reflect the effects of the
restatement, in this Second Amendment. Accordingly, this Second Amendment does not reflect
events occurring after the filing of our original Form 10-QSB or modify or update those
disclosures affected by subsequent events.

Please refer to Note 2 to the
accompanying consolidated financial statements for additional information on the
restatement.

---

# MEDIA
SCIENCES INTERNATIONAL, INC.
AND
SUBSIDIARIES

# FORM 10-QSB/A
FOR THE QUARTER ENDED DECEMBER 31, 2004

# TABLE OF
CONTENTS

|           |  |                                                                                                                                         | Page
|---------- |  | --------------------------------------------------------------------------------------------------------------------------------------- | ----
|PART I.    |  | FINANCIAL INFORMATION                                                                                                                   |     
|Item 1.    |  | Financial Statements                                                                                                                    | 4   
|           |  | Condensed Consolidated Balance Sheets as of December 31, 2004 (Unaudited and Restated) and June 30, 2004 (Restated)                     | 4   
|           |  | Condensed Consolidated Statements of Operations for the Three and Six Months Ended December 31, 2004 and 2003 (Unaudited and Restated)  | 5   
|           |  | Condensed Consolidated Statement of Changes in Shareholders' Equity for the Six Months Ended December 31, 2004 (Unaudited and Restated) | 6   
|           |  | Condensed Consolidated Statements of Cash Flows for the Six Months Ended December 31, 2004 and 2003 (Unaudited and Restated)            | 7   
|           |  | Notes to Condensed Consolidated Financial Statements                                                                                    | 8   
|Item 2.    |  | Management's Discussion and Analysis of Financial Condition and Results of Operations                                                   | 15  
|Item 3.    |  | Controls and Procedures                                                                                                                 | 20  
|           |  |                                                                                                                                         |     
|           |  |                                                                                                                                         |     
|PART II.   |  | OTHER INFORMATION                                                                                                                       |     
|Item 4.    |  | Submission of Matters to a Vote of Security Holders                                                                                     | 21  
|Item 6.    |  | Exhibits                                                                                                                                | 21  
|Signatures |  |                                                                                                                                         | 22  

---

# PART I.  
FINANCIAL INFORMATION

## ITEM 1.  
FINANCIAL STATEMENTS

# MEDIA SCIENCES INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS

`ASSETS                                      December 31,       June 30,
                                  ------                                   2004 (Resteated)   2004 (Restated)
                                                                              (Unaudited)      (Notes 1 & 2)
                                                                           ----------------   --------------
CURRENT ASSETS :
    Cash                                                                      $    471,406      $    666,116
    Accounts receivable, less allowance for doubtful accounts of $35,000         2,988,244         1,626,287
    Insurance claim receivable                                                       --              500,000
    Receivable from landlord                                                        62,117              --
    Inventories                                                                  2,550,965         2,274,088
    Deferred income taxes                                                          918,694         1,222,774
    Prepaid expenses and other current assets                                      429,120           280,530
                                                                              ------------      ------------
        Total Current Assets                                                     7,420,546         6,569,795
                                                                              ------------      ------------

PROPERTY AND EQUIPMENT, NET                                                      1,169,658         1,072,186
                                                                              ------------      ------------

OTHER ASSETS:
    Goodwill and other intangible assets, net                                    4,465,284         4,468,973
    Other assets                                                                    69,858            48,100
                                                                              ------------      ------------

                                                                                 4,535,142         4,517,073
                                                                              ------------      ------------

TOTAL ASSETS                                                                  $ 13,125,346      $ 12,159,054
                                                                              ============      ============

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

CURRENT LIABILITIES:
    Bank debt                                                                 $  3,000,000      $  2,189,054
    Short-term debt and current maturities of long-term debt                        17,625            39,081
    Accounts payable                                                             1,488,485         2,511,117
    Accrued expenses and other current liabilities                                 363,360           248,580
    Income taxes payable                                                            82,209            92,651
    Accrued product warranty                                                       339,382           340,592
    Deferred revenue                                                               512,011           153,273
                                                                              ------------      ------------
        Total Current Liabilities                                                5,803,072         5,574,348
                                                                              ------------      ------------

OTHER LIABILITIES :
    Deferred tax liabilities                                                       543,880           543,880
                                                                              ------------      ------------
        Total Other Liabilities                                                    543,880           543,880
                                                                              ------------      ------------

TOTAL LIABILITIES                                                                6,346,952         6,118,228
                                                                              ------------      ------------

COMMITMENTS AND CONTINGENCIES

SHAREHOLDERS' EQUITY :
    Common Stock, $0.001 par value;
       Authorized 20,000,000 shares; issued 10,032,710 shares in December,
       9,857,210 shares in June                                                     10,034             9,858
    Additional paid-in capital                                                   8,085,115         7,837,948
    Cost of 10,564 shares of common stock in treasury                              (20,832)          (20,832)
    Accumulated deficit                                                         (1,295,923)       (1,786,148)
                                                                              ------------      ------------
TOTAL SHAREHOLDERS' EQUITY                                                       6,778,394         6,040,826
                                                                              ------------      ------------

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                                    $ 13,125,346      $ 12,159,054
                                                                              ============      ============`

See accompanying notes
to condensed consolidated financial statements.

---

# MEDIA
SCIENCES INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)

`Three Months Ended            Six Months Ended
                                                           December 31,                 December 31,
                                                        2004          2003           2004          2003
                                                    (Restated)    (Restated)     (Restated)    (Restated)
                                                    -----------   -----------    -----------   -----------

NET SALES                                           $ 5,107,492   $ 4,417,483    $ 9,959,361   $ 8,033,001
                                                    -----------   -----------    -----------   -----------

COST OF GOODS SOLD:
    Cost of goods sold, excluding depreciation        2,565,782     2,132,869      5,065,394     3,747,507
    Depreciation                                         70,897       139,662        134,216       284,817
                                                    -----------   -----------    -----------   -----------

        Total cost of goods sold                      2,636,679     2,272,531      5,199,610     4,032,324
                                                    -----------   -----------    -----------   -----------

GROSS PROFIT                                          2,470,813     2,144,952      4,759,751     4,000,677
                                                    -----------   -----------    -----------   -----------

OTHER COSTS AND EXPENSES:
    Selling, general and administrative,
        excluding depreciation and amortization
        and impact of variable plan accounting        1,920,820     1,478,072      3,644,983     2,788,823
    Depreciation and amortization                        59,121        67,139        125,670       129,586
    Impact of variable plan accounting                  (25,867)        1,384         49,642       114,959
                                                    -----------   -----------    -----------   -----------
        Total other costs and expenses                1,954,074     1,546,595      3,820,295     3,030,368
                                                    -----------   -----------    -----------   -----------

INCOME FROM OPERATIONS                                  516,739       598,357        939,456       970,309

INTEREST EXPENSE                                         52,865        93,900        105,386       201,208
                                                    -----------   -----------    -----------   -----------

INCOME BEFORE INCOME TAXES                              463,874       504,457        834,070       769,101

PROVISION FOR INCOME TAXES:                             187,542       199,746        343,845       328,050
                                                    -----------   -----------    -----------   -----------

NET INCOME                                              276,332       304,711        490,225       441,051

PREFERRED STOCK DIVIDENDS AND CHARGE FOR
INDUCED CONVERSION                                         --       1,913,824           --       2,071,230
                                                    -----------   -----------    -----------   -----------

NET INCOME (LOSS) APPLICABLE TO COMMON
SHAREHOLDERS                                        $   276,332   $(1,609,113)   $   490,225   $(1,630,179)
                                                    ===========   ===========    ===========   ===========

BASIC WEIGHTED AVERAGE COMMON SHARES OUTSTANDING      9,937,043     3,577,210      9,925,916     3,577,210
                                                    ===========   ===========    ===========   ===========

DILUTED WEIGHTED AVERAGE COMMON SHARES OUTSTANDING   10,361,754     3,577,210     10,409,873     3,577,210
                                                    ===========   ===========    ===========   ===========

BASIC AND DILUTED NET INCOME (LOSS) PER SHARE
APPLICABLE TO COMMON SHAREHOLDERS                   $      0.03   $     (0.45)   $      0.05   $     (0.46)
                                                    ===========   ===========    ===========   ===========`

See accompanying notes
to condensed consolidated financial statements.

---

# MEDIA
SCIENCES INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY
SIX MONTHS
ENDED DECEMBER 31, 2004 (Restated)
(UNAUDITED)

`Additional                                  Total
                                                  Common Stock         Paid-in     Treasury    Accumulated    Shareholders'
                                              ---------------------
                                                Shares      Amount      Capital      Stock       Deficit        Equity
                                              ----------   --------   ----------   ---------   -----------    -------------

BALANCES, JUNE 30, 2004 (RESTATED)             9,857,210   $  9,858   $7,837,948   $ (20,832)  $(1,786,148)   $   6,040,826

   Issuance of common stock for exercise of
      stock warrants                              75,000         75       74,925        --            --             75,000
   Issuance of common stock for exercise of
      stock options                              100,500        101      122,600        --            --            122,701
   Impact of variable plan accounting               --         --         49,642        --            --             49,642
   Net income                                       --         --           --          --         490,225          490,225
                                              ----------   --------   ----------   ---------   -----------    -------------
BALANCES, DECEMBER 31, 2004 (RESTATED)        10,032,710   $ 10,034   $8,085,115   $ (20,832)  $(1,295,923)   $   6,778,394
                                              ==========   ========   ==========   =========   ===========    =============`

See accompanying notes
to condensed consolidated financial statements.

---

# MEDIA SCIENCES INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

`Six Months Ended
                                                                           December 31, 2004
                                                                          2004           2003
                                                                       (Restated)     (Restated)
                                                                       -----------    -----------
CASH FLOWS FROM OPERATING ACTIVITIES :
    Net income                                                         $   490,225    $   441,051
    Adjustments to reconcile net income to net cash
      provided by (used in) operating activities:
         Depreciation and amortization                                     259,886        414,403
         Impact of variable plan accounting                                 49,642        111,959
         Deferred income taxes                                             304,080        248,761
         Provision for bad debts                                             3,461         23,989
         Changes in operating assets and liabilities :
             Accounts receivable                                        (1,365,418)      (431,882)
             Insurance claim receivable                                    500,000           --
             Receivable from landlord                                      (62,117)          --
             Inventories                                                  (276,877)      (403,245)
             Prepaid expenses and other current assets                    (148,590)        52,286
             Other assets                                                  (21,758)       (83,620)
             Accounts payable                                           (1,022,632)       131,057
             Income taxes payable                                          (10,442)          --
             Accrued expenses and other current liabilities                113,570        (63,851)
             Accrued expense - supplier                                       --         (234,289)
             Deferred revenue                                              358,738        (54,432)
                                                                       -----------    -----------
                 Net cash provided by (used in) operating activities      (828,232)       152,187
                                                                       -----------    -----------

CASH FLOWS FROM INVESTING ACTIVITIES :
    Purchases of property and equipment                                   (353,669)      (102,610)
                                                                       -----------    -----------
                 Net cash used in investing activities                    (353,669)      (102,610)
                                                                       -----------    -----------

CASH FLOWS FROM FINANCING ACTIVITIES :
    Bank line of credit, net                                             1,210,946        278,927
    Bank term loan payments                                               (400,000)       (82,416)
    Payments of debt                                                       (21,456)       (21,456)
    Net repayments to officer                                                 --          (25,000)
    Repayments, loans from investors                                          --         (200,000)

    Proceeds from issuance of common stock, net                            197,701           --
                                                                       -----------    -----------
                 Net cash provided by (used in) financing activities       987,191        (49,945)
                                                                       -----------    -----------

NET DECREASE IN CASH                                                      (194,710)          (368)

CASH, BEGINNING OF PERIOD                                                  666,116         66,467
                                                                       -----------    -----------

CASH, END OF PERIOD                                                    $   471,406    $    66,099
                                                                       ===========    ===========

SUPPLEMENTAL CASH FLOW INFORMATION :
    Interest paid                                                      $    97,385    $   217,589
                                                                       ===========    ===========
    Issuance of common stock as dividend payment                       $      --      $   704,950
                                                                       ===========    ===========
    Income taxes paid                                                  $    52,775    $     8,626
                                                                       ===========    ===========
    Issuance of common stock for accrued interest on dividends         $      --      $    11,851
                                                                       ===========    ===========
    Conversion of preferred stock to common stock                      $      --      $ 2,856,485
                                                                       ===========    ===========
    Induced conversion of preferred stock                              $      --      $ 1,913,824
                                                                       ===========    ===========`

See accompanying notes
to condensed consolidated financial statements.

---

# MEDIA
SCIENCES INTERNATIONAL, INC. AND SUBSIDIARIES

# NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

## NOTE 1 
BASIS OF PRESENTATION :

Our accounting and reporting policies
conform to accounting principles generally accepted in the United States of America. The
condensed consolidated financial statements presented herein are unaudited but reflect all
adjustments which, in our opinion, are necessary for the fair presentation of the
consolidated financial position, results of operations and cash flows for the interim
periods presented. All adjustments reflected in the interim consolidated financial
statements are of a normal recurring nature. You should read these condensed consolidated
financial statements in conjunction with the consolidated financial statements and notes
thereto and the report of our independent registered public accounting firm included in
our Annual Report on Form 10-KSB/A for the year ended June 30, 2004 and in conjunction
with the information set forth in our Form 8-K filed on May 11, 2005. The year-end
consolidated balance sheet data was derived from audited financial statements and includes
adjustments as required in Note 2 below, but does not include all disclosures required by
accounting principles generally accepted in the United States of America. The results of
operations for the three and six months ended December 31, 2004 are not necessarily
indicative of the results to be expected for the full year.

## NOTE 2 
RESTATEMENT OF FINANCIAL STATEMENTS :

In connection with the preparation of
the Quarterly Report on Form 10-QSB of the Company for the quarter ended March 31, 2005,
the Companys current independent registered public accounting firm brought to the
attention of the Company that certain of the Companys issued and outstanding stock
options are subject to variable plan accounting treatment under the Financial Accounting
Standards Boards Interpretation 44, Accounting for Certain Transactions
Involving Stock Compensation an Interpretation of Accounting Principles Board Opinion No.
25 (APB 25) (Issue Date 3/00). Accordingly, certain previously
unrecognized compensation expenses should have been recognized in certain of the
Companys previously issued financial statements. After reviewing the matter with its
current and former independent registered public accounting firms, the Company has
identified certain non-cash adjustments that necessitate the restatement of its financial
statements for each of the first two quarters in the fiscal year ending June 30, 2005 and
for the fiscal year ended June 30, 2004 and for the quarters within the fiscal year ended
June 30, 2004.

These non-cash adjustments reflect
variable plan accounting treatment of the affected stock options for the relevant periods,
resulting from cashless exercise provisions applicable to options held by employees and
directors. Under variable plan option accounting, non-cash compensation expense is
increased or decreased as a result of changes in the market price of the Companys
common stock. The restatement adjustment for the three and six months ended December 31,
2004 resulted in an increase (decrease) in selling, general and administrative expenses of
$(25,867) and $49,642, respectively. Net income for the three and six months ended
December 31, 2004 increased (decreased) by $13,527 and $(40,002), respectively. The
restatement adjustment for the three and six months ended December 31, 2003 resulted in an
increase in selling, general and administrative expenses of $1,384 and $111,959,
respectively. Net income for the three and six months ended December 31, 2003 increased
(decreased) by $1,341 and $(87,584), respectively. On May 10, 2005, the Board of Directors
of the Company rescinded the cashless exercise provisions for all of the Companys
outstanding option grants. Consequently, the Companys stock options will no longer
be subject to variable plan accounting treatment after the fiscal year ended June 30,
2005.

## NOTE 3 
NATURE OF BUSINESS :

We are engaged in the
business of manufacturing and distributing supplies for workgroup or business
color printers. Our products include solid ink sticks, color toner cartridges
and other consumable items. We distribute our products through an international
network of dealers and distributors. We also sell directly to end-users through
programs designed to foster our supplies business.

---

# MEDIA
SCIENCES INTERNATIONAL, INC. AND SUBSIDIARIES

# NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

## NOTE 4 
STOCK-BASED COMPENSATION :

The Company follows the intrinsic
value 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. Financial Accounting Standards Board Statement No. 123
Accounting for Stock-Based Compensation (SFAS 123) permits the
Company to elect to follow the intrinsic value method of APB 25 rather than the
alternative fair value accounting provided under SFAS 123, but requires pro forma net
income and earnings per share disclosures as well as various other disclosures. As a
result of amendments to SFAS 123, the Company will be required to expense employee stock
options over the vesting period beginning with its quarter ending September 30, 2006. The
Company has also adopted the disclosure provisions required under Financial Accounting
Standards Board Statement No. 148, Accounting for Stock-Based Compensation 
Transition and Disclosure (SFAS 148). Under APB 25, because the exercise
price of all of the Companys stock options has equaled the market price of the
underlying stock on the date of grant, no compensation expense was recognized as of that
date.

The Company, its Audit Committee and
its current and former independent registered public accounting firms have agreed that
certain of the Companys issued and outstanding stock options that permit cashless
exercise should be subject to variable plan accounting treatment under applicable
accounting standards, and, accordingly, previously unrecognized compensation expenses
should have been recognized in certain of the Companys previously issued financial
statements under the Financial Accounting Standards Boards Interpretation 44,
Accounting for Certain Transactions Involving Stock Compensation an Interpretation
of APB No. 25 (Issue Date 3/00). Accordingly, management will restate the
Companys financial statements for the first two quarters of the fiscal year ending
June 30, 2005 and for the fiscal year ended June 30, 2004, and for the quarters within the
fiscal year ended June 30, 2004.

Pro forma information regarding net
income (loss) and income (loss) per share applicable to common shareholders is required by
SFAS 123 and SFAS 148, and has been determined as if the Company had accounted for its
employee stock options under the fair value method of those statements.

The fair value of options granted in
2005 and 2004 were estimated at the date of grant using a Black-Scholes option pricing
model with the following weighted-average assumptions, respectively:

`Three and Six Months Ended
                                                                December 31,
                                                           2004             2003
                                                         -------------------------
Risk-free interest rate                                      4%               6%
Dividend yield                                              0.0%             0.0%
Expected common stock market price volatility factor         9%              74%
Expected life of stock options                            10 years        10 years`

---

# MEDIA
SCIENCES INTERNATIONAL, INC. AND SUBSIDIARIES

# NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

## NOTE 4 
STOCK-BASED COMPENSATION (CONTINUED) :

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

`Three Months Ended             Six Months Ended
                                                         December 31,                  December 31,
                                                     2004           2003           2004           2003
                                                  (Restated)     (Restated)     (Restated)     (Restated)
                                                  -----------    -----------    -----------    -----------
Net income as reported                            $   276,332    $   304,711    $   490,225    $   441,051
   Less preferred stock dividends                        --        1,913,824           --        2,071,230
                                                  -----------    -----------    -----------    -----------
Income (loss) applicable to common shareholders       276,332     (1,609,113)       490,225     (1,630,179)

Impact of variable plan accounting, net of
    related tax effects                               (13,527)        (1,341)        40,002         87,584
Stock-based employee compensation expense
    under fair value method, net of related
    tax effects                                       (24,728)       (19,006)       (41,474)       (27,937)
                                                  -----------    -----------    -----------    -----------

Pro forma net income (loss)                       $   238,077    $(1,629,460)   $   488,753    $(1,570,532)
                                                  ===========    ===========    ===========    ===========

Net income (loss) per share applicable to common
shareholders :
        Basic and diluted, as reported            $      0.03    $     (0.45)   $      0.05    $     (0.46)
                                                  ===========    ===========    ===========    ===========
        Basic and diluted, pro forma              $      0.02    $     (0.46)   $      0.05    $     (0.44)
                                                  ===========    ===========    ===========    ===========`

## NOTE 5 
BANK DEBT :

We have an agreement with a
lender enabling us to borrow up to $3 million under a revolving line of credit.
Borrowings bear interest at 0.75% over the lenders base rate, are payable
on demand and are collateralized by all of the assets of the Company. As of
December 31, 2004, $3 million was outstanding under this line and included in
the bank debt in the accompanying condensed consolidated balance sheet. As such,
the credit line at December 31, 2004 was fully utilized. The interest rate was
6%. The line of credit expires on November 30, 2006.

---

# MEDIA
SCIENCES INTERNATIONAL, INC. AND SUBSIDIARIES

# NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

## NOTE 6 
INCOME (LOSS) PER SHARE :

Basic income (loss) per
share is computed using the weighted average number of shares outstanding.
Diluted income (loss) per common share is computed using the weighted average
number of shares outstanding adjusted for the incremental dilutive 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 income (loss)
per share :

`Three Months Ended            Six Months Ended
                                                  December 31,                 December 31,
                                               2004          2003           2004          2003
                                            (Restated)    (Restated)     (Restated)    (Restated)
                                            -----------   -----------    -----------   -----------

Numerator :
  Income (loss) applicable to
      common shareholders                   $   276,332   $(1,609,113)   $   490,225   $(1,630,179)
                                            ===========   ===========    ===========   ===========

Denominator :
  Denominator for basic income (loss)
      per share :
      Weighted average shares                 9,937,043     3,577,210      9,925,916     3,577,210
  Effect of dilutive securities -
      stock options and warrants                424,711          --          483,957          --
                                            -----------   -----------    -----------   -----------

  Denominator for diluted income (loss)
      per share                              10,361,754     3,577,210     10,409,873     3,577,210
                                            ===========   ===========    ===========   ===========

  Income (loss) per share :
     Basic and diluted                      $      0.03   $     (0.45)   $      0.05   $     (0.46)
                                            ===========   ===========    ===========   ===========`

The following warrants and
options to purchase common stock were excluded from the computation of diluted
income (loss) per share for the three and six months ended December 31, 2004
because they were anti-dilutive for those periods:

`Three Months Ended            Six Months Ended
                                                             December 31,                 December 31,
                                                          2004          2003           2004          2003
                                                       -----------   -----------    -----------   -----------

                Anti-dilutive warrants and options         985,652          --          745,152          --
                                                       ===========   ===========    ===========   ===========`

The conversion of the Class
A convertible preferred stock has been excluded from the computation of diluted
earnings per share for the three and six months ended December 31, 2003 (no
shares of Class A convertible preferred stock were outstanding the six months
ended December 31, 2004.) Such conversion, when taking into account the
additional income applicable to common shareholders generated by the elimination
of the dividend, would be anti-dilutive.

---

# MEDIA
SCIENCES INTERNATIONAL, INC. AND SUBSIDIARIES

# NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

## NOTE 7  WARRANTY EXPENSES :

The Company provides a warranty for
all of its consumable supply products and for its INKlusive printer program. 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.

Changes in accrued product
warranty for the three and six months ended December 31, 2004 and 2003 are as
follows:

`Three Months Ended        Six Months Ended
                                                       December 31,              December 31,
                                                    2004         2003         2004         2003
                                                  ---------    ---------    ---------    ---------

Warranty reserve at the beginning of the period   $ 339,247    $ 250,000    $ 340,592    $ 250,000
                                                  ---------    ---------    ---------    ---------

       Warranties accrued during the period         281,194      280,000      575,472      580,000
       Warranties settled during the period        (281,059)    (280,000)    (576,682)    (580,000)
                                                  ---------    ---------    ---------    ---------
Net change in warranty reserve                          135         --         (1,210)        --
                                                  ---------    ---------    ---------    ---------

Warranty reserve at December 31                   $ 339,382    $ 250,000    $ 339,382    $ 250,000
                                                  =========    =========    =========    =========`

## NOTE 8 
ENGINEERING AND PRODUCT DEVELOPMENT EXPENSES :

Engineering and product
development costs, which consist of salary and related benefits costs of our
technical staff, as well as product development costs, including conceptual
formulation, design and testing of product alternatives, and construction of
prototypes, are expensed as incurred. For the three months ended December 31,
2004 and 2003, engineering and product development costs were $121,242 and
$94,268, respectively. For the six months ended December 31, 2004 and 2003,
engineering and product development costs were $227,711 and $102,268,
respectively.

## NOTE 9 
ADVERTISING EXPENSES :

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 December 31, 2004 and 2003
totaled $55,500 and $9,667, respectively. Advertising expense for the three
months ended December 31, 2004 and 2003 amounted to $231,038 and $152,928,
respectively. Advertising expense for the six months ended December 31, 2004 and
2003 amounted to $446,618 and $257,285, respectively.

---

# MEDIA
SCIENCES INTERNATIONAL, INC. AND SUBSIDIARIES

# NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

## NOTE 10 
HEADQUARTERS FACILITY MOVE :

On September 30, 2004, we entered
into a lease agreement, effective October 1, 2004, for office facilities located
at 8 Allerman Road, Oakland, New Jersey. We commenced using the premises in
February 2005 as our corporate headquarters, and for warehouse and manufacturing
purposes. The lease is for a term of five years, at an annual rate of $296,318.

On January 20, 2005, we
entered into a sublease agreement with Dynamic Imaging,
Inc. (Dynamic). Pursuant to the sublease agreement, we agreed to
sublease to Dynamic our leased premises at 40 Boroline Road, Allendale, New
Jersey, 07401, at a yearly rent of $177,100. The sublease is for a term of six
years and three months commencing March 1, 2005 and expiring on May 30, 2011,
the expiration date of our lease. In addition, we have provided the tenant with
four months of rent at no charge. Our current annual rent for 40 Boroline Road
is $184,800 and will increase to $209,440 effective June 2006. The present value
of the loss due to the discontinued use of the facility including the rent
differential between the lease and the sublease, rental commissions and
write-down of certain leasehold improvements will be recorded as a one-time
charge in our quarter ending March 31, 2005.

In connection with the
move, we anticipate moving expenses of approximately $100,000 and capital
expenditures of approximately $300,000. The capital expenditures include
leasehold improvements and additional equipment to support our expanded
manufacturing capabilities.

For the six months ended
December 31, 2004, we incurred approximately $25,000 of moving expenses. The
balance will be incurred in our quarter ending March 31, 2005. In addition,
substantially all of the capital expenditures will be made during our quarter
ending March 31, 2005.

---

# MEDIA
SCIENCES INTERNATIONAL, INC. AND SUBSIDIARIES

# NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

## NOTE
11  SEGMENT INFORMATION:

The Company has adopted the
provisions of Statements of Financial Accounting Standards No. 131,
Disclosures about Segments of an Enterprise and Related Information
(SFAS 131). Pursuant to the provisions of SFAS 131, the Company is
reporting segment sales, cost of goods sold, gross margins and operating income
in the same format reviewed by the Companys chief operating decision maker
(the management approach). The Company has two reporting segments:
Media Sciences and Cadapult. The Media Sciences segment
is comprised of the operations connected with manufacturing and distributing
color printer supplies, including ink sticks and toner cartridges through
distributors. The Cadapult segment is comprised of selling supplies, including
Media Sciences supplies, directly to certain end users and the sale and support
of other computer graphics systems.

The Company assesses and
measures segment operating results based on operating income. Asset information
is not reported since the Company does not use this measure to assess
performance. Net sales, cost of goods sold and other related segment information
follows:

`Three Months Ended             Six Months Ended
                                              December 31,                  December 31,
                                         2004           2003           2004           2003
                                      (Restated)     (Restated)     (Restated)     (Restated)
                                      -----------    -----------    -----------    -----------
Net sales:
     Media Sciences                   $ 4,380,848    $ 3,198,016    $ 8,507,347    $ 6,086,292
     Cadapult                             809,692      1,354,600      1,639,007      2,217,510
     Elimination                          (83,048)      (135,133)      (186,993)      (270,801)
                                      -----------    -----------    -----------    -----------
          Totals                      $ 5,107,492    $ 4,417,483    $ 9,959,361    $ 8,033,001
                                      ===========    ===========    ===========    ===========

Cost of goods sold:
     Media Sciences                   $ 2,210,534    $ 1,519,726    $ 4,319,884    $ 2,877,544
     Cadapult                             510,731        879,376      1,060,846      1,434,495
     Elimination                          (84,586)      (126,571)      (181,120)      (279,715)
                                      -----------    -----------    -----------    -----------
          Totals                      $ 2,636,679    $ 2,272,531    $ 5,199,610    $ 4,032,324
                                      ===========    ===========    ===========    ===========

Gross profit:
     Media Sciences                   $ 2,170,314    $ 1,678,290    $ 4,187,463    $ 3,208,748
     Cadapult                             298,961        475,224        578,161        783,015
     Elimination                            1,538         (8,562)        (5,873)         8,914
                                      -----------    -----------    -----------    -----------
          Totals                      $ 2,470,813    $ 2,144,952    $ 4,759,751    $ 4,000,677
                                      ===========    ===========    ===========    ===========

Selling, general, administrative
and other expenses:
     Media Sciences                   $ 1,729,388    $ 1,268,598    $ 3,366,910    $ 2,392,267
     Cadapult                             224,686        277,997        453,385        638,101
     Elimination                             --             --             --             --
                                      -----------    -----------    -----------    -----------
          Totals                      $ 1,954,074    $ 1,546,595    $ 3,820,295    $ 3,030,368
                                      ===========    ===========    ===========    ===========

Income from operations:
     Media Sciences                   $   440,926    $   409,692    $   820,553    $   816,481
     Cadapult                              74,275        197,227        124,776        144,914
     Elimination                            1,538         (8,562)        (5,873)         8,914
                                      -----------    -----------    -----------    -----------
          Totals                      $   516,739    $   598,357    $   939,456    $   970,309
                                      ===========    ===========    ===========    ===========

Reconciliation to consolidated net
income:
     Segment income from operations   $   516,739    $   598,357    $   939,456    $   970,309
     Non-operating items                  (52,865)       (93,900)      (105,386)      (201,208)
     Income taxes                        (187,542)      (199,746)      (343,845)      (328,050)
                                      -----------    -----------    -----------    -----------
     Net income                       $   276,332    $   304,711    $   490,225    $   441,051
                                      ===========    ===========    ===========    ===========`

---

## ITEM 2.  
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
                  RESULTS OF OPERATIONS

You should read the following
discussion and analysis in conjunction with the information set forth in the unaudited
financial statements and notes thereto, included elsewhere herein, and the audited
financial statements and the notes thereto, included in our Form 10-KSB/A for the year
ended June 30, 2004, filed September 28, 2004, which Form 10-KSB will be amended pursuant
to Note 2 of the Notes to Condensed Consolidated Financial Statements and the information
set forth in our Form 8-K filed on May 11, 2005. As explained in Note 2 of the Notes to
Condensed Consolidated Financial Statements, certain amounts in the condensed consolidated
financial statements as of and for the three and six months ended December 31, 2003 have
been restated to reflect the effects of variable plan accounting for certain stock
options.

## RECENT
ACCOUNTING PRONOUNCEMENTS :

In December 2004, the FASB issued
SFAS No. 123(R) (revised 2004), Share-Based Payment, which amends FASB
Statement No. 123 and will be effective for public companies for us for the fiscal year
ending June 30, 2007. The new standard will require us to expense employee stock options
and other share-based payments over the vesting period. The FASB believes the use of a
binomial lattice model for option valuation is capable of more fully reflecting certain
characteristics of employee share options compared to the Black-Scholes options pricing
model. The new standard may be adopted in one of three ways  the modified
prospective transition method, a variation of the modified prospective transition method
or the modified retrospective transition method. We are currently evaluating how we will
adopt the standard and evaluating the effect that the adoption of SFAS 123(R) will have on
our financial position and results of operations.

In November 2004, the FASB
issued SFAS No. 15 1, Inventory Costs, an amendment of ARB No. 43, Chapter
4. This statement amends the guidance in ARB No. 43, Chapter 4,
Inventory Pricing, to clarify the accounting for abnormal
amounts of idle facility expense, freight, handling costs, and wasted material
(spoilage). Paragraph 5 of ARB No. 43, Chapter 4, previously stated that
...under some circumstances, items such as idle facility expense,
excessive spoilage, double freight, and rehandling costs may be so abnormal as
to require treatment as current period charges ... SFAS No. 151 requires
that those items be recognized as current-period charges regardless of whether
they meet the criterion of so abnormal. In addition, this statement
requires that allocation of fixed production overheads to the costs of
conversion be based on the normal capacity of the production facilities. The
provisions of SFAS 151 shall be applied prospectively and are effective for
inventory costs incurred during fiscal years beginning after June 15, 2005, with
earlier application permitted for inventory costs incurred during fiscal years
beginning after the date this Statement was issued. The adoption of SFAS No. 151
is not expected to have a material impact on our financial position and results
of operations.

In December 2004, the FASB issued
SFAS No. 153, Exchanges of Nonmonetary Assets, an amendment of APB Opinion No.
29. The guidance in APB Opinion No. 29, Accounting for Nonmonetary
Transactions, is based on the principle that exchanges of nonmonetary assets should
be measured based on the fair value of assets exchanged. The guidance in that Opinion,
however, included certain exceptions to that principle. This Statement amends Opinion 29
to eliminate the exception for nonmonetary exchanges of similar productive assets that do
not have commercial substance. A nonmonetary exchange has commercial substance if the
future cash flows of the entity are expected to change significantly as a result of the
exchange. SFAS No. 153 is effective for nonmonetary exchanges occurring in fiscal periods
beginning after June 15, 2005. The adoption of SFAS No. 153 is not expected to have a
material impact on our financial position and results of operations.

---

## RESULTS OF
OPERATIONSFOR THE THREE
AND SIX MONTHS ENDED DECEMBER 31, 2004 AND 2003

Sales.  Our consolidated sales for the three months ended December 31, 2004 compared to the same period in 2003,
increased approximately 16% to $5.1 million from $4.4 million.  During this same period, Media Sciences' sales
increased approximately 37% to $4.4 million from $3.2 million and  Cadapult's sales decreased 40% to $0.81
million from $1.4 million.  Our consolidated sales for the six months ended December 31, 2004 compared to the
same period in 2003, increased approximately 24% to $10 million from $8.0 million.  During this same period,
Media Sciences sales increased approximately 40% to $8.5 million from $6.1 million and Cadapult's sales decreased
26% to $1.6 million from $2.2 million.  Cadapult's sales decreased significantly primarily due to unusually
strong sales of computer graphics systems during quarter ending December 31, 2003.

Gross Profit.  The
consolidated gross profit for the three months ended December 31, 2004 was $2.5
million, or approximately 48% of sales, as compared to $2.1 million, or
approximately 49% of sales for the three months ended December 31, 2003. During
this same period, Media Sciences gross profit margins decreased to 50%
from 52% and Cadapults gross profit margins increased slightly to 37% from
35%. The consolidated gross profit for the six months ended December 31, 2004
was $4.8 million, or approximately 48% of sales, as compared to $4.0 million, or
approximately 50% of sales for the six months ended December 31, 2003. During
this same period, Media Sciences gross profit margins decreased to 49%
from 53% and Cadapults gross profit margins remained at 35%. The decrease
in Media Sciences gross profit margins was due to a shift in the mix of
toner product sales and to increases in raw material costs for our solid inks.

Selling, General and
Administrative.  Consolidated selling, general and administrative expenses for the three months ended
December 31, 2004 increased to $2.0 million or 38% of sales, from $1.5 million or 35% of
sales for the three months ended December 31, 2003. During this same period, Media
Sciences selling, general and administrative expenses remained at 39% of sales,
while Cadapults selling, general and administrative expenses increased to 28% of
sales from 21% of sales. Consolidated selling, general and administrative expenses for the
six months ended December 31, 2004 increased to $3.8 million or 38% of sales, from $3.0
million or 38% of sales for the six months ended December 31, 2003. During this same
period, Media Sciences selling, general and administrative expenses remained at 39%
of sales, while Cadapults selling, general and administrative expenses decreased
slightly to 28% of sales from 29% of sales. The increase in selling, general and
administrative expenses can be attributed to increased expenditures for engineering and
product development, marketing and sales personnel and to move related expenses.

Depreciation and
Amortization.  For the three months ended December 31, 2004 compared to the
same period in 2003, our depreciation and amortization expense decreased to
$0.13 million, of which $0.07 million was included in cost of goods sold, from
$0.2 million of which $0.14 million was included in cost of goods sold. For the
six months ended December 31, 2004 compared to the same period in 2003, our
depreciation and amortization expense decreased to $0.26 million, of which $0.13
million was included in cost of goods sold, from $0.41 million of which $0.28
million was included in cost of goods sold. The decrease in depreciation was due
to substantially all of the No-Cap Color printer assets and one Media
Sciences tooling investment being fully depreciated in our last fiscal
year. Amortization of intangibles for the three months ended December 31, 2004
and 2003 was $1,511 and $2,317 respectively. Amortization of intangibles for the
six months ended December 31, 2004 and 2003 was $3,688 and $4,633 respectively.

Interest Expense.  
For the three months ended December 31, 2004 compared to the same period in
2003, our interest expense decreased to $0.053 million from $0.094 million. For
the six months ended December 31, 2004 compared to the same period in 2003, our
interest expense decreased to $0.11 million from $0.20 million. The decrease in
interest expense was due to the retirement of high interest rate debt during our
fiscal 2004 year.

---

Income Taxes.  For the three months
ended December 31, 2004, we recorded an income tax expense of $0.18 million as compared to
an income tax expense of $0.20 million in 2003. For the six months ended December 31,
2004, we recorded an income tax expense of $0.34 million as compared to an income tax
expense of $0.33 million in 2003. For the three and six months ended December 31, 2004, we
recorded the current income tax expense because of New Jerseys suspension of the use
of 50% of net operating loss carryforwards. For the three and six months ended December
31, 2003, we recorded the current income tax expense because of New Jerseys full
suspension of the use of net operating loss carryforwards. An effective aggregate state
and federal tax rate of 40% was used for the three months ended December 31, 2004 and
2003. An effective aggregate state and federal tax rate of 41% was used for the six months
ended December 31, 2004 and 43% was used for the six months ended December 31, 2003. The
effective aggregate state and federal taxes varies due to the impact of variable plan
accounting.

Dividends.  There were no dividends for the three and six months ended December 31, 2004.  For the three months
ending December 31, 2003, we incurred a non-cash induced conversion charge of $1,913,824 associated with the
induced conversion of our preferred stock.  For the six months ended December 31, 2003, we incurred a preferred
stock dividend and induced conversion charge of $2,071,230.

Net Income (Loss) Applicable to
Common Shareholders.  For the three month period ended December 31, 2004 (restated), we
earned $0.28 million or $0.03 per share basic and diluted as compared to incurring a loss
of $1.6 million or $(0.45) per share basic and diluted (including the non-cash induced
conversion charge of $0.54 per share) for the corresponding three month period ended
December 31, 2003 (restated). For the six month period ended December 31, 2004 (restated),
we earned $0.49 million or $0.05 per share basic and diluted as compared to incurring a
loss of $1.6 million or $(0.46) per share basic and diluted (including the non-cash
induced conversion charge of $0.54 per share) for the corresponding six month period ended
December 31, 2003 (restated).

---

## LIQUIDITY AND
CAPITAL RESOURCES

For the six months ended December 31,
2004, we experienced negative cash flows of $0.19 million. Cash flows from operating
activities resulted in negative cash flows of $0.83 million primarily due to net income of
$0.48 million, non cash charges of $0.26 million for depreciation and amortization, $.05
million for impact of variable plan accounting and $0.3 million for deferred income taxes,
the receipt of the insurance claim receivable of $0.5 million and an increase in deferred
revenue of $0.36 million, offset by an increase in accounts receivable of $1.4 million, an
increase in prepaid expenses of $0.15 million and a decrease in accounts payable of $1
million.

The cash we used in
investing activities included the purchase of equipment and tooling in the
amount of $0.35 million.

Cash provided by financing
activities was $0.99 million, comprised primarily of advances from our credit
facility of $1.2 million and proceeds from stock option and warrant exercises of
$0.2 million, offset by term loan payments of $0.41 million.

We have an agreement with a
lender enabling us to borrow up to $3 million under a revolving line of credit.
Borrowings bear interest at 0.75% over the lenders base rate, are payable
on demand and are collateralized by all of the assets of the Company. As of
December 31, 2004, $3 million was outstanding under this line and as such, the
credit line was fully utilized.

We have entered into a
sublease for our space at 40 Boroline Road for the remaining term of that lease.
In connection with the sublease, we have paid a real estate broker commission of
approximately $73,000 and agreed to make approximately $25,000 in improvements
to the space. Beyond the above costs, the sublease will generate negative cash
flows of $15,400 per month for the first four months, $642 per month for the
successive 11 months and $2,866 per month for the remaining 60 months of the
lease. The present value of the loss due to the discontinued use of the facility
including the rent differential between the lease and the sublease, rental
commissions and write-down of certain leasehold improvements will be recorded as
a one-time charge in our quarter ending March 31, 2005.

We anticipate that our cash
requirements over the next twelve months which will include increases in
inventory associated with new product launches and capital expenditures
associated with new product launches, the move to new facilities, and the
acquisition of certain manufacturing equipment to scale our solid ink
manufacturing, will be met through internal cash generated by increased sales
and profitability, collection of receivables, the use of our revolving line of
credit and, where appropriate, operating leases. In addition, we are considering
a private placement sale of approximately 500,000 shares of our common stock at
$2 per share, which if completed, would provide us with $1 million for working
capital purposes. Further, management expects that holders of certain
outstanding warrants to purchase up to 236,500 shares of common stock,
exercisable at $1.65 per share, will exercise the warrants prior to their
expiration in March 2005, which, if exercised, would provide us with
approximately $0.39 million. There can be no assurance that the stock sale will
be completed or that the warrants will be exercised.

## 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. 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.

---

## FORWARD
LOOKING STATEMENTS

The foregoing management
discussion and analysis contains forward-looking statements and information that
are based on our managements beliefs, as well as assumptions made by, and
information currently available to our management. These forward-looking
statements are based on many assumptions and factors, and are subject to many
conditions, including our continuing ability to obtain additional financing,
dependence on contracts with suppliers, competitive pricing for our products,
demand for our products which depends upon the condition of the computer
industry, and the effects of increased indebtedness as a result of our business
acquisitions. Except for the historical information contained in this new
release, all forward-looking information are estimates by our management and are
subject to various risks, uncertainties and other factors that may be beyond our
control and may cause results to differ from our managements current
expectations, which may cause our actual results, performance or achievements to
be materially different from future results, performance or achievements
expressed or implied by such forward-looking statements.

---

## ITEM 3.  
CONTROLS AND PROCEDURES

## Disclosure
Controls and Procedures

The Companys management, with
the participation of the Companys Chief Executive Officer and Principal Financial
Officer, has evaluated the effectiveness of the Companys disclosure controls and
procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange
Act) as of December 31, 2004. Based on such evaluation, the Companys Chief Executive
Officer and Principal Financial Officer have concluded that, as of such date, the
Companys disclosure controls and procedures were not effective.

There were no changes in the
Companys internal control over financial reporting during the quarter ended December
31, 2004 to which this report relates that have materially affected, or are reasonably
likely to materially affect, the Companys internal control over financial reporting.

In connection with its review of the
Companys financial statements for the quarter ended March 31, 2005, J.H. Cohn LLP,
the Companys independent registered public accounting firm, brought to the attention
of the Company that certain issued and outstanding options that permitted cashless
exercise were subject to variable plan accounting treatment under the Financial
Accounting Standards Boards Interpretation 44, Accounting for Certain
Transactions Involving Stock Compensation an Interpretation of APB Opinion No. 25
(Issue Date 3/00). Accordingly, certain previously unrecognized compensation expense
should have been recognized as compensation expense in certain of the financial statements
previously issued by the Company.

Consequently, J.H. Cohn LLP also
advised the Audit Committee and management of certain material weaknesses, including the
inability to prepare financial statements and footnotes in accordance with U.S. generally
accepted accounting principles and SEC rules, and improper accounting procedures for
grants with cashless exercise provisions per Financial Accounting Standards
Boards Interpretation 44, Accounting for Certain Transactions Involving Stock
Compensation  an Interpretation of APB Opinion No. 25". J.H. Cohn LLP indicated
that they considered these deficiencies to be material weaknesses as that term is defined
under standards established by the Public Company Accounting Oversight Board (United
States).

In light of the need for a
restatement and the material weaknesses in the Companys internal controls,
commencing in the fourth quarter of the Companys 2005 fiscal year, the Company has
begun undertaking a review of the Companys disclosure, financial information and
internal controls and procedures. This review includes increased diligence by the
Companys management and directors, as well as the use of additional outside
resources. Further, the Company has accelerated its timetable to hire a Chief Financial
Officer and has initiated the search process. The Company is committed to addressing its
control environment and reporting procedures.

On May 10, 2005, the Board of
Directors of the Company rescinded the cashless exercise provision for all of the
Companys outstanding option grants. Thus, variable accounting relating to the
cashless exercise feature will no longer required after the Companys fiscal quarter
ended June 30, 2005.

The Companys management,
including its Chief Executive Officer and its Principal Financial Officer, does not expect
that disclosure controls or internal controls over financial reporting will prevent all
errors or all instances of fraud, even as the same are improved to address any
deficiencies. The design of any system of controls is based in part upon certain
assumptions about the likelihood of future events, and there can be no assurance that any
design will succeed in achieving its stated goals under all potential future conditions. A
control system, no matter how well designed and operated, can provide only reasonable, not
absolute, assurance that the control systems objectives will be met. Over time,
controls may become inadequate because of changes in conditions or deterioration in the
degree of compliance with policies or procedures. Further, the design of a control system
must reflect the fact that there are resource constraints, and the benefits of controls
must be considered relative to their costs. Because of the inherent limitations in all
control systems, no evaluation of controls can provide absolute assurance that all control
issues and instances of fraud, if any, within the Company have been detected.

---

# PART II.  
OTHER INFORMATION

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

We held our annual meeting
of stockholders on December 17, 2004. A quorum being present either in person or
by proxy, the shareholders voted on the following matters:

| | 1. | the election of seven directors to serve until the next annual meeting and until their
                  successors have been duly elected and qualified;
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------

| | 2. | the ratification of the issuances of employment-issued stock options for 200,000 shares of
                  common stock; and
| | -- | ------------------------------------------------------------------------------------------------------------------------------

| | 3. | the ratification of the selection of J.H. Cohn LLP as our independent registered public
                  accounting firm for the fiscal year ending June 30, 2005.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------

No other matters were voted
on. The number of votes cast was:

| |  |  | For | WithheldAuthority | 
| |  |  | --- | ----------------- | 

| | 1. | Election of directors |  |  | 
| | -- | --------------------- |  |  | 

| |  | Michael W. Levin | 8,942,582 | 993,126 | 
| |  | ---------------- | --------- | ------- | 

| |  | Frances Blanco | 8,942,582 | 993,126 | 
| |  | -------------- | --------- | ------- | 

| |  | Paul C. Baker | 8,942,582 | 993,126 | 
| |  | ------------- | --------- | ------- | 

| |  | Edwin Ruzinsky | 8,942,582 | 993,126 | 
| |  | -------------- | --------- | ------- | 

| |  | Donald Gunn | 8,942,582 | 993,126 | 
| |  | ----------- | --------- | ------- | 

| |  | Henry Royer | 8,942,582 | 993,126 | 
| |  | ----------- | --------- | ------- | 

| |  | Alan Bazaar | 8,942,582 | 993,126 | 
| |  | ----------- | --------- | ------- | 

| |  |  | For | Against | Abstain | 
| |  |  | --- | ------- | ------- | 

| | 2. | Ratification of stock option plans | 5,462,074 | 181,739 | 36,942 | 
| | -- | ---------------------------------- | --------- | ------- | ------ | 

| | 3. | Ratification of independent registered public
                 accounting firm | 8,922,762 | 31,900 | 981,048 | 
| | -- | ------------------------------------------------------------------------------ | --------- | ------ | ------- | 

The term of office of each
director nominee continued after the annual meeting.

## ITEM 6.  
EXHIBITS

The following exhibits are
filed with this report:

|Exhibit Number | Description of Exhibit
|-------------- | ----------------------

|Exhibit 10.1 | Lease Agreement (Incorporated by reference to Exhibit 10 of Current Report
on Form 8-K filed on October 4, 2004).
|------------ | -----------------------------------------------------------------------------------------------------------------

|Exhibit 10.2 | Loan Agreement with PNC Bank (Incorporated by reference to Exhibit 10 of
Current Report on Form 8-K filed on December 20, 2004).
|------------ | --------------------------------------------------------------------------------------------------------------------------------

|Exhibit 10.3 | Sublease Agreement (Incorporated by reference to Exhibit 10 of Current
Report on Form 8-K filed on January 24, 2005).
|------------ | ---------------------------------------------------------------------------------------------------------------------

|Exhibit 11* | Statement re: computation of per share earnings is hereby incorporated by
reference to Financial Statements of Part I - Financial Information,
Item 1  Financial Statements, contained in this Form 10-QSB.
|----------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Exhibit 31.1* | Certification of Chief Executive Officer pursuant to Securities Exchange Act
                           Rule 13a-14(a)/15d-14(a)
|------------- | --------------------------------------------------------------------------------------------------------------------------------

|Exhibit 31.2* | Certification of Principal Financial Officer pursuant to Securities Exchange
                           Act Rule 13a-14(a)/15d-14(a)
|------------- | ------------------------------------------------------------------------------------------------------------------------------------

|Exhibit 32.1* | Certification of Chief Executive Officer Pursuant to Securities Exchange Act
                           Rule 13a-14(b) and 18 U.S.C. Section 1350
|------------- | -------------------------------------------------------------------------------------------------------------------------------------------------

|Exhibit 32.2* | Certification of Principal Financial Officer Pursuant to Securities Exchange
                           Act Rule 13a-14(b) and 18 U.S.C. Section 1350
|------------- | -----------------------------------------------------------------------------------------------------------------------------------------------------

|_____ | 
|----- | 

|* Filed herewith. | 
|----------------- | 

---

# SIGNATURES

In
accordance with the requirements of the Exchange Act, the registrant caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.

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

|August 15, 2005 | By:/s/ Michael W. Levin
        Michael W. Levin
        Chief Executive Officer and President
|--------------- | ----------------------------------------------------------------------------------------------

|August 15, 2005 | By:/s/ Denise Hawkins
        Denise Hawkins
        Vice President and Controller
        (Principal Financial Officer)
|--------------- | ------------------------------------------------------------------------------------------------------------------------

---