---

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

FORM 10-QSB/A

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

For the
quarterly period ended September 30, 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)

---

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 November 11, 2004,
the issuer had 9,935,710 shares of common stock outstanding.

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

---

INTRODUCTORY NOTE

We are amending our Quarterly Report
on Form 10-QSB for the quarter ended September 30, 2004 to restate our consolidated
financial statements for the periods ended September 30, 2004 and 2003 and the related
disclosures.

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 months ended September 30, 2004 and
2003 resulted in an increase in selling, general and administrative expenses of $75,509
and $110,575, respectively. Net income for the three months ended September 30, 2004 and
2003 decreased by $53,529 and $88,925, 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.

The following items have been amended
as a result of the restatement:

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

Except as discussed above, we have
not modified or updated disclosures presented in the original Quarterly Report on Form
10-QSB, except as required to reflect the effects of the restatement, in this Form
10-QSB/A. Accordingly, this Form 10-QSB/A 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 SEPTEMBER 30, 2004

# TABLE OF
CONTENTS

|           |  |                                                                                                                                                 | Page
|---------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------- | ----
|PART I.    |  | FINANCIAL INFORMATION                                                                                                                           |     
|Item 1.    |  | Financial Statements                                                                                                                            | 4   
|           |  | Condensed Consolidated Balance Sheets as of September 30, 2004 (Unaudited and Restated) and June 30, 2004 (Restated)                            | 4   
|           |  | Condensed  Consolidated  Statements  of  Operations  For the Three  Months Ended
September 30, 2004 and 2003 (Unaudited and Restated)           | 5   
|           |  | Condensed  Consolidated  Statement  of Changes in  Shareholders'  Equity For the
Three Months Ended September 30, 2004 (Unaudited and Restated) | 6   
|           |  | Condensed  Consolidated  Statements  of Cash  Flows For the Three  Months  Ended
September 30, 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                                                     | 14  
|Item 3.    |  | Controls and Procedures                                                                                                                         | 17  
|           |  |                                                                                                                                                 |     
|           |  |                                                                                                                                                 |     
|PART II.   |  | OTHER INFORMATION                                                                                                                               |     
|Item 6.    |  | Exhibits                                                                                                                                        | 18  
|Signatures |  |                                                                                                                                                 | 19  

---

# PART I.  
FINANCIAL INFORMATION

## ITEM 1.  
FINANCIAL STATEMENTS

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

`June 30,
                                                               September 30,                 2004
                                                                   2004                    (Restated)
                                ASSETS                   (Unaudited and Restated)        (Notes 1 & 2)
                                ------                   ------------------------        -------------

CURRENT ASSETS :
    Cash                                                       $    545,126              $    666,116
    Accounts receivable, less allowance for
       doubtful accounts of $35,000                               2,602,303                 1,626,287
    Insurance claim receivable                                         --                     500,000
    Inventories                                                   2,343,700                 2,274,088
    Deferred tax assets                                           1,086,528                 1,222,774
    Prepaid expenses and other current assets                       474,262                   280,530
                                                               ------------              ------------
        Total Current Assets                                      7,051,919                 6,569,795
                                                               ------------              ------------

PROPERTY AND EQUIPMENT, NET                                       1,196,859                 1,072,186
                                                               ------------              ------------

OTHER ASSETS:
    Goodwill and other intangible assets, net                     4,466,796                 4,468,973
    Other assets                                                     69,859                    48,100
                                                               ------------              ------------
                                                                  4,536,655                 4,517,073
                                                               ------------              ------------

TOTAL ASSETS                                                   $ 12,785,433              $ 12,159,054
                                                               ============              ============

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

CURRENT LIABILITIES:
    Bank debt                                                  $  2,606,685              $  2,189,054
    Short-term debt and current maturities of long-term debt         27,668                    39,081
    Accounts payable                                              2,245,438                 2,511,117
    Accrued expenses and other current liabilities                  209,830                   248,580
    Income taxes payable                                             70,999                    92,651
    Accrued product warranty                                        339,247                   340,592
    Deferred revenue                                                333,706                   153,273
                                                               ------------              ------------
        Total Current Liabilities                                 5,833,573                 5,574,348
                                                               ------------              ------------

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

TOTAL LIABILITIES                                                 6,377,453                 6,118,228
                                                               ------------              ------------

COMMITMENTS AND CONTINGENCIES

SHAREHOLDERS' EQUITY :
    Series A Convertible Preferred stock, $.001 par value
       Authorized 1,000,000 shares; none issued                        --                        --
    Common Stock, .001 par value
       Authorized 20,000,000 shares;
           issued 9,935,710 shares in September,
           9,857,210 shares in June                                   9,937                     9,858
    Additional paid-in capital                                    7,991,129                 7,837,948
    Cost of 10,564 shares of common stock in treasury               (20,832)                  (20,832)
    Accumulated deficit                                          (1,572,254)               (1,786,148)
                                                               ------------              ------------
        Total Shareholders' equity                                6,407,980                 6,040,826
                                                               ------------              ------------

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                     $ 12,785,433              $ 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
                                                              September 30,
                                                           2004          2003
                                                         (Restated)    (Restated)
                                                        -----------   -----------

NET SALES                                               $ 4,851,869   $ 3,615,518
                                                        -----------   -----------

COST OF GOODS SOLD:
    Cost of goods sold, excluding depreciation            2,499,613     1,614,637
    Depreciation                                             63,319       145,156
                                                        -----------   -----------

        Total cost of goods sold                          2,562,932     1,759,793
                                                        -----------   -----------

GROSS PROFIT                                              2,288,937     1,855,725
                                                        -----------   -----------

OTHER COSTS AND EXPENSES:

    Selling, general and administrative,
      excluding depreiciation and amortization
      and impact of variable plan accounting              1,724,162     1,310,751
    Depreciation and amortization                            66,549        62,447
    Impact of variable plan accounting                       75,509       110,575
                                                        -----------   -----------
        Total other costs and expenses                    1,866,220     1,483,773
                                                        -----------   -----------

INCOME FROM OPERATIONS                                      422,717       371,952

INTEREST EXPENSE                                             52,520       107,308
                                                        -----------   -----------

INCOME BEFORE INCOME TAXES                                  370,197       264,644
                                                        -----------   -----------

PROVISION FOR INCOME TAXES                                  156,303       128,304
                                                        -----------   -----------

NET INCOME                                                  213,894       136,340

PREFERRED STOCK DIVIDENDS                                      --         157,406
                                                        -----------   -----------

NET INCOME (LOSS) APPLICABLE TO COMMON SHAREHOLDERS     $   213,894   $   (21,066)
                                                        ===========   ===========


BASIC WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING                                               9,913,916     3,577,210
                                                        ===========   ===========
DILUTED WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING                                              10,482,432     3,577,210
                                                        ===========   ===========

BASIC AND DILUTED NET INCOME (LOSS) PER
SHARE APPLICABLE TO COMMON SHAREHOLDERS                 $      0.02   $     (0.01)
                                                        ===========   ===========`

See accompanying notes to condensed consolidated financial statements.

---

# MEDIA
SCIENCES INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY
THREE MONTHS
ENDED SEPTEMBER 30, 2004
(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            3,500          4         2,747        --             --            2,751

   Impact of variable plan accounting         --         --          75,509        --             --           75,509

   Net income                                 --         --            --          --          213,894        213,894
                                       -----------   --------   -----------   ---------    -----------    -----------
BALANCES, SEPTEMBER 30, 2004
(RESTATED)                               9,935,710      9,937     7,991,129     (20,832)    (1,572,254)   $ 6,407,980
                                       ===========   ========   ===========   =========    ===========    ===========`

See accompanying notes to condensed consolidated financial statements.

---

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

`Three Months Ended
                                                                            September 30,
                                                                          2004         2003
                                                                       (Restated)   (Restated)
                                                                       ----------   ----------

CASH FLOWS FROM OPERATING ACTIVITIES :
    Net income                                                         $  213,894   $  136,340
    Adjustments to reconcile net Income to net cash
      provided by (used in) operating activities:
         Depreciation and amortization                                    129,868      207,603
         Impact of variable plan accounting                                75,509      110,575
         Deferred income taxes                                            136,246       94,668
         Provision for bad debts                                            2,778       17,259
         Changes in operating assets and liabilities :
             Accounts receivable                                         (978,794)      86,223
             Insurance claim receivable                                   500,000         --
             Inventories                                                  (69,612)     (38,584)
             Prepaid expenses and other current assets                   (193,732)      (1,940)
             Other assets                                                 (21,759)     (22,818)
             Accounts payable                                            (265,679)    (144,461)
             Income taxes payable                                         (21,652)        --
             Accrued expenses and other current liabilities               (40,095)     (64,437)
             Accrued expense - supplier                                      --       (107,952)
             Deferred revenue                                             180,433      (23,722)
                                                                       ----------   ----------
                 Net cash provided by (used in) operating activities     (352,595)     248,754
                                                                       ----------   ----------

CASH FLOWS FROM INVESTING ACTIVITIES :
    Purchases of property and equipment                                  (252,364)     (47,809)
                                                                       ----------   ----------
                 Net cash used in investing activities                   (252,364)     (47,809)
                                                                       ----------   ----------

CASH FLOWS FROM FINANCING ACTIVITIES :
    Bank debt                                                             517,631     (148,701)
    Bank term loan payments                                              (100,000)        --
    Payments of debt                                                      (11,413)     (64,786)
    Proceeds from issuance of common stock                                 77,751         --
                                                                       ----------   ----------
                 Net cash provided by (used in) financing activities      483,969     (213,487)
                                                                       ----------   ----------

NET DECREASE IN CASH                                                     (120,990)     (12,542)

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

CASH, END OF PERIOD                                                    $  545,126   $   53,925
                                                                       ==========   ==========

SUPPLEMENTAL CASH FLOW INFORMATION :
    Interest paid                                                      $   50,878   $  100,976
                                                                       ==========   ==========
    Income taxes paid                                                  $   45,206         --
                                                                       ==========   ==========`

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 months ended September 30, 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 months ended September 30, 2004 and
2003 resulted in an increase in selling, general and administrative expenses of $75,509
and $110,575, respectively. Net income for the three months ended September 30, 2004 and
2003 decreased by $53,529 and $88,925, 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 Months Ended
                                                                     September 30,
                                                                    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
                                                                          September 30,
                                                                        2004         2003
                                                                     (Restated)   (Restated)
                                                                     ----------   ----------

Net income as reported                                               $  213,894   $  136,340
   Less preferred stock dividends                                          --        157,406
                                                                     ----------   ----------
Income (loss) applicable to common shareholders                         213,894      (21,066)

Impact of variable plan accounting net of tax effect                     53,529       88,925
Stock-based employee compensation expense under fair value
    method, net of related tax effects
                                                                        (16,746)      (8,931)
                                                                     ----------   ----------
Pro forma net income applicable to common shareholders               $  250,677   $   58,928
                                                                     ==========   ==========

Income (loss) per share applicable to common shareholders :
        Basic and diluted, as reported                                   $ 0.02       $(0.01)
                                                                         ======       ======
        Basic, pro forma                                                 $ 0.03       $ 0.02
                                                                         ======       ======
             Diluted, pro forma                                          $ 0.02       $ 0.02
                                                                         ======       ======`

## NOTE 5 
BANK DEBT :

We have an agreement with a
lender under which we 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 lenders base rate, are payable on demand and are collateralized
by all of the assets of the Company. As of September 30, 2004, $2.3 million was
outstanding under this line and included in the bank debt in the accompanying
condensed consolidated balance sheet. The interest rate was 6.5%. The line of
credit expires on October 31, 2006.

---

# MEDIA
SCIENCES INTERNATIONAL, INC. AND SUBSIDIARIES

# NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

## NOTE 6 
INCOME (LOSS) PER SHARE

Basic income (loss) per common share
is computed using the weighted average number of common shares outstanding. Diluted income
(loss) per common share is computed using the weighted average number of common 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
                                                                                September 30,
                                                                              2004          2003
                                                                          (Restated)     (Restated)
                                                                          -----------   -----------

    Numerator :
       Income (loss) applicable to
           common shareholders                                            $   213,894   $   (21,066)

   Denominator :
      Denominator for basic income (loss) per share :
           Weighted average shares                                          9,913,916     3,577,210

      Effect of dilutive securities -
           stock options and warrants                                         568,516          --
      Denominator for diluted income (loss) per share                      10,482,432     3,577,210

      Net income (loss) per share :
       Basic and diluted                                                        $0.02        $(0.01)`

The following warrants and options to
purchase common stock were excluded from the computation of diluted net income (loss) per
share as of September 30, 2004 and 2003 because they were anti-dilutive for those periods:

`September 30,
                                                                              2004          2003
                                                                          -----------   -----------

      Anti-dilutive warrants and options                                    1,850,650     3,189,423`

The assumed conversion of the Class A
convertible preferred stock has been excluded from the computation of diluted net income
per share for the three months ended September 30, 2003. 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 
RECALL AND WARRANTY EXPENSES:

The Company provides a warranty for
all of its consumable supply products and for its INKlusive free 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 months ended September 30, 2004 and 2003 are as follows:

`Three Months Ended
                                                                 September 30,
                                                               2004         2003
                                                             ---------    ---------

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

               Warranty expenses accrued during the period     294,277      302,000
               Warranty claims settled during the period      (295,622)    (302,000)
                                                             ---------    ---------
        Net change in warranty reserve                          (1,345)        --
                                                             ---------    ---------

        Warranty reserve at end of period                    $ 339,247    $ 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 September 30, 2004 and 2003, engineering and product development costs
were approximately $106,000 and $8,000, 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 September 30, 2004 and 2003 totaled approximately $84,000
and $69,000, respectively. Advertising expense for the three months ended September 30,
2004 and 2003 amounted to approximately $215,000 and $105,000, respectively.

---

# MEDIA
SCIENCES INTERNATIONAL, INC. AND SUBSIDIARIES

# NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

## NOTE
10  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:

`September 30,
                                                               2004 (Restated)    2003 (Restated)
                                                               ---------------    ---------------
Net sales:
     Media Sciences                                                $ 4,126,499        $ 2,891,116
     Cadapult                                                          829,315            860,070
     Elimination                                                      (103,945)          (135,668)
                                                                   -----------        -----------
          Totals                                                   $ 4,851,869        $ 3,615,518
                                                                   ===========        ===========

Cost of goods sold:
     Media Sciences                                                $ 2,109,350        $ 1,360,267
     Cadapult                                                          550,116            552,670
     Elimination                                                       (96,534)          (153,144)
                                                                   -----------        -----------
          Totals                                                   $ 2,562,932        $ 1,759,793
                                                                   ===========        ===========

Gross profit:
     Media Sciences                                                $ 2,017,149        $ 1,530,849
     Cadapult                                                          279,199            307,400
     Elimination                                                        (7,411)            17,476
                                                                   -----------        -----------
          Totals                                                   $ 2,288,937        $ 1,855,725
                                                                   ===========        ===========

Selling, general, administrative and other expenses:
     Media Sciences                                                $ 1,637,522        $ 1,123,819
     Cadapult                                                          228,698            359,954
     Elimination                                                          --                 --
                                                                   -----------        -----------
          Totals                                                   $ 1,866,220        $ 1,483,773
                                                                   ===========        ===========

Income from operations:
     Media Sciences                                                $   379,627        $   407,030
     Cadapult                                                           50,501            (52,554)
     Elimination                                                        (7,411)            17,476
                                                                   -----------        -----------
          Totals                                                   $   422,717        $   371,952
                                                                   ===========        ===========

Reconciliation to consolidated net income:
     Segment income from operations                                $   422,717        $   371,952
     Non-operating items                                               (52,520)          (107,308)
     Income taxes                                                     (156,303)          (128,304)
                                                                   -----------        -----------
     Net income                                                    $   213,894        $   136,340
                                                                   ===========        ===========`

---

## 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 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 months ended September 30, 2003 have been
restated to reflect the effects of variable plan accounting for certain stock options.

## RESULTS OF
OPERATIONSFOR THE THREE
MONTHS ENDED SEPTEMBER 30, 2004 AND 2003

Sales.  Our consolidated sales for the three months ended September 30, 2004 compared to the same period in 2003, increased
approximately 34% to $4.9 million from $3.6 million.  Media Sciences sales increased approximately 43% to $4.1 million from $2.9
million.  Cadapult sales decreased approximately 4% to $0.83 million from $0.86 million.  Approximately 60% of the increase in Media Sciences sales was due to the shipment of new products, while 40% of the increase was due to increased sales of existing products.

Gross Profit.  The
consolidated gross profit for the three months ended September 30, 2004 was $2.3
million, or approximately 47% of sales, as compared to $1.9 million, or
approximately 51% of sales for the three months ended September 30, 2003. Media
Sciences gross profit margins decreased to 49% from 53% in the prior year.
Cadapults gross profit margins decreased slightly to 34% from 36%. The
decrease in Media Sciences gross profit margins was due to a shift in the
mix of toner product sales and to a temporary increase in our solid ink
manufacturing costs.

Selling, General and
Administrative.  Consolidated selling, general and administrative expenses for the three months ended
September 30, 2004 decreased to $1.9 million or 38% of sales, from $1.5 million or 41% of
sales for the three months ended September 30, 2003. Media Sciences selling, general
and administrative expenses increased slightly to 40% of sales from 39% of sales. The
increase in Media Sciences selling, general and administrative expenses was
primarily due to increased sales, marketing and new product development costs.
Cadapults selling, general and administrative expenses decreased to 28% of sales
from 42% of sales primarily due to a shift in the allocation of overhead from Cadapult to
Media Sciences. The allocation of overhead has shifted from Cadapult to Media Sciences due
to the relative increases in management time, financial resources, and space resulting
from the focus on growing the Media Sciences business.

Depreciation and
Amortization.  For the three months ended September 30, 2004 compared to the
same period in 2003, our depreciation and amortization expense decreased to
$0.13 million, of which $0.06 million was included in cost of goods sold, from
$0.2 million of which $0.15 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 September 30, 2004 was $2,177 and for the three months ended
September 30, 2003 was $2,317.

Interest Expense.  
For the three months ended September 30, 2004 compared to the same period in
2003, our interest expense decreased to $0.05 million from $0.1 million due to
the retirement of high interest rate debt during our fiscal 2004 year.

Income Taxes.  For the three months
ended September 30, 2004, we recorded an income tax expense of $0.16 million as compared
to an income tax expense of $0.13 million in 2003. For the three months ended September
30, 2004, we recorded the current income tax expense because of New Jerseys
suspension of the use of 50% of net operating loss carry forwards. For the three months
ended September 30, 2003, we recorded the current income tax expense because of New
Jerseys full suspension of the use of net operating loss carry forwards. An
effective aggregate state and federal tax rate of 43% was used for the three months ended
September 30, 2004 and 49% was used for the three months ended September 30, 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 months ended September 30, 2004.  For the three months ended September 30, 2003, we
accrued $0.16 million of stock dividends to our preferred shareholders.

Net Income (Loss) Applicable to
Common Shareholders.  For the three month period ended September 30, 2004 (restated), we
earned $0.21 million or $0.02 per share basic and diluted as compared to incurring a net
loss of $0.02 million or $(0.01) per share basic and diluted for the corresponding three
month period ended September 30, 2003 (restated).

---

## LIQUIDITY AND
CAPITAL RESOURCES

For the three months ended September
30, 2004, we experienced negative cash flows of $0.12 million. Cash flows from operating
activities resulted in negative cash flows of $0.35 million primarily due to net income of
$0.21 million, non-cash charges of $0.13 million for depreciation and amortization, $0.08
million for the impact of variable plan accounting, $0.14 million for deferred income
taxes, the receipt of the insurance claim receivable of $0.5 million and an increase in
deferred revenue of $0.18 million, offset by an increase in accounts receivable of $1
million, an increase in prepaid expenses of $0.19 million and a decrease in accounts
payable of $0.27 million.

The cash we used in
investing activities included the purchase of equipment and tooling in the
amount of $0.25 million.

Cash provided by financing
activities was $0.48 million, comprised primarily of advances from our credit
facility of $0.52 million and proceeds from stock option and warrant exercises
of $0.08 million, offset by term loan payments of $0.1 million.

We have an agreement with a
lender under which we 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 lenders base rate, are payable on demand and are collateralized
by all assets of the Company. As of September 30, 2004, $2.3 million was
outstanding under this line.

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, the use of our revolving line of credit and where appropriate
operating leases.

## 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 September 30, 2004. Based on such evaluation, the Companys Chief
Executive Officer and Principal Financial Officer have concluded that, as of the such
date, except as set forth below, the Companys disclosure controls and procedures are
effective.

There have not been any changes in
the Companys internal control over financial reporting during the quarter ended
September 30, 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 6.  
EXHIBITS

The following exhibits are
filed with this report:

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

|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.
| | ----------------------------------

|Dated:  July 22, 2005 | By:/s/ Michael W. Levin
        Michael W. Levin
        Chief Executive Officer and President
|--------------------- | ----------------------------------------------------------------------------------------------

|Dated:  July 22, 2005 | By:/s/ Denise Hawkins
        Denise Hawkins
        Vice President and Controller
        (Principal Financial Officer)
|--------------------- | ------------------------------------------------------------------------------------------------------------------------

---