Unassociated Document

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-KSB/A

xANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

For the fiscal year ended June 30, 2007

oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______________________ to________________________

Commission file number 0-16730

MSGI Security Solutions, Inc.

(Exact Name of Registrant as Specified in Its Charter)

Nevada	88-0085608
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

575 Madison Avenue
New York, New York	10022
(Address of principal executive offices)	(Zip Code)

Issuer’s telephone number, including area code: (917) 339-7150

Securities registered pursuant to Section 12(b) of the Act: None

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

Common Stock, par value $.01 per share

(Title of class)

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

Yes o No x

Note - Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Exchange Act from their obligations under those Sections.

Indicate be check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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 o

Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B contained in this form, and no disclosure will be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o No x

The issuer’s revenues for its most recent fiscal year were: $177,895.

As of September 28, 2007, the aggregate market value of the voting stock held by non-affiliates of the Registrant was approximately $9,565,198.

As of September 28, 2007, there were 11,565,557 shares of the Registrant's common stock outstanding.

Transitional Small Business Disclosure Format: Yes o No x

Introduction

MSGI Security Solutions, Inc. ("MSGI" or the "Company"), filed with the Securities and Exchange Commission (the "Commission") its Annual Report on Form 10-KSB for its fiscal year June 30, 2007 (the "2007 Form 10-KSB"), on October 15, 2007.

In accordance with General Instruction G to the Form 10-KSB, the information called for by items 9, 10, 11 and 12 of Part III of Form 10-KSB was not included in the body of the 2007 Form 10-KSB as initially filed, but was incorporated by reference to the Company's Proxy Statement which was expected to be filed with the Commission within 120 days from its fiscal year end. Because the Company has not filed its Proxy Statement within such 120 day period, this Form 10-KSB/A amends the 2007 Form 10-KSB to include such required information.

In addition, MSGI is filing this Amendment on Form 10-KSB/A to amend its Annual Report on Form 10-KSB for the fiscal year ended June 30, 2007 to make immaterial corrections to presentation in the Statement of Stockholders Equity and to Footnote 15 of the financial statments, as well as to certain minor typographical errors in the Annual Report on Form 10-KSB. These typographical errors occurred during the process of preparing the document for electronic filing with the Securities and Exchange Commission. The corrections made have no effect to the Consolidated Financial Statements.

TABLE OF CONTENTS

Part I

Item 1. Business			Page 3 - 15
Item 2. Properties			Page 16
Item 3. Legal Proceedings			Page 16
Item 4. Submission of Matters to a Vote of Security Holders			Page 16

Part II

Item 5. Market for Common Equity and Related Stockholder Matters and Small Business Issuer Purchases			Page 17
Item 6. Management’s Discussion and Analysis or Plan of Operations			Page 17 - 29
Item 7. Financial Statements			Page 30 - 58
Item 8. Changes in and Disagreements With Accountants on Accounting and Financial Disclosures
Item 8A Controls and Procedures			Page 59 - 61
Item 8A (T) Controls and Procedures			Page 61
Item 8B Other Information			Page 61

Part III

Item 9. Directors, Executive Officers, Promoters and Control Persons: Compliance with Section 16(a) of the Exchange Act			Page 62 - 64
Item 10. Executive Compensation			Page 65 - 69
Item 11. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters			Page 69 - 70
Item 12. Certain Relationships and Related Transactions			Page 71 - 73
Item 13. Exhibits			Page 74 - 75
Item 14. Principal Accountant Fees and Services			Page 76

PART I

Special Note Regarding Forward-Looking Statements

Some of the statements contained in this Annual Report on Form 10-KSB/A discuss our plans and strategies for our business or state other forward-looking statements, as this term is defined in the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company, or industry results to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among others, the following: general economic and business conditions, industry capacity, homeland security and other industry trends, demographic changes, competition; the loss of any significant customers, changes in business strategy or development plans, availability and successful integration of acquisition candidates, availability, terms and deployment of capital, advances in technology, retention of clients not under long-term contract, quality of management, business abilities and judgment of personnel, availability of qualified personnel, changes in, or the failure to comply with, government regulations, and technology, telecommunication and postal costs.

Item 1. Business

General

MSGI Security Solutions, Inc. is a provider of proprietary security solutions to commercial and government organizations. MSGI is developing a combination of innovative emerging businesses that leverage information and technology with a focus on encryption technologies for actionable surveillance and intelligence monitoring. The Company is headquartered in New York City where it serves the needs of counter-terrorism, public safety, and law enforcement in the United States, Europe, the Middle East and Asia.

The Company’s Strategy

MSGI acquires controlling interests in early-stage, early growth technology and software development businesses. These emerging firms are led by entrepreneurs and management teams that have “bleeding edge” products, but lack the infrastructure, business relationships and financing that MSGI can offer. The Company will typically seek to acquire a 51% controlling interest in the target company for a combination of cash and securities. The cash component is not paid to the founding principals; but rather must be reinvested in the company on a monthly basis by our corporate finance staff.

The target company generally must agree to a ratchet provision by which the Company’s stake increases up to another 25% for failure to reach first years expectations. MSGI generally retains a right of first refusal in the event that any of the minority parties in the various companies receives an unsolicited offer for their interests in the business. To the extent these target companies do not meet MSGI’s continuing expectations; the Company will generally dispose its interests in such operations.

The Company also seeks business and growth opportunities through strategic relationships and sub-contract relationships where its experience and expertise in coordinating and implementing security technologies may be employed.

At the current time, the MSGI strategy is focused on proprietary security products and services to commercial and governmental organizations worldwide with a focus on cutting-edge encryption technologies for surveillance and intelligence monitoring in the United States, Europe, the Middle East and Asia. The Company has established a relationship with Hyundai Systems, Inc. and Apro Media, Inc. (see later discussion) in which the Company aggregates and configures security systems.

Background

The Company was originally incorporated in Nevada in 1919.

The Company had acquired or formed several direct marketing and related companies. Due in part to decreased market demands and limited capital resources, the Company disposed or ceased operations of all such companies. The following acquisitions and dispositions occurred during the past three years:

Date	Name of Company Acquired, Investment Made or Operation Concluded	Service Performed
April 2004
	Acquired 51% of Future Developments America, Inc.	Provider of technology-based products and services specializing in application-specific and custom-tailored restricted-access intelligence products, systems and proprietary solutions .

August 2004	Acquired 51% of Innalogic, LLC	Designs and deploys content-rich software products for a wide range of wireless mobile devices.

December 2004	First investment in Excelsa S.p.A.	Provider of Video Control systems and services for security both for the civilian and military markets.

January 2005	Second investment in Excelsa S.p.A.

May 2005	Renegotiation of second investment in Excelsa S.p.A.

June 2005	Acquired 51% interest in AONet International S.r.L.	Provider of application hosting, data redundancy and disaster recovery services

July 2005	Acquired additional equity in Future Developments America, Inc. bringing total ownership stake to 100% and restructured the business with the founders of such business such that Future Developments America, Inc. became a non-exclusive sales organization and the founders (through “FDL” an entity in which the founders own 100% interest) of such business re-acquired the underlying technology and operating assets.

August 2005	Acquired additional equity in Innalogic, LLC bringing total ownership stake to 76%

April 1, 2006	Forfeited 51% interest in AONet International S.r.L. as a result of default of provision of the purchase agreement. Results were reclassified to a discontinued operation.

January 2007	Excelsa S.p.A. filed for bankruptcy. The investment was fully impaired.

April 1, 2007	Entered into a license agreement with CODA Octopus, Inc. (“CODA”) where by MSGI will receive a royalty on sales of products by CODA using the Innalogic proprietary technology. In connection with such transaction, CODA assumed certain development and operational responsibilities of the Innalogic technologies.

Capital Stock and Certain Recent Financing Transactions

Notes payable at June 30, 2007 and 2006 are summarized as follows:

Instrument	Maturity		Face Amount		Coupon Interest Rate			Carrying Amount at June 30, 2007, net of discount		Carrying Amount at June 30, 2006, net of discount
Notes Payable		Demand	$	500,000		N/A		$	600,000	$	600,000
Notes Payable		Various		Various		Various			-		842,427
8% Notes		Dec. 13, 2009		3,000,000		8	%		1,427,411		2,574,597
6% Notes		Dec. 13, 2009		2,000,000		6	%		361,111		-
6% April Notes		April 4, 2010		1,000,000		6	%		83,334		-
8% Debentures		May 21, 2010		5,000,000		8	%		185,185		-
Advances from strategic partner (CODA)		N/A		varies		8	%		-		300,000

See description of the accounting implication of certain features of these notes in the notes to the consolidated financial statements.

8% Notes

On July 12, 2005, MSGI closed a Callable Secured Convertible Note financing of $3 million with a New York based institutional investor (the “8% Notes”). Substantially all of the assets of the Company are pledged as collateral to the note holders. The Note initially required repayment over a three-year term with an 8% interest per annum. Repayment shall be made in cash or in registered shares of common stock if the stock price exceeded $4.92 per the agreement terms, or a combination of both, at the option of the Company, and payment commenced 90 days after the closing date and was payable monthly in equal principal installments plus interest over the remaining 33 months. Further, the Holder has the option to convert all or any part of the outstanding principal to common stock if the average daily price, as defined in the agreement, for the preceding five trading days is greater than the defined Initial Market Price of $6.56. The original conversion price for this holder option was $4.92. The Company granted registration rights to the investors for the resale of the shares of common stock underlying the notes and certain warrants that were issued in the transaction. The Note agreement provides the Company with the option to call the loan and prepay the remaining balance due. If the loan is called early, the Company will be required to pay 125% of the outstanding principal and interest as long as the common stock of the Company is at $6.00 or less. If the stock price is higher than $6.00 when the Company exercises the call option, then the amount owed is based upon a calculation, as defined in the agreement, using the average daily price. If in any month a default occurs, the note shall become immediately due and payable at 130% of the outstanding principal and interest. In January 2006, the Chief Executive Officer entered into a guarantee and pledge agreement with the note holders, whereby, the common stock of MSGI owned by the Chief Executive Officer (approximately 190,000 shares) was pledged as additional collateral for these notes. On June 7, 2006, the Company entered into a waiver and amendment agreement which modified certain payment due dates of the notes to provide for a payment of $395,450 due July 14, 2006 for debt service due from April 2006 through July 2006. Such payment was not made on July 14, 2006. In consideration for the waiver agreement, the Company issued 800,000 warrants to the note holders. As of July 14, 2006, the Company was in technical default of the payment terms of the 8% Notes. This default was further waived on December 13, 2006, per the terms below.

On December 13, 2006, the Company entered into an agreement for the issuance of $2,000,000 of 6% callable convertible notes (see below) and also entered into a letter agreement with certain of the Investors to amend the 8% Notes and warrants as well as the promissory notes (See below) previously issued to these Investors by the Company, and to waive certain defaults under these notes and warrants. The letter agreement also serves to amend the amortization and payment terms of the 8% Notes. A single balloon payment will be due on the 8% Notes on the revised maturity date of December 13, 2009. As a result of the amendments to the 8% Notes, these notes will continue to accrue interest through the amended maturity date. In addition, the conversion rate was amended. The amended conversion price of the 8% Notes is 75% of the average of the lowest three closing prices of the Company’s common stock for the 20 day period prior to such conversion, with a minimum conversion price of $0.50 per share. In connection with the issuance of the 8% Notes, the Company also issued five-year warrants to the investors for the purchase of up to 75,000 shares of the Company's common stock, $0.01 par value, at an original exercise price of $7.50 per share, which are exercisable at any time. The placement agent received three-year warrants for the purchase of 12,195 shares of the Company's common stock, at an exercise price of $7.50 per share exercisable between the period January 12, 2006 and January 11, 2009. In connection with the December 13, 2006 letter agreement, the terms of the warrants issued to the note holders were modified to change the exercise price to $1.00 per share and to extend the term of the warrants to expire on the seventh anniversary of the original issuance date.

Other Notes Payable

During December 2005, the Company entered into a short-term note in the amount of $250,000. This loan bears interest at a rate of 10% through June 30, 2006 and has an annual imputed interest rate of 18.25%. Further, the full amount of interest will be paid to the lender regardless of any possible early payment of principal. This amount has been paid in full through the issuance to the lender of Series G Convertible Preferred Stock in December 2006 and the subsequent conversion of such preferred stock into shares of common stock.

On January 19, 2006, the Company entered into four short-term notes with the same lenders that also hold the 8% Callable Convertible Notes. These promissory notes provided proceeds totaling $500,000 to the Company. The notes were originally due and payable on April 19, 2006 in the aggregate total of $600,000, including imputed interest of $100,000 at an annual imputed interest rate of 80%. In the event of any defined event of default declared by the lenders by written notice to the Company, the notes shall become immediately due and payable, and the Company shall incur a penalty of an additional 15% of the amounts due and payable under the notes. At June 30, 2007 and 2006 the balance due is $600,000.

In connection with the waivers and amendments executed for the 8% Callable Convertible notes above, as of June 7, 2006 and December 13, 2006, the same agreements also waived and amended the maturity date of these short-term notes. The December 13, 2006 letter agreement amends the maturity date of the promissory notes to provide for a balloon payment on December 13, 2009. Any and all default provisions under the terms of the original promissory notes were waived and there are no default interest provisions enforced under the terms of the original promissory notes.

During the months of February and March 2006, the Company entered into a series of promissory notes with various private lenders. The notes closed in a series of four transactions over the period of February 2006 to March 2006. Gross proceeds in the amount of $799,585 were obtained and the notes carry an aggregate repayment total of $975,103 (which includes imputed interest of $175,518 or 21.95%), which is due and payable upon maturity. The notes carried a maturity date of February 28, 2007. In addition, warrants for the purchase of up to 585,062 shares of the Company’s common stock were issued to the individual lenders. The warrants carry an original exercise price of $6.50 and a term of 5 years. The warrants also contain a reprice feature and the exercise price was modified to $1.00. The warrants may be exercised 65 days after the date of issuance. Placement fees in the amount of $73,133 were paid to vFinance Investments, Inc. as placement agent. Other closing fees and finders fees of $66,090 were also paid. In addition to the placement fees, warrants for the purchase of up to 73,134 shares of the Company’s common stock were issued to the placement agent and its designees. The agent warrants carry an exercise price of $6.50, a term of 5 years and may be exercised 65 days after the date of issuance. These notes were satisfied through the issuance of common stock during fiscal 2007, however the warrants remain outstanding.

6% Notes

On December 13, 2006, pursuant to a Securities Purchase Agreement between the Company and several institutional investors , MSGI issued $2,000,000 aggregate principal amount of callable secured convertible notes (the “6% Notes”) and stock purchase warrants exercisable for 3,000,000 shares of common stock in a private placement for an aggregate offering price of $2,000,000. The conversion of the 6% Notes and the exercise of the warrants were subject to stockholder approval , which the Company received on March 6, 2007. H.C. Wainwright acted as a placement agent for a portion ($1,000,000) of the offering. The 6% Notes have single balloon payment of $2,000,000 on the maturity date of December 13, 2009 and will accrue interest at a rate of 6% per annum. The Investors can convert the principal amount of the 6% Notes into common stock of the Company, provided certain conditions are met, and each conversion is subject to certain volume limitations. The conversion price of the 6% Notes is 75% of the average of the lowest three closing prices of the Company’s common stock for the 20 day period prior to such conversion, with a minimum conversion price of $0.50 per share. The payment obligation under the Notes may accelerate if the resale of the shares of common stock underlying the 6% Convertible Notes and warrants are not registered in accordance with the terms of the Registration Rights Agreement , payments under the Notes are not made when due or upon the occurrence of other defaults described in the Notes. The warrants became exercisable once Stockholder Approval was obtained, on March 6, 2007, and are exercisable through December 2013. The exercise price of the warrants is $1.00 per share. The 6% Notes and the warrants have anti-dilution protections, and the Company has agreed to certain registration rights for the resale of the shares of common stock underlying the 6% Notes, pursuant to a Registration Rights Agreement entered into simultaneously with the transaction (the “Registration Rights Agreement”). The Company has also entered into a Security Agreement and an Intellectual Property Security Agreement with the Investors in connection with the closing, which grants security interests in certain assets of the Company and the Company’s subsidiaries to the Investors to secure the Company’s obligations under the 6% Notes and warrants. The registration rights agreement, as amended on December 13, 2006, provides for a registration filing 120 days from the date of closing and a registration effective date within 180 from the date of closing. The agreement provides for a cash penalty of approximately 2% of the value of the notes to be paid to each of the holders for each thirty-day period that is exceeded. This provision has been waived by the investors through June 30, 2007.

H.C. Wainwright received a placement fee of $100,000 and will receive 5 year warrants exercisable for 225,000 shares of common stock at an exercise price of $1.00 per share.

6% April Notes

On April 5, 2007, pursuant to a Securities Purchase Agreement between the Company and several institutional investors , MSGI issued $1,000,000 aggregate principal amount of callable convertible notes (the “6% April Notes”) and stock purchase warrants exercisable for 1,500,000 shares of common stock in a private placement for an aggregate offering price of $1,000,000. The warrants have an exercise price of $1.00 and are exercisable for a term of 7 years. The 6% April Notes have single balloon payment of $1,000,000 on the maturity date of April 5, 2010 and will accrue interest at a rate of 6% per annum. The Investors can convert the principal amount of the 6% April Notes into common stock of the Company, provided certain conditions are met, and each conversion is subject to certain volume limitations. The conversion price of the 6% April Notes is 75% of the average of the lowest three closing prices of the Company’s common stock for the 20 day period prior to such conversion, with a minimum conversion price of $0.50 per share. The payment obligation under these notes may accelerate if the resale of the shares of common stock underlying the 6% Convertible Notes and warrants are not registered in accordance with the terms of the Registration Rights Agreement, payments under the Notes are not made when due or upon the occurrence of other defaults described in the Notes. The 6% April Notes and the warrants have anti-dilution protections, and the Company has agreed to certain registration rights for the resale of the shares of common stock underlying the 6% April Notes, pursuant to a Registration Rights Agreement entered into simultaneously with the transaction. The Company has also entered into a Security Agreement and an Intellectual Property Security Agreement with the Investors in connection with the closing, which grants security interests in certain assets of the Company and the Company’s subsidiaries to the Investors to secure the Company’s obligations under the 6% April Notes and warrants. The 6% April Notes and Warrants also carry registration rights which contain penalty clauses if the underlying shares are not registered per the terms of the agreement. The agreement calls for a registration filing 90 days from closing date and a registration effective date within 150 days from the date of closing of the funding transaction. The agreement provides for a cash penalty of approximately 2% of the value of the notes to be paid to each of the holders for each thirty-day period that is exceeded. This provision in the agreement has been waived by the investors through June 30, 2007.

8% Debentures

On May 21, 2007, MSGI Security Solutions, Inc. pursuant to a Securities Purchase Agreement between the Company and several institutional investors issued 8% convertible debentures in the aggregate principal amount of $5,000,000 (the “8% Debentures”) and stock purchase warrants exercisable over a five year period for 1,785,713 shares of common stock in a private placement. H.C. Wainwright acted as a placement agent for the offering. The 8% Debentures have a maturity date of May 21, 2010 and will accrue interest at a rate of 8% per annum. Payments of principal under the Debentures are not due until the maturity date and interest is deferred until the maturity date, however the Investors can convert the principal amount of the 8% Debentures into common stock of the Company, provided certain conditions are met, and each conversion is subject to certain volume limitations. The conversion price of the 8% Debentures is $1.40 per share yielding an aggregate total of possible shares to be issued as a result of conversion of 3,571,428 shares. The exercise price of the Warrants is $2.00 per share. The 8% Debentures and the Warrants have anti-dilution protections and the Company has agreed to certain registration rights for the resale of the shares of common stock underlying the Debentures and Warrants, pursuant to a registration rights agreement entered into simultaneously with the transaction . The Company has also entered into a Security Agreement with the Investors in connection with the closing, which grants security interests in certain assets of the Company and the Company’s subsidiaries to the Investors to secure the Company’s obligations under the 8% Debentures and Warrants. H.C. Wainwright received a placement fee of $400,000 and 5 year warrants exercisable for 357,142 shares of common stock at an exercise price of $2.00 per share.

Advances from strategic partner - CODA

During the year ended June 30, 2007, the Company received funding, in the amount of approximately $722,000 from CODA Octopus Group, Inc. (“CODA”) as an advance in contemplation of a further strategic transaction between the two parties. CODA has also paid directly, in support of our subsidiary Innalogic LLC, certain operating expenses in the amount of approximately $537,000. During the year ended June 30, 2007, the Company repaid CODA $234,000 of the $537,000 paid on our behalf. The net of these transactions brought the aggregate total due to this firm to approximately $1.0 million. The advances bore interest at a rate of 8% and interest expense was $36,552 for the year ended June 30, 2007. On April 1, 2007 the Company, through its majority-owned subsidiary Innalogic, LLC entered into a non-exclusive License Agreement with CODA. This agreement allows for CODA to market the Innalogic, LLC “SafetyWatch” technology to its client base, sub-license the Technology to its customers and distributors, use the Technology for the purposes of demonstration to potential customers, sub-licensors and/or distributors and to further develop the source code of the Technology as it sees fit. In return, CODA will pay a 20% royalty to MSGI from the sale of the Technology to its customers. On May 16, 2007 the Company issued 850,000 unregistered common shares to CODA Octopus Group, Inc. as full and final payment and a release of all financial obligations resulting from advances made by CODA to the Company and/or Innalogic LLC, the Company's subsidiary through the period ended June 30, 2007. CODA assumed certain development and operational activities of Innalogic in connection with this transaction.

Liquidity

The Company has limited capital resources, has incurred significant historical losses and negative cash flows from operations and has limited current revenues. The Company was also in default of its debt service payments or other provisions of the debt agreements of some of its notes payable, but has successfully reached a resolution to these defaults. The Company believes that funds on hand combined with funds that will be available from its various operations will not be adequate to finance its operations and capital expenditure requirements and enable the Company to meet its financial obligations and payments under its convertible notes and promissory notes for the next twelve months. Further, there is uncertainty as to timing, volume and profitability of transactions that may arise from our relationship with Hyundai and Apro (see discussion below). The Company is in the process of consummating certain strategic transactions that may provide significant capital. The Company has engaged the investment banking firm of HC Wainwright to raise additional capital to fund operations and funding events were successfully closed on December 13, 2006, April 4, 2007 and May 21, 2007. There are no assurances that any further capital raising transactions will be consummated. Although certain transactions have been successfully closed, failure of our operations to generate sufficient future cash flow and failure to consummate our strategic transactions or raise additional financing could have a material adverse effect on the Company's ability to continue as a going concern and to achieve its business objectives. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying financial statements do not include any adjustments relating to the recoverability of the carrying amount of recorded assets or the amount of liabilities that might result should the Company be unable to continue as a going concern.

Industry

Overview.

The primary industries in which our companies operate are homeland security and international public safety. In the United States and abroad, homeland security and public safety are not purely separate areas, but rather law enforcement, fire departments, civil defense organizations and medical response teams are a crucial segment of any crisis situation, and work together with multiple government agencies to manage and resolve emergency situations. The Company believes its products and services work throughout the chain of threat prevention, detection, dissuasion, management and resolution to expedite the collection and dissemination of data in a secure fashion to field agents and decision-makers.

Industry Growth.

The primary industries in which our companies operate are homeland security and public safety. The market for homeland security and safety technologies has been rapidly growing since the terrorist attacks occurred in the eastern United States in September 2001.

The “critical infrastructure” of the United States that could be subject to attack or a non-terrorist crisis (fire, earthquake, flooding) is absolutely enormous. According to the Environmental Protection Agency (“EPA”) and the U.S. General Accounting Office (“GAO”), there are more than 120 chemical plants within the United States that could each potentially expose more than one million people if an attack on the facility caused chemicals to be released, and there are more than 66,000 chemical plants nationwide. There are more than 5,800 hospitals, 2,800 power plants, 5,000 public airports, 300 coastal and inland ports, 104 commercial nuclear power plants, 600 natural gas processing facilities, 153 oil refineries, 7,500 bulk petrochemical terminals, 80,000 dams, 3,000 government-owned facilities and sites, and 460 “key asset” skyscrapers in the country, along with more than 250,000 sites owned by firms that are considered part of the “defense industrial base”.

The U.S. Department of Homeland Security (the “DHS”) has identified multiple end users of surveillance collection and data transmission technologies, including state and local governments, border and transportation security (for border entry points, transportation hubs, and shipping facilities), critical infrastructure protection, various military agencies and the U.S. Coast Guard, and the United States Secret Service.

All of this surveillance and interoperability improvement activity is expected to come at a significant cost. The DHS has estimated that reaching an accelerated goal of communications interoperability will require a major investment of several billion dollars over the next decade. There are several funding resources at all levels to assist in the development and acquisition of interoperable communications technologies, but the federal government is the primary source. There are multiple federal grant programs, including the Homeland Security grants, Urban Area Security Initiative, the Office for Community Oriented Policing Services (“COPS”) within the Department of Justice (“DOJ”), FEMA interoperable communications grants, Assistance to Firefighters grants, DOJ Local Law Enforcement Block Grants, and National Urban Search and Rescue Grants. The COPS program alone was authorized by Congress to administer the Interoperable Communications Technology Program beginning in 2003. More than $66 million in grants have been awarded by COPS to first responders for communications equipment, training and technical assistance. The fiscal year 2005 budget for DHS has allocated approximately $3.6 billion in grants for first-responders, $37 million in additional funds to help build out the Homeland Security Operations Center (the nerve center for homeland security information and incident management across the United States) and FEMA incident-management capabilities, and $3.6 billion to the Office for Domestic Preparedness. Approximately $474 million has been earmarked for the “Intelligence and Warning” segment of the National Strategy Mission Area for Homeland Security, which aggregates all non-military spending across the entire federal budget for that segment, $8.8 billion has been earmarked for the “Emergency Preparedness and Response” segment, and $3.4 billion has been allocated for “Defending Against Catastrophic Threats”. Roughly $16.6 billion is reserved for security, enforcement, and investigational activity by the Bureau of Customs and Border Protection, Transportation Security Administration, the Coast Guard and the Secret Service. More than $5.5 billion in federal grants for first-responders from previous fiscal years remains available for distribution. The Urban Area Security Initiative Grants, given out by DHS to large local municipalities for security equipment, training and assistance, have been proposed to rise from $727 million in fiscal year 2004 to $1.45 billion in fiscal year 2005.

Beyond interoperability of communications between agencies, our products also offer significant advancements for surveillance and data collection and dissemination within law enforcement and fire department agencies for civilian crimes, fires and other incidents. For law enforcement, because of the many factors that arise in situations involving police and private citizens, surveillance technology that transmits information to field officers, commanders, and to a repository has significant advantages over relying on eyewitness surveillance. We believe that recording of video and audio can be very valuable for investigations and prosecution.

A RAND Corporation survey of law enforcement agencies in the United States in 2000 found a significant proportion of the respondents lacked even the most basic surveillance technologies. Approximately 59% of local departments and 33% of state police departments did not use fixed-site video surveillance, while only 3% of local departments and 7% of state departments reported widespread use of this technology. Some of the larger cities, such as New York City and Baltimore, have quite comprehensive fixed video surveillance in highly trafficked public areas, such as Times Square and Central Park. Almost 70% of local departments and 27% of state police departments did not use any sort of mobile video surveillance cameras, which would be used in a stakeout, hostage or other field incident. The primary reason cited for not acquiring this equipment was cost. Law enforcement agencies are widely expected to improve the quality of their surveillance data collection and dissemination technologies over the coming years. Even before the 2001 attacks, a 1998 study by the Rocky Mountain Region of the National Law Enforcement and Corrections Technology Center estimated that the use of digital communications systems would nearly double, rising to 25% of all police departments in the country by the end of calendar year 2007.

We also are actively marketing our surveillance and data communications products and services into various agencies and sectors of the United States military and intelligence services. In an article by Professor Peter Raven-Hansen of the George Washington Law School in the U.S. State Department’s journal U.S. Foreign Policy Agenda, the author notes that the first step in bringing terrorists to justice is surveillance of potential attackers and prime targets. The U.S. Supreme Court has ruled that collection of “security intelligence” for use in a terrorism investigation is different than collection of evidence of a regular crime, partly because it is needed to prevent terrorism. Congress has enacted laws permitting independent judges to authorize surveillance for the purpose of collecting foreign intelligence in the United States on a lesser showing of probable cause than for a regular crime. The agency need only show that there is probable cause to believe that the target of the surveillance is a foreign agent or an international terrorist.

Services Offered by MSGI’s Operating Subsidiaries

Relationship with Hyundai Syscomm Corp. :

On September 11, 2006 the Company entered into a License Agreement with Hyundai Syscomm Corp. (“Hyundai”) whereby, in consideration of a one-time $500,000 fee (of which $300,000 was received in October 2006 and the remaining 200,000 was received in June 2007), MSGI granted to Hyundai a non-exclusive worldwide perpetual unlimited source, development and support license, for the use of the technology developed and owned by MSGI’s majority-owned subsidiary, Innalogic, LLC. This license entitles Hyundai to onward develop the source code of the technology to provide wireless transmission and encryption capabilities that work with any other of Hyundai’s products, to use the technology for the purposes of demonstrating the technology to potential customers, sub-licensees and distributors, market the technology world wide either under its existing name or any name that Hyundai may decide and to sub-license the technology to its customers and distributors generally. The License Agreement carries certain intellectual property rights which state that (i) Hyundai will follow all such reasonable instructions as MSGI may give from time to time with regard to the use of trademarks or other indications of the property and other rights of MSGI or its subsidiaries, (ii) warrants that MSGI is the sole proprietary owners of all copyright and intellectual property rights subsisting in the technology and undertakes to indemnify Hyundai at all times against any liability in respect of claims from third parties for infringement thereof and (iii) provides that Hyundai acknowledges that the intellectual property rights of any developments of the technology that are undertaken by MSGI rest and will remain owned by the Company.

On October 19, 2006, the Company entered into a Subscription Agreement with Hyundai for the issuance of 900,000 shares of the Company's common stock. Subject to the terms and conditions set forth in the Subscription Agreement, the Company agreed to issue up to 900,000 shares of common stock contingent upon the Company's receipt of $500,000 received in connection with a certain License Agreement, dated September 11, 2006 (See above), and execution of a certain then pending Sub-Contracting Agreement (see below). Under the terms and conditions set forth in the Subscription Agreement, Hyundai agreed that the Company shall not be required to issue, or reserve for issuance at any time in accordance with Nasdaq rule 4350(i), in the aggregate, Common Stock equal to more than 19.99% of the Company's common stock outstanding (on a pre-transaction basis). Therefore the Company issued 865,000 shares of common stock at the initial closing of the transaction, and the remaining 35,000 shares of common stock shall be issued when and if: (a) the holders of a majority of the shares of common stock outstanding vote in favor of Hyundai owning more than 19.99% of the Company's common stock outstanding; or (b) additional issuances of common stock by the Company permit such issuance in accordance with Nasdaq rule 4350(i). As of the date of submission of this report, the Company is obligated to issue the remaining 35,000 shares of common stock to Hyundai, per the terms of the Subscription Agreement.

On October 25, 2006, the Company entered into a Sub-Contracting Agreement with Hyundai. The Sub-Contracting Agreement allows for MSGI and its affiliates to participate in contracts that Hyundai and/or its affiliates now have or may obtain hereafter, where the Company's products and/or services for encrypted wired or wireless surveillance systems or perimeter security would enhance the value of the contract(s) to Hyundai or its affiliates. The initial term of the Sub-Contracting Agreement is three years, with subsequent automatic one year renewals unless the Sub-Contracting Agreement is terminated by either party under the terms allowed by the Agreement. Further, under the terms of the Sub-Contracting Agreement, the Company will provide certain limited product and software warranties to Hyundai for a period of 12 months after the assembly of the Company's products and product components by Hyundai or its affiliates with regard to the product and for a period of 12 months after the date of installation of the software by Hyundai or its affiliate with regard to the software. The Company will also provide training, where required, for assembly, maintenance and usage of the equipment and shall charge its most favored price for such training services. No title or other ownership of rights in the Company's firmware or any copy thereof shall pass to Hyundai or its affiliates under this Agreement. Hyundai and its affiliates agree that it shall not alter and notices on, prepare derivative works based on, or reproduce, disassemble or decompile any Software embodied in the firmware recorded in the Company's products.

On February 7, 2007, the Company issued to Hyundai Syscomm Corp. a warrant to purchase up to a maximum of 24,000,000 shares of common stock in exchange for a maximum of $80,000,000 in revenue, which is to be realized by the Company over a maximum period of four years. The vesting of the Warrant will take place quarterly over the four-year period based on 300,000 shares for every $1,000,000 in revenue realized by the Company. The revenue is subject to the sub-contracting agreement between Hyundai and the Company dated October 25, 2006. Additionally, when issued, the shares underlying the warrant were to be authorized through an increase in the total of authorized capital stock of the company to be approved by the stockholders. The warrant could not begin to vest until these underlying shares were authorized. Such approval was obtained at the Special Meeting of the Stockholders on March 6, 2007. No transactions under this agreement have occurred to date.

On May 10, 2007, the Company entered into an exclusive sub-contract and distribution agreement with Apro Media Corp. (“Apro” or “Apro Media”) for at least $105 million of sub-contracting business over seven years to provide commercial security services to a Fortune 100 defense contractor. Under the terms of contract, MSGI will acquire components from Korea and deliver fully integrated security solutions at an average level of $15 million per year for the length of the seven-year engagement. MSGI will also immediately establish and operate a 24/7/365 customer support facility in the Northeastern United States. Apro will provide MSGI with a web-based interface to streamline the ordering process and create an opportunity for other commercial security clients to be acquired and serviced by MSGI. The contract calls for gross profit margins estimated to be between 26% and 35% including a profit sharing arrangement with Apro Media, which will initially take the form of unregistered MSGI common stock, followed by a combination of stock and cash and eventually just cash. In the aggregate, assuming all the revenue targets are met over the next seven years, Apro Media would eventually acquire approximately 15.75 million shares of MSGI common stock. MSGI was referred to Apro Media by Hyundai as part of a general expansion into the Asian security market, however revenue under the Apro contract does not constitute revenue under the existing Hyundai warrant to acquire common stock of MSGI. The contract requires working capital of at least $5 million due to considerable upfront expenses including a $2.5 million payment by MSGI to Apro Media for the proprietary system development requirements of the Fortune 100 client and the formation of a staffed production and customer service facility and warehouse. On May 21, 2007, MSGI acquired the funding necessary for the execution of the contract, shortly thereafter, made the required payment of $2.5 million to Apro. However, we received our first order through Apro during the three months period ended June 30, 2007 and the first shipment of product under this arrangement occurred on or about September 30, 2007.

Innalogic, LLC:

Innalogic LLC (“Innalogic”) is a wireless software product development firm that works with clients - such as the U.S. Department of Homeland Security - to custom-design technology products that meet specific user, functional and situational requirements.

Innalogic has a recognized core competency in an area of increasingly vital importance to security, delivering rich-media content (video, audio, biometric, sensor data, etc.) to wirelessly enabled mobile devices for public safety and security applications over wireless or wired networks.

On April 1, 2007 the Company entered into a non-exclusive License Agreement with the CODA Octopus Group, Inc., through its majority owned subsidiary, Innalogic, LLC. This agreement allows for CODA to market the Innalogic, LLC “SafetyWatch” technology (the “Technology”) to its client base, sub-license the Technology to its customers and distributors, use the Technology for the purposes of demonstration to potential customers, sub-licensors and/or distributors and to further develop the source code of he Technology as it sees fit. In return, CODA will pay a 20% royalty to MSGI from the sale of the Technology to its customers. CODA has assumed certain development and operational activities of Innalogic.

Importantly, Innalogic’s wireless video applications help clients make the critical upgrade of CCTV video security systems from analog to digital technology. Innalogic software applications easily integrate with existing systems - camera or rich-media networks - and are specially designed to incorporate or integrate with new or replacement technologies as they come online.

Currently in development is Innalogic SafePassage(tm), an embedded application software that installs within firmware at the SOC level and is used secure the transmission of IP or packet data in a wireless network environment. Innalogic’s “Embedded Modular Cryptography Platform” (EMCP) integrates on the application, transport, and link layers. Devices, such as PDAs, handheld computers, and video cameras, using EMCP - EA, can operate with strong encryption in a wireless network. EMCP - EA secures wireless data transfer on small devices to support real-time wireless network applications like audio and video feeds, financial transaction processing, and other types of confidential data transmissions.

The underlying technology for ECS - SafePassage applies to a wide range of functional scenarios.

Scenarios include:

·	Wired or Wireless Video Camera Network

·	Sensor Network

·	Intelligent Appliances

·	Building Automation and Control

SafePassage design modularizes functionality in object oriented software components. These components integrate with other Innalogic Embedded products, or may be used to design an embedded product for a unique customer requirement.

Innalogic is comprised of product designers, network engineers, senior software engineers, interface designers, and cybersecurity specialists with unparalleled depth of expertise in designing and deploying wireless technologies. Innalogic’s core competencies include:

Product design

Software engineering

Hardware integration

Network engineering

Interface design

System integration

Cybersecurity engineering

Innalogic product designers and engineers collectively bring decades of experience in software development, hardware deployment (e.g., video camera networks) and systems integration. Of particular significance is our ability to custom-write software that bridges the functionality of disparate hardware, software, and network systems and technologies.

Software Development

Innalogic adopts a straightforward and collaborative approach to software product development. Based on iterative design and development principles from Extreme Programming, Agile Modeling, and Rational Unified Process, Innalogic’s methodology allows the client to guide and continually refine our understanding of their design requirements as the product development process evolves.

An Innalogic product “roadmap” is developed for the client. The roadmap is an evolutionary tool that reflects precise client requirements - as they change over time. The client can guide the direction of the product roadmap by specifying key requirements, standards, and recommendations. The system can then be strategically updated, enhanced and modified to deploy the latest advances in video and security technology as determined by the client’s evolving functional specifications.

Innalogic designs, programs, tests and installs customized software applications to ensure maximum functionality, usability and client satisfaction.

Clients receive a proprietary Software Development Kit (SDK) and application-specific APIs that allow the client’s IT leaders to introduce and design new system features and functionality as desired.

Network Design and Engineering Services

Innalogic’s wireless network development and engineering expertise is applied to deliver customized solutions for clients’ specific challenges and requirements. Working in close concert with the client’s IT leaders and network administrators, Innalogic delivers these benefits:

· Creation of customized software applications for a client’s video network - designed specifically to optimize the network’s intended functionality and design requirements. Innalogic’s network software delivers maximum reliability and ease-of-use by client personnel utilizing the system.

· Customized network applications that allow for maximum control, oversight and ongoing administration of individual users in all locations where the network is deployed.

Network “Command Center”

At the core of Innalogic’s network design and engineering services is the creation of a customized network Command Center.

With a focus on a network’s current functional requirements and future expansion, Innalogic develops an elegantly architected Command Center modeled after our proprietary SafetyWatch™ software program - which is now being deployed for the U.S. Department of Homeland Security. The Command Center is designed to enhance the client’s existing network infrastructure, while facilitating the introduction of new features and connectivity with other wired and wireless devices. Moreover, the Command Center is designed to offer maximum scalability.

An Innalogic network Command Center delivers these features:

· Local or remote management — The Command Center enables centralized remote monitoring and coordinated recording across multiple sites, regardless of geographical location.

· Integration with existing network infrastructure — The Command Center interoperates with other wireless or wired networked digital devices and third- party analog CCTV components, such as cameras, monitors, matrixes and multiplexors.

· Powerful recording search facilities — The Command Center is able to quickly analyze thousands of recordings using motion, time and camera search criteria - thus saving valuable incident search time.

· Review incidents while still recording — Video recordings can be viewed without interrupting current recording.

· Simple remote system installation — The Command Center allows for device configuration remotely.

· Secure control of viewer access — The Command Center supports and provides administrative controls for multiple user levels.

Additionally, Innalogic serves as a vital technology partner to the client, supporting all related technology (hardware and software) initiatives that arise during the course of a network design and engineering engagement.

Future Developments America, Inc. (“FDA”):

As a result of our July 1, 2005 amendment to our agreements with the founder’s of FDA, the technology and intellectual property being developed was transferred to a company (“FDL”) controlled by the founders of FDA and we, through our subsidiary FDA, are a non-exclusive licensee in the United States of certain products developed by FDL and of other products developed by outside organizations. We also are entitled to receive royalties on sales of certain products by FDL. Some of FDL’s product offerings to be marketed are in the development stage at June 30, 2007, and we have not yet generated any revenue with respect to those products.

FDL markets a broad variety of off-the-shelf and custom surveillance equipment, including antennas, audio “bugs”, body cameras, covert and overt color and black-and-white cameras, night vision fixed surveillance cameras, power supplies, recording devices and related supplies. The firm sells off-the-shelf closed circuit television component (“CCTV”) equipment from a broad range of high quality manufacturers and has chosen not to commit to "exclusivity" with any specific product manufacturer. In this way, although FDA is still able to offer competitive pricing, they are also free to make suggestions to clients who request such information on equipment best suited for their specific application without being limited by exclusivity parameters.

FDL also markets a one-of-a-kind Digital Video & Audio Transmitter. The product is a two-component, digital, encrypted, spread spectrum video and audio transmitter receiver set that represents the latest advancement in deploying digital wireless technology for intelligence collection, surveillance and security. The transmitter/receiver has a multitude of applications to many areas of Federal, State and local law enforcement, and to numerous agencies within the U.S. Department of Homeland Security.

To help clients further meet the ongoing challenges of investigation and observation, FDL retains a wide range of high-end surveillance systems and equipment available for rent, including the latest in many of our custom covert cameras (for authorized agencies and organizations only). This often enables agencies, organizations and businesses to obtain equipment using operating budgets, and reduces the time lag between the need for the equipment and implementation. Renting is often optimal for short-term crisis situations, special events or seasonal needs, short-term system supplementation, or for evaluation of a system prior to purchase. The firm also offers lease or lease-to-purchase options for its systems.

FDL technicians work to ensure compatibility and smooth integration of new equipment with existing security operations such as CCTV monitoring and motion detection, alarm and card access controls, and communications systems. The firm provides customer training, as well as customer-designed check-lists for ease in trouble shooting.

FDL also delivers advisory services focused on the selection, design and deployment of technology-based surveillance networks and systems. FDL consultants work closely with client representatives to deliver solutions related to all aspects of security - from architecture and engineering to system enhancements, upgrades and expansion. FDL helps clients devise solutions that meet their functional requirements, while maintaining a constant focus on maximizing efficiency and minimizing costs. FDL functions as a primary consulting contractor, or it can serve as a sub-contractor as part of a broader consulting engagement team (with a level of visibility - or anonymity - as required by the client). FDL also provides broad-based technology and systems integration expertise. The firm works with clients to replace, update or enhance their existing electronic surveillance systems - while addressing compatibility issues and integrating new equipment with existing security systems and installations. FDL engineers are conversant with current and emerging trends that impact the near-term utility and long-term effectiveness of surveillance equipment and systems.

Client Base

The Company’s potential clients include private and public-sector organizations focused on homeland security, law enforcement, and military and intelligence operations that support anti-terrorism and national security interests, both in the United States and in Europe. The firm’s clients will come from a broad range of sectors and industries, and include law enforcement agencies, federal/state/regional agencies and institutions, judicial organizations, oil/gas businesses, commercial properties, banking and financial institutions, hotels, casinos, retail, warehousing and transportation entities, recreational facilities and parks, environmental agencies, industrial firms, loss prevention/investigation agencies, disaster site surveillance firms, bodyguard services, property management, building contractors and construction companies. To date we have provided our technology to various private and public sector organizations, both domestically and abroad. In come cases we have generated revenues from such deployments, and others were trial-basis demonstrations. Our ability to deliver our technology to customers is hindered by our liquidity and resource issues.

Competition

There are several companies now deploying wireless video technologies and covert surveillance tools. Only a handful, however, are doing so with wireless product offerings aimed exclusively at the homeland security and public safety markets. It is difficult to identify direct competitors of the Company in terms of the Company’s core competencies and basic market positioning. The competitors that come closest to mirroring the Company’s business model are Gans & Pugh Associates, Inc., a developer of wireless systems that employ traditional radio frequency technologies; Verint Systems, Inc., a provider of analytic software-based solutions for video security which competes against the Company in one of its service areas - assessing network-based security relative to Internet and data transmissions from multiple communications networks; and Vistascape, a provider of a security data management solution that integrates the monitoring and management of security hardware and software products. The Company believes its combination of product development, proprietary Open Media Delivery Platform rich-media delivery system, advanced encryption technologies, and focus on the homeland security and public safety markets are significant competitive advantages.

Facilities

The Company leases all of its real property. Facilities for its headquarters and for its testing and assembly operations to support the Hyundai and Apro contracts are in New York City. The Company believes that its remaining facilities are in good condition and are adequate for its current needs, however, to the extent that customer orders become more routine, we may need to seek additional facilities and resources. The Company has not yet renewed the lease for its headquarters, which terminates in October 2007, but expects to do so in the near term. The Company believes that its technological resources are all adequate for its needs through fiscal 2008.

Intellectual Property Rights

The Company relies upon its trade secret protection program and non-disclosure safeguards to protect its proprietary computer technologies, software applications and systems know-how. In the ordinary course of business, the Company enters into license agreements and contracts which specify terms and conditions prohibiting unauthorized reproduction or usage of the Company’s proprietary technologies and software applications. In addition, the Company generally enters into confidentiality agreements with its employees, clients, potential clients and suppliers with access to sensitive information and limits the access to and distribution of its software documentation and other proprietary information. No assurance can be given that steps taken by the Company will be adequate to deter misuse or misappropriation of its proprietary rights or trade secret know-how. The Company believes that there is rapid technological change in its business and, as a result, legal protections generally afforded through patent protection for its products are less significant than the knowledge, experience and know-how of its employees, the frequency of product enhancements and the timeliness and quality of customer support in the usage of such products.

Research and Development

During the fiscal year ended June 30, 2007, the Company incurred expenses in the amount of $2.5 million for costs related to the sub-contracting agreement entered into by the Company with Apro Media for the development of the technologies between the two companies. There were no such expenses in the fiscal year ended June 30, 2006.

Employees

At June 30, 2007, the Company and its majority owned subsidiaries employed approximately 5 persons on a full-time basis. Additionally, 8 individuals were engaged on a consulting basis. We intend to hire additional personnel as the development of our business makes such action appropriate. Our employees are not represented by a labor union or other collectively bargained agreement.

Item 2. Properties

The Company is headquartered in New York City where it maintains approximately 2,200 square feet of office and production space in two locations. We lease approximately 1,200 square feet, which is equipped to fully meet the needs of our corporate finance office. This lease runs through October 2007 with a monthly rent of $7,750. The Company also leases approximately 1,000 square feet of space for our testing and assembly facilities. This lease runs through December 2007 with a monthly rent of $6,000. The Company believes that it will require larger space for its testing and assembly facilities and is in the process of identifying such space. The company believes that such space is readily available in the metropolitan New York area.

Item 3. Legal Proceedings

Certain legal actions in the normal course of business are pending to which the Company is a party. The Company does not expect that the ultimate resolution of any pending legal matters will have a material effect on the financial condition, results of operations or cash flows of the Company.

Item 4. Submission of matters to a vote of security holders

N/A

PART II

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters

The common stock of the Company previously traded on the NASDAQ Capital Market under the symbol “MSGI” and on the “pink sheets” over the counter under the symbol “MSGI.PK”. Currently, the Company’s stock is traded on the “over the counter bulletin board” (“OTC:BB”) under the symbol “MSGI.OB”. The following table reflects the high and low sales prices for the Company’s common stock for the fiscal quarters indicated, as furnished by the NASDAQ, Pink Sheets and OTC:BB:

		Low		High
Fiscal 2007
	Fourth Quarter	$	0.85	$	2.74
	Third Quarter		0.63		1.29
	Second Quarter		0.62		1.95
	First Quarter		0.71		2.70
Fiscal 2006
	Fourth Quarter	$	2.52	$	4.51
	Third Quarter		3.05		4.42
	Second Quarter		2.31		4.89
	First Quarter		4.54		6.61

As of June 30, 2007, there were approximately 923 registered holders of record of the Company’s common stock.

The Company has not paid any cash dividends on any of its capital stock in at least the last six years. The Company intends to retain future earnings, if any, to finance the growth and development of its business and, therefore, does not anticipate paying any cash dividends in the foreseeable future.

Item 6. Management’s Discussion and Analysis

Critical Accounting Policies

Financial Reporting Release No. 60 requires all companies to include a discussion of critical accounting policies or methods used in the preparation of financial statements. This should be read in conjunction with the financial statements, and notes thereto, included in this Form 10-KSB/A. The following is a brief description of the more significant accounting policies and methods used by the Company.

The Company's consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States ("GAAP"). The preparation of consolidated financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The Company believes that the estimates, judgments and assumptions upon which the Company relies are reasonable based upon information available to us at the time that these estimates, judgments and assumptions are made. To the extent there are material differences between these estimates, judgments or assumptions and actual results, our financial statements will be affected. The significant accounting policies that the Company believes are the most critical to aid in fully understanding and evaluating our reported financial results include the following:

Revenue Recognition

Accounts Receivable

Long Lived Assets (amortization and realization)

Accounting for Income Taxes

Use of Estimates

Equity based compensation

Debt instruments and the features / instruments contained therein

Investments in unconsolidated entities

In many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP and does not require management's judgment in its application. There are also areas in which management's judgment in selecting among available alternatives would not produce a materially different result. Our senior management has reviewed the Company's critical accounting policies and related disclosures with our Audit Committee. See Notes to Consolidated Financial Statements, which contain additional information regarding our accounting policies and other disclosures required by GAAP.

Revenue Recognition:

The Company accounts for revenue recognition in accordance with Staff Accounting Bulletin No. 104, ("SAB 104"), which provides guidance on the recognition, presentation and disclosure of revenue in financial statements.

Revenues are reported upon the completion of a transaction that meets the following criteria (1) persuasive evidence of an arrangement exists; (2) delivery of our services has occurred; (3) our price to our customer is fixed or determinable; and (4) collectibility of the sales price is reasonably assured.

For contracts that consists of product and related installation, revenue is recognized on a progress-to-completion method, in accordance with SOP 97-2. Billings in advance of the completion of the work being delivered is recorded as deferred revenue. Revenue for maintenance contracts are deferred and recognized over the term of the maintenance period.

Accounts Receivable

The Company extends credit to its customers in the ordinary course of business. Accounts are reported net of an allowance for uncollectible accounts. Bad debts are provided on the allowance method based on historical experience and management’s evaluation of outstanding accounts receivable. In assessing collectibility the Company considers factors such as historical collections, a customer’s credit worthiness, and age of the receivable balance both individually and in the aggregate, and general economic conditions that may affect a customer’s ability to pay. The Company does not require collateral from customers nor are customers required to make up-front payments for goods and services.

Accounting for Income Taxes:

The Company recognizes deferred taxes for differences between the financial statement and tax bases of assets and liabilities at currently enacted statutory tax rates and laws for the years in which the differences are expected to reverse. The Company uses the liability method of accounting for income taxes, as set forth in SFAS No. 109, “Accounting for Income Taxes.” Under this method, deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the carrying amounts and the tax basis of assets and liabilities and net operating loss carry-forwards, all calculated using presently enacted tax rates. The effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be realized.

Use of Estimates:

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The most significant estimates and assumptions made in the preparation of the consolidated financial statements relate to the carrying amount and amortization of long lived assets, deferred tax valuation allowance, valuation of stock options, warrants and debt features, fair value of net assets acquired and the allowance for doubtful accounts. Actual results could differ from those estimates.

Equity Based Compensation:

We follow Statement of Financial Accounting Standards ("SFAS") No. 123 Revised 2004, "Share−Based Payment" (“SFAS 123R”). This Statement requires that the cost resulting from all share−based payment transactions are recognized in the financial statements of the Company. That cost will be measured based on the fair market value of the equity or liability instruments issued.

Debt instruments, and the features/instruments contained therein:

Deferred financing costs are amortized over the term of its associated debt instrument.

The Company evaluates the terms of the debt instruments to determine if any embedded derivatives or beneficial conversion features exist. The Company allocates the aggregate proceeds of the notes payable between the warrants and the notes based on their relative fair values. The fair value of the warrants is calculated utilizing the Black-Scholes option-pricing model. The Company is amortizing the resultant discount or other features over the term of the notes through its earliest maturity date. If the maturity of the debt is accelerated because of defaults, then the amortization is also accelerated to the default date. The Company’s debt instruments do not contain any embedded derivatives at June 30, 2007.

Investments in Non-Consolidated Companies:

The Company accounts for its investments under the cost basis method of accounting if the investment is less than 20% of the voting stock of the investee, or under the equity method of accounting if the investment is greater than 20% of the voting stock of the investee. Investments accounted for under the cost method are recorded at their initial cost, and any dividends or distributions received are recorded in income. For equity method investments, the Company records its share of earnings or losses of the investee during the period. Recognition of losses will be discontinued when the Company’s share of losses equals or exceeds its carrying amount of the investee plus any advances made or commitments to provide additional financial support.

An investment in non-consolidated companies is considered impaired if the fair value of the investment is less than its cost on other than a temporary basis. Generally, an impairment is considered other-than-temporary unless (i) the Company has the ability and intent to hold an investment for a reasonable period of time sufficient for an anticipated recovery of fair value up to (or beyond) the cost of the investment; and (ii) evidence indicating that the cost of the investment is recoverable within a reasonable period of time outweighs evidence to the contrary. If impairment is determined to be other-than-temporary, then an impairment loss is recognized equal to the difference between the investment’s cost and its fair value.

Overview

To facilitate an analysis of MSGI operating results, certain significant events should be considered.

On May 16, 2005, the Company entered into a Restructuring and Subscription Agreement with Excelsa S.p.A. (“Excelsa”), a corporation organized under the laws of the Republic of Italy, and stockholders of Excelsa (other than MSGI) owning in the aggregate more than 51 percent of Excelsa’s issued and outstanding common stock, to acquire additional shares of Excelsa common stock at no additional consideration such that MSGI then owned approximately 19.5% of the issued and outstanding shares of common stock of Excelsa, which the parties agreed better reflects the value of Excelsa under US generally accepted accounting principles. The Company paid approximately $4.2 million for its cumulative investment in Excelsa. As the Company has less than 20% ownership interest in Excelsa and does not have the ability to exercise significant influence over Excelsa, this aggregate investment is accounted for under the cost method of accounting. The Company wrote down the value of its investment in Excelsa to $1,650,000 at June 30, 2006. The Company has since learned that Excelsa has filed for bankruptcy and has ceased operations. As a result, we have fully impaired the investment in Excelsa and realized a loss on the investment of $1,650,000 effective September 30, 2006. (See Note 4 to the financial statements which includes a restatement for the prior quarters as initially reported on Form 10-QSB).

On June 1, 2005, the Company entered into a Stock Purchase Agreement to acquire equity ownership interests in AONet International srl (“AONet”), a limited liability company organized under the laws of the Republic of Italy, representing 51% of all of AONet’s equity ownership interests issued and outstanding as of the date of the Stock Purchase Agreement on a fully diluted basis. The purchase price for the 51% stake was 1,100,000 Euro, of which 600,000 Euro was paid and the remainder was payable in two equal installments of 250,000 Euro due on each of December 31, 2005 and March 31, 2006. The Stock Purchase Agreement provides that, if the Company fails to pay any of the individual installments within 48 hours of the applicable due date, the Stock Purchase Agreement will be terminated and the Company will be obligated to return all acquired equity ownership interests in AONet to the previous owner, forfeiting any and all payments made to that date.

In April 2006, the Company defaulted on certain payment provisions of the Stock Purchase Agreement of AONet International, S.r.l. As of April 1, 2006, all equity ownership interests reverted back to the previous owner and, as a result, the AONet subsidiary has been deconsolidated from the financial statements of the Company. As such, the operations and cash flows of AONet have been eliminated from ongoing operations and the Company no longer has continuing involvement in the operations, and all amounts have been reclassified into discontinued operations.

On October 19, 2006 the Company entered into a Subscription Agreement with Hyundai Syscomm Corp, a California Corporation, (“Hyundai”) for the sale of 900,000 shares of the Company’s common stock. Subject to the terms and conditions set forth in the Subscription Agreement, Hyundai agrees to purchase from the Company 900,000 shares of common stock in exchange for the Company’s receipt of $500,000 received in connection with a certain License Agreement, dated September 11, 2006, and receipt of a certain pending Sub-Contracting Agreement. Under the License Agreement, the Company has agreed to license certain intellectual property to Hyundai. Under the Sub-Contracting Agreement, Hyundai will retain the Company as a sub-contractor for the Company’s products and services.

On October 25, 2006 the Company entered into a Sub -Contracting Agreement with Hyundai Syscomm Corp. The Sub-Contracting Agreement allows for MSGI and its affiliates to participate in contracts that Hyundai and/or its affiliates now have or may obtain hereafter, where the Company’s products and/or services for encrypted wired or wireless surveillance systems or perimeter security would enhance the value of the contract(s) to Hyundai or its affiliates. The initial term of the Sub-Contracting Agreement is three years, with subsequent automatic one year renewals unless the Sub-Contracting Agreement is terminated by either party under the terms allowed by the Agreement.

On April 1, 2007 the Company entered into a non-exclusive license agreement with CODA Octopus, Inc. (“CODA”) where by the Company will receive a royalty on sales of products using the Innalogic proprietary technology. In connection with such transaction, CODA assumed certain development and operations responsibilities of the Innalogic entity.

On May 10, 2007, the Company entered into an exclusive sub-contract and distribution agreement with Apro Media Corp for at least $105 million of sub-contracting business over seven years to provide commercial security services to a Fortune 100 defense contractor. Under the terms of contract, MSGI will acquire components from Korea and deliver fully integrated security solutions at an average level of $15 million per year for the length of the seven-year engagement. MSGI will also immediately establish and operate a 24/7/365 customer support facility in the Northeastern United States. Apro will provide MSGI with a web-based interface to streamline the ordering process and create an opportunity for other commercial security clients to be acquired and serviced by MSGI. The contract calls for gross profit margins estimated to be between 26% and 35% including a profit sharing arrangement with Apro Media, which will initially take the form of unregistered MSGI common stock, followed by a combination of stock and cash and eventually just cash.

Results of Operations Fiscal 2007 Compared to Fiscal 2006

As of the year ended June 30, 2007 (the “Current Period”), the Company realized revenues in the amount of approximately $78,000 from the sales of Innalogic products and for a $100,000 royalty fee / referral fee income generated from the CODA Octopus Group, Inc. (“CODA”). We expect revenues to increase in the future through our new relationship with Apro Media, Corp. (“Apro”). As of the year ended June 30, 2006 (the “Prior Period”), the Company realized revenues in the amount of approximately $76,000 from the sales of Innalogic products and a $50,000 sale of Innalogic products to Excelsa. Sales of these products have been sporadic and based upon the successful attainment and fulfillment of contracts with various security agencies, and this process has been difficult to predict due to the duration of evaluation by our potential customers and due to our lack of funding to fulfill such contracts. All revenues generated by previously owned subsidiaries and AONet during the fiscal year ended June 30, 2005 through 2006, have been reclassified to a single line presentation of Loss from Discontinued Operations on the Consolidated Statement of Operations.

Costs of goods sold of approximately $50,000 in the Current Period and approximately $38,000 in the Prior Period consisted primarily of the expenses related to acquiring the components required to provide the specific technology applications ordered by each individual customer. All costs of goods sold recognized by previously owned subsidiaries during the fiscal year ended June 30, 2006, (the “Prior Period”), have been reclassified to Loss from Discontinued Operations on the Consolidated Statement of Operations.

Research and development expenses were approximately $2.5 million in the Current Period. The Company recognized research and development costs associated with executing the sub-contract relationship with Apro. These expenses represent the costs associated with development of technologies specifically for a particular Fortune 100 client. There were no such costs in the Prior Period as this relationship commenced in the Current Period.

Salaries and benefits of approximately $2.1 million in the Current Period decreased by approximately $1.4 million or 40% from salaries and benefits of approximately $3.5 million in the Prior Period. Salaries and benefits decreased due to a reduction in headcount, both in the Innalogic operation (especially after CODA assumed some of these activities, including responsibilities for the costs of certain of the Innalogic personnel) and in management positions. Certain of the management employees related to the former operations in Italy have subsequently been dismissed or their involvement reduced. Further non-cash compensation was approximately $757,000 in the Current Period as compared to $1.5 million in Prior period due to the timing and valuation of equity-based securities issued to employees and directors of the Company.

In the Prior Period, the Company recognized an expense for the provision for loss on a note receivable from the Chief Executive Officer of the Company of approximately $1.2 million. The collection of this note by its October 15, 2006 due date did not occur. The Board of Directors of the Company subsequently elected to forgive such note receivable and the full amount has been written off. There was no such cost in the Current Period.

Selling, general and administrative expenses of approximately $2.9 million in the Current Period decreased by approximately $0.9 million or 23% over comparable expenses of $3.8 million in the Prior Period. The decrease is due primarily to reductions in consulting fees for technical support and management of foreign operations of approximately $846,000 and to reductions in travel related expenses of approximately $416,000. These reductions are due to the decrease of business operations in Europe. The reduction of selling, general and administrative expenses is also the result of the assumption of certain activities of Innalogic conducted by CODA as of April 1, 2007.

During the Current Period, the Company recorded depreciation and amortization expense of approximately $131,000 compared to expenses of approximately $199,000 in the Prior Period. Most of the long-lived assets of the Company have been fully amortized as of June 30, 2007.

During the Current Period, the Company recorded a loss from impairment on the investment in Excelsa of approximately $1.6 million. There was loss of approximately $2.4 million recorded in the Prior Period for such impairment. As of the year ended June 30, 2007, this investment has been fully impaired. See Note 4 to the financial statements for further discussion.

During the Current Period, the Company recorded a loss from the issuance of shares of its common stock (settlement of liability) to CODA Octopus Group, Inc. as repayment of advances and operating expenses paid by CODA on behalf of Innalogic, totaling approximately $812,000, representing the excess fair value of the shares issued as compared to the obligations due CODA. There was no such loss in the Prior Period.

Interest income of approximately $1,000 in the Current Period represents a decrease from interest income of approximately $70,000 during the Prior Period. This decrease is primarily the result the elimination of the promissory note from the Chief Executive Officer.

Interest expense of approximately $2.3 million in the Current period is primarily due to debt transactions entered into during the Current Period and the value of certain equity instruments granted to note holders as inducements to grant us extensions and waivers of debt defaults. Interest expense was approximately $4.5 million in the prior period during 2006, including the acceleration of the amortization of certain debt issuance costs and the value attributable to warrants and beneficial conversion features upon the default of certain debt provisions. The non-cash component of interest expense was approximately $1.4 million in the Current Period as compared to $3.9 million in the Prior period. The cash portion of interest expense increased as a result of additional borrowings.

The net provision for income taxes of approximately $9,000 in the Current Period decreased by approximately $25,000 from net provision for income taxes of approximately $34,000 in the Prior Period. Our provision for income taxes is primarily due to state and local taxes incurred on taxable income or equity at the operating subsidiary level, which cannot be offset by losses incurred at the parent company level or other operating subsidiaries. The Company has recognized a full valuation allowance against the deferred tax assets because it is more likely than not that sufficient taxable income will not be generated during the carry forward period to utilize the deferred tax assets.

As a result of the above, loss from continuing operations item of approximately $12.4 million in the Current Period decreased by $3.1 million over a comparable loss of $15.5 million in the Prior Period.

The loss from discontinued operations-AONet reported in the Prior Period represents our share of the results of the operations of AONet for the period in which we consolidated their operations in our financial statements. The loss on disposal of discontinued operations-AONet represents the write-down of the remaining book value of assets and liabilities associated with the AONet operations to nil as of April 1, 2006, the date we defaulted on the required debt service payment and forfeited our ownership.

The loss from discontinued operations-other of approximately $5,000 in the Prior Period is the result of a write-off of a facility rent deposit for a former subsidiary.

As a result of the above, net loss of approximately $12.4 million in the Current Period decreased by approximately $5.2 million from comparable net loss of $17.6 million in the Prior Period.

In the Current Period the Company recognized undeclared dividends on preferred stock of approximately $15,000 as compared to $178,000 in the Prior Period. This pertains to the issuance of the Company’s Series F Convertible Preferred Stock. The Company is required to pay an annual dividend of 6% on the Preferred Stock, payable in shares of the Company’s common stock. This obligation, although not yet declared by the Board of Directors of the Company, still exists although all of the shares of Series F preferred stock has been converted to common stock.

As a result of the above, net loss attributable to common shareholder of approximately $12.4 million in the Current Period decreased by approximately $5.4 million from comparable net loss of $17.8 million in the Prior Period.

Off-Balance Sheet Arrangements

Financial Reporting Release No. 61, which was recently released by the SEC, requires all companies to include a discussion to address, among other things, liquidity, off-balance sheet arrangements, contractual obligations and commercial commitments. The Company currently does not maintain any off-balance sheet arrangements.

Liquidity and Capital Resources

Historically, the Company has funded its operations, capital expenditures and acquisitions primarily through private placements of equity and debt transactions. At June 30, 2007, the Company had approximately $2.5 million in cash and cash equivalents. The Company believes that existing financing and expected earnings will not meet its current working capital and debt service requirements for the next twelve months, since there is uncertainty as to timing, volume and profitability of transactions that may arise from our relationship with Hyundai and Apro. These issues raise substantial doubt about our ability to continue as a going concern. The accompanying financial statements do not include any adjustments relating to the recoverability of the carrying amount of recorded assets or the amount of liabilities that might result should the Company be unable to continue as a going concern.

The transactions described below are transactions entered into after June 30, 2007, which will impact our liquidity:

On May 31, 2007 the Company received its first purchase order from Apro Media Corp in the amount of $10 million as part of the sub-contracting agreement to provide commercial security services to a Fortune 100 defense contractor. MSGI acquired the first shipment of components from a Korean company in June 2007 and began to deliver fully integrated security systems in August through October 2007. MSGI will continue to fulfill client requests throughout the first two quarters of the fiscal year ended June 30, 2008. The Company has secured a new production and customer service facility in Manhattan to facilitate these operations.

During the months of July and August 2007, the Company executed certain conversions of debt to equity under the provisions of a series of 8% Callable Convertible Notes issued by the Company during the fiscal year ended June 30, 2006. The Company effectively reduced certain debt obligations by approximately $810,000 and issued an aggregate total of 1,257,532 shares of its common stock.

On October 9, 2007 the Company announced that Callable Secured Convertible 8% Notes originally issued during July 2005 to September 2005 and Callable Secured 6% Notes originally issued on December 13, 2006 were purchased by certain third-party institutional investors on September 30 and October 3, 2007, from the original note holders. The Company did not receive any cash as a result of these transactions. These institutional investors have submitted notification to the Company of their intentions to fully convert the Notes into shares of the Company’s common stock which is expected to be accomplished during October 2007. The transaction, when completed, will have the effect of eliminating approximately $3.95 million of note payable, on a fully accreted basis, from the Company’s balance sheet. The exercise will result in the issuance of approximately 6,700,000 shares of the Company’s common stock, bringing the total shares outstanding to approximately 18,265,000.

Analysis of cash flows during fiscal years ended June 30, 2007 and 2006:

The Company realized a loss from continuing operations of approximately $12.4 and $15.6 million in the Current Period and Prior period, respectively. Cash used in operating activities from continuing operations was approximately $6.1 and $3.1 million in the Current Period and Prior period, respectively. Net cash used in operating activities in the Current Period principally resulted from the loss from continuing operations , including the payment of $2.5 million to Apro for the research and development fee, plus increases in inventory, adjusted by non-cash operating expenses of approximately and offset by an increases in accrued liabilities in the Current Period.

In the Current Period, the Company was provided net cash of approximately $8.5 million from the issuance of debt instruments. These instruments bear coupon interest rates ranging from 6% - 8%, however their effective rate is significantly higher due to the presence of warrants and beneficial conversion features.

Our contractual obligations are summarized in the table below

	Payments Due (In thousands)
Contractual Obligations	Total		Less than 1 year		1 - 3 years		4 - 5 years		More Than 5 years

Operating leases	$	50	$	50	$	-	$	-	$	-
Notes Payable		-		-		600		-		-
8% Callable convertible Notes payable and interest [1]		-		-		9,389		-		-
6% Callable convertible Notes payable and interest [1]		-		-		3,540		-		-

[1] Represents balloon payment at maturity plus interest over term of note due at maturity

Leases: The Company currently leases various office space and equipment under non-cancelable short-term leases which are all less than 1 year. The Company incurs all costs of insurance, maintenance and utilities.

Debt:

Instrument	Maturity		Face Amount		Coupon Interest Rate			Carrying Amount at June 30, 2007, net of discount		Carrying Amount at June 30, 2006, net of discount
Notes Payable		Demand	$	500,000		N/A		$	600,000	$	600,000
Notes Payable		Various		Various		Various			-	$	842,427
8% Notes		Dec. 13, 2009	$	3,000,000		8	%		1,427,411		2,574,597
6% Notes		Dec. 13, 2009	$	2,000,000		6	%		361,111		-
6% April Notes		April 4, 2010	$	1,000,000		6	%		83,334		-
8% Debentures		May 21, 2010	$	5,000,000		8	%		185,185		-
Advances from strategic partner (CODA)		N/A		varies		8	%		-	$	300,000

Callable Secured Convertible Note Financings

8% Callable Convertible Notes

The Note initially required repayment over a three-year term with an 8% interest per annum. Repayment shall be made in cash or in registered shares of common stock if the stock price exceeded $4.92 per the agreement terms, or a combination of both, at the option of the Company, and payment commenced 90 days after the closing date and was payable monthly in equal principal installments plus interest over the remaining 33 months.

Further, the Holder has the option to convert all or any part of the outstanding principal to common stock if the average daily price, as defined in the agreement, for the preceding five trading days is greater than the defined Initial Market Price of $6.56. The original conversion price for this holder option was $4.92. The Company granted registration rights to the investors for the resale of the shares of common stock underlying the notes and certain warrants that were issued in the transaction.

The Note agreement provides the Company with the option to call the loan and prepay the remaining balance due. If the loan is called early, the Company will be required to pay 125% of the outstanding principal and interest as long as the common stock of the Company is at $6.00 or less. If the stock price is higher than $6.00 when the Company exercises the call option, then the amount owed is based upon a calculation, as defined in the agreement, using the average daily price. If in any month a default occurs, the note shall become immediately due and payable at 130% of the outstanding principal and interest.

In January 2006, the Chief Executive Officer entered into a guarantee and pledge agreement with the note holders, whereby, the common stock of MSGI owned by the Chief Executive Officer (approximately 190,000 shares) was pledged as additional collateral for these notes.

On June 7, 2006, the Company entered into a waiver and amendment agreement which modified certain payment due dates of the notes to provide for a payment of $395,450 due July 14, 2006 for debt service due from April 2006 through July 2006. Such payment was not made on July 14, 2006. In consideration for the waiver agreement, the Company issued 800,000 warrants to the note holders. Such warrants were ascribed a fair value, as computed under the Black-Scholes model, of $2,224,808 which was recognized as additional interest expense in June 2006. Because of the default of the terms of the notes, the remaining amortization of the deferred financing costs of approximately $238,200 and beneficial conversion costs and debt discount of approximately $990,100 were accelerated and fully recognized by June 30, 2006. As of July 14, 2006, the Company was in technical default of the payment terms of the 8% Notes. This default was further waived on December 13, 2006, per the terms below.

In connection with the issuance of the 8% Notes, the Company also issued five-year warrants to the investors for the purchase of up to 75,000 shares of the Company's common stock, $0.01 par value, at an original exercise price of $7.50 per share, which are exercisable at any time. The placement agent received three-year warrants for the purchase of 12,195 shares of the Company's common stock, at an exercise price of $7.50 per share exercisable between the period January 12, 2006 and January 11, 2009. In connection with the December 13, 2006 letter agreement, the terms of the warrants issued to the note holders were modified to change the exercise price to $1.00 per share and to extend the term of the warrants to expire on the seventh anniversary of the original issuance date.

8% Debentures

On May 21, 2007 MSGI pursuant to a Securities Purchase Agreement between the Company and several institutional investors issued 8% convertible debentures in the aggregate principal amount of $5,000,000 (the “8% Debentures”) and stock purchase warrants exercisable over a five year period for 1,785,713 shares of common stock in a private placement. H.C. Wainwright acted as a placement agent for the offering.

The 8% Debentures have a maturity date of May 21, 2010 and will accrue interest at a rate of 8% per annum. Payments of principal under the 8% Debentures are not due until the maturity date and interest is due on a quarterly basis, however the Investors can convert the principal amount of the 8% Debentures into common stock of the Company, provided certain conditions are met, and each conversion is subject to certain volume limitations. The conversion price of the Debentures is $1.40 per share yielding an aggregate total of possible shares to be issued as a result of conversion of 3,571,428 shares. The exercise price of the Warrants is $2.00 per share.

The 8% Debentures and the Warrants have anti-dilution protections and the Company has agreed to certain registration rights for the resale of the shares of common stock underlying the Debentures and Warrants, pursuant to a registration rights agreement entered into simultaneously with the transaction. The Company has also entered into a Security Agreement with the Investors in connection with the closing, which grants security interests in certain assets of the Company and the Company’s subsidiaries to the Investors to secure the Company’s obligations under the Debentures and Warrants.

The issuance of the Debentures and Warrants constituted a private placement and therefore was exempt from registration in accordance with Regulation D of the Securities Act of 1933, as amended.

H.C. Wainwright received a placement fee of $400,000 and 5 year warrants exercisable for 357,142 shares of common stock at an exercise price of $2.00 per share.

6% Callable Convertible Notes

The 6% Notes have single balloon payment of $2,000,000 on the maturity date of December 13, 2009 and will accrue interest at a rate of 6% per annum. The Investors can convert the principal amount of the 6% Notes into common stock of the Company, provided certain conditions are met, and each conversion is subject to certain volume limitations. The conversion price of the 6% Notes is 75% of the average of the lowest three closing prices of the Company’s common stock for the 20 day period prior to such conversion, with a minimum conversion price of $0.50 per share. The payment obligation under the Notes may accelerate if the resale of the shares of common stock underlying the 6% Convertible Notes and warrants are not registered in accordance with the terms of the Registration Rights Agreement , payments under the Notes are not made when due or upon the occurrence of other defaults described in the Notes. The warrants became exercisable once Stockholder Approval was obtained, on March 6, 2007, and are exercisable through December 2013. The exercise price of the warrants is $1.00 per share

The registration rights agreement, as amended on December 13, 2006, provides for a registration filing 120 days from the date of closing and a registration effective date within 180 from the date of closing. The agreement provides for a cash penalty of approximately 2% of the value of the notes to be paid to each of the holders for each thirty-day period that is exceeded. This provision has been waived by the investors through June 30, 2007. The issuance of the Notes and Warrants constituted a private placement and therefore was exempt from registration in accordance with Regulation D of the Securities Act of 1933, as amended.

H.C. Wainwright received a placement fee of $100,000 and will receive 5 year warrants exercisable for 225,000 shares of common stock at an exercise price of $1.00 per share.

6% April Notes

The 6% April Notes have single balloon payment of $1,000,000 on the maturity date of April 5, 2010 and will accrue interest at a rate of 6% per annum. The Investors can convert the principal amount of the 6% April Notes into common stock of the Company, provided certain conditions are met, and each conversion is subject to certain volume limitations. The conversion price of the 6% April Notes is 75% of the average of the lowest three closing prices of the Company’s common stock for the 20 day period prior to such conversion, with a minimum conversion price of $0.50 per share. The payment obligation under the Notes may accelerate if the resale of the shares of common stock underlying the 6% April Convertible Notes and warrants are not registered in accordance with the terms of the Registration Rights Agreement , payments under the Notes are not made when due or upon the occurrence of other defaults described in the Notes.

The 6% April Notes and the warrants have anti-dilution protections, and the Company has agreed to certain registration rights for the resale of the shares of common stock underlying the 6% April Notes, pursuant to a Registration Rights Agreement entered into simultaneously with the transaction. The Company has also entered into a Security Agreement and an Intellectual Property Security Agreement with the Investors in connection with the closing, which grants security interests in certain assets of the Company and the Company’s subsidiaries to the Investors to secure the Company’s obligations under the 6% April Notes and warrants.

The 6% April Notes and Warrants also carry registration rights which contain penalty clauses if the underlying shares are not registered per the terms of the agreement. The agreement calls for a registration filing 90 days from closing date and a registration effective date within 150 days from the date of closing of the funding transaction. The agreement provides for a cash penalty of approximately 2% of the value of the notes to be paid to each of the holders for each thirty day period that is exceeded. This provision in the agreement has been waived by the investors through June 30, 2007.

Other Notes Payable

January 2006 Note Payable:

On January 19, 2006, the Company entered into four short-term notes with the same lenders that also hold the 8% Callable Convertible Notes (See above). These promissory notes provided proceeds totaling $500,000 to the Company. The notes were originally due and payable on April 19, 2006 in the aggregate total of $600,000, including imputed interest of $100,000 at an annual imputed interest rate of 80%. In the event of any defined event of default declared by the lenders by written notice to the Company, the notes shall become immediately due and payable and the Company shall incur a penalty of an additional 15% of the amounts due and payable under the notes.

vFinance note payable:

In addition, warrants for the purchase of up to 585,062 shares of the Company's common stock were issued to the individual lenders. The warrants carry an original exercise price of $6.50 and a term of 5 years. The warrants may be exercised 65 days after the date of issuance. The warrant agreement contains a re-price provision that provides for a change in the exercise price if the Company issues more favorable terms to another party, as defined in the agreement. Due to the 800,000 warrants issued in connection with the 8% Callable Convertible Notes above at an exercise price of $4.50, the exercise price of the warrants issued with the vFinance note payable were modified to $4.50 as of June 30, 2006. Due to the December 13, 2006 issuance of warrants related to the 6% Notes , the exercise price of the vFinance warrants were modified to $1.00.

The vFinance Agreement also contains a registration rights agreement for the warrants which contains penalty clauses if the underlying warrant shares are not registered per the terms of the agreement. The agreement calls for a Registration Filing Date within 180 days from closing date and a Registration Effective Date within 90 days from the Registration Filing Date. The agreement provides for a cash penalty of approximately 1.5% of the value of the notes for each thirty-day period that is exceeded. As of June 30, 2007, the Company has a liability recorded of $74,000 to provide for the expected delay in issuing this registration statement.

On March 30, 2007, the Company entered into the last of a series of letter agreements with all of the individual investors involved in the Bridge Loan Transaction and the associated promissory notes to accept as payment in full against the principal and accrued interest of the promissory notes, shares of common stock of the Company. The shares of common stock are to be issued at a value of $0.75 per share. The last of these agreements was executed on March 30, 2007. All investors involved in the promissory notes transaction agreed to receive payment in shares of common stock of the Company. The issuance of the shares of common stock as payment against the promissory notes effectively eliminated approximately $989,000 of debt from the balance sheet of the Company. The payment resulted in the issuance of 1,318,088 shares of common stock of the Company.

In addition, the Company recorded additional interest expense of $197,700 as part of the transaction based upon the fair value of the stock issued to settle the debt. The common stock was issued in reliance upon the exemption from registration provided by Section 3(a)(9) of the Securities Act of 1933, as amended. Further, per the terms of the Letter Agreements, the liquidated damages accruing from the non-filing and non-timely effectiveness of a registration statement related to the shares of common stock which underlie certain warrants that were issued by the Company to the investors in the transaction will be addressed separately. The Company has quantified and accrued those amounts as of the quarter ended March 31, 2007 as noted above and anticipates stating such calculation to each individual investor during the period ended June 30, 2007, at which point in time each investor can elect to receive those payments in cash based on the extended time frame as discussed in the Letter Agreements, or alternately, receive those amounts in the form of further shares of common stock of the Company.

Advance from Strategic Partner:

During the twelve months ended June 30, 2007, the Company received funding, in the amount of approximately $722,000 from CODA Octopus Group, Inc. (“CODA”) as an advance in contemplation of a further strategic transaction between the two parties. This certain firm has also paid directly, in support of our subsidiary Innalogic LLC, certain operating expenses in the amount of approximately $537,000. During the year ended June 30, 2007, the Company repaid to CODA $234,000 of the $537,000 paid on our behalf. CODA is also in the security technology business and it is thought that the combined technologies and services would yield a stronger competitive offering to potential customers. The net of these transactions brought the aggregate total due to this firm to approximately $1.0 million. The advances bore interest at a rate of 8% and interest expense was $36,552 for the twelve months ended June 30, 2007.

On May 16, 2007 the Company issued 850,000 unregistered common shares to CODA Octopus Group, Inc. as full and final payment and a release of all financial obligations resulting from advances made by CODA to the Company and/or Innalogic LLC, the Company's subsidiary through the period ended March 31, 2007.

Preferred Stock:

Series F:

The holders of Series F Preferred Stock were entitled to receive cumulative dividends at the rate of six percent (6%) payable in additional shares of common stock of the Company, based on the average closing price per share of the Company's common stock for the ten (10) consecutive trading days prior to the payment of any dividend. As of December 31, 2006, all of the outstanding shares of Series F Preferred Stock have been converted into shares of common stock however the Company had $305,024 of undeclared but accumulated dividends at June 30, 2007. These undeclared dividends may be paid to the former holders of Series F Preferred Stock in additional shares of the Company’s common stock, at the election of the Company, and as declared by the Board of Directors. Such payment is expected to be made by the Company during the fiscal year ended June 30, 2008.

Series G:

On December 20, 2006, MSGI filed a certificate of designation with the Secretary of State of the State of Nevada to designate 200 shares of the Company's preferred stock, par value $0.01, as Series G Preferred Stock with a stated value of $20,000 per share. The Company had previously entered into Subscription Agreements with certain vendors, officers and employees of the Company for the issuance of a total of approximately 150 shares of Series G Preferred Stock, in exchange for the conversion of debt owed by the Company for past due invoices and accrued salary of approximately $3.0 million. The Series G Preferred Stock automatically converted into common stock of the Company once the holders of a majority of the common stock of the Company approved such conversion, at a conversion rate of the higher of $1.00 per share or the market price as of the day the stockholders approve such conversion. The Company obtained such approval at the Special Meeting of the Stockholders held on March 6, 2007. The market price at the close of business on March 6, 2007 was $0.90, therefore the effective conversion rate of the Series G Preferred Stock was $1.00. The conversion rate of $1.00 did not result in any beneficial conversion feature effect to the Company. All Series G Preferred Stock was deemed issued and converted to common stock as of March 6, 2007, which resulted in the issuance of 2,758,400 shares of common stock and the conversion of $2,758,400 of liabilities (including $642,200 in accrued salaries to officers) from our balance sheet.

There are no outstanding shares of any series of preferred stock as of the period ended June 30, 2007.

Summary of Recent Accounting Pronouncements

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities - Including an Amendment of FASB Statement No. 115”, (“SFAS 159”) which provides companies with an option to measure, at specified election dates, many financial instruments and certain other items at fair value that are not currently measured at fair value. A company will report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date. This Statement also establishes presentation and disclosure requirements designed to facilitate comparisons between entities that choose different measurement attributes for similar types of assets and liabilities. SFAS 159 is effective as of the beginning of an entity’s first fiscal year that begins after November 15, 2007 (our Fiscal 2009). We have not completed our evaluation of the potential impact, if any, of the adoption of SFAS No. 159 on our consolidated financial position, results of operations and cash flows.

In September 2006, the FASB issued FASB Statement No. 157, “Fair Value Measurements” (“SFAS 157”). This Statement defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles (GAAP), and expands disclosures about fair value measurements. This Statement applies under other accounting pronouncements that require or permit fair value measurements, the Board having previously concluded in those accounting pronouncements that fair value is a relevant measurement attribute. Accordingly, this Statement does not require any new fair value measurements. However, for some entities, the application of this Statement will change current practices. This Statement is effective for financial statements for fiscal years beginning after November 15, 2007 with earlier application permitted. The Company adopted the provisions of SFAS 157 in the first quarter of fiscal year ended June 30, 2007 and the adoption did not have a significant impact to our financial statements.

In July 2006, the FASB issued FASB Interpretations No. 48, “Accounting for Uncertainty in Income Taxes,” an interpretation of FASB Statement No. 109, “Accounting for Income Taxes” (“FIN 48”). The Interpretation establishes criteria for recognizing and measuring the financial statement tax effects of positions taken on a company's tax returns. A two-step process is prescribed whereby the threshold for recognition is a more-likely-than-not test that the tax position will be sustained upon examination and the tax position is measured at the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. The Company currently recognizes a tax position if it is probable of being sustained. The Interpretation is effective for the Company beginning July 1, 2007 and will be applicable to all tax positions upon initial adoption. Only tax positions that meet the more-likely-than-not recognition threshold at the effective date may continue to be recognized upon adoption of FIN 48. The Company has completed its initial evaluation of the impact of the July 1, 2007 adoption of FIN 48 and determined that such adoption is not expected to have a material impact on its financial statements.

Item 7 Financial Statements

Report of Independent Registered Public Accounting Firm

Board of Directors and Stockholders

MSGI Security Solutions, Inc.

We have audited the accompanying consolidated balance sheets of MSGI Security Solutions, Inc. and subsidiaries as of June 30, 2007 and 2006, and the related consolidated statements of operations, stockholders’ equity (deficit), and cash flows for the years ended June 30, 2007 and 2006. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of MSGI Security Solutions, Inc. and subsidiaries as of June 30, 2007 and 2006, and the results of its operations and its cash flows for the fiscal years ended June 30, 2007 and 2006, in conformity with accounting principles generally accepted in the United States.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has suffered recurring losses from operations and negative cash flows from operations, all of which raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ Amper, Politziner & Mattia, P.C.

October 15, 2007

Edison, New Jersey

MSGI SECURITY SOLUTIONS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS AS OF JUNE 30,

	2007			2006
ASSETS
Current assets:
Cash	$	2,463,691		$	-
Inventory		1,061,800			50,176
Other current assets		9,250			13,485
Total current assets		3,534,741			63,661

Investment in Excelsa S.p.A.		-			1,650,000
Property and equipment, net		19,553			153,041
Intangible assets, net		12,613			108,377

Other assets, principally deferred financing costs, net		1,311,787			226,391

Total assets	$	4,878,694		$	2,201,470

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current liabilities:
Cash overdraft		-			8,223
Notes payable		-			1,442,427
8% Callable convertible notes payable		-			2,574,597
Advances from strategic partner - CODA		-			300,000
Accounts payable-trade		1,582,379			1,536,651
Accrued expenses and other current liabilities		1,667,495			1,694,642
Deferred revenues		-			59,332
Current portion of abandoned lease obligation		-			987,348

Total current liabilities		3,249,874			8,603,220
Other liabilities:
Notes payable		600,000			-
8% Callable convertible notes payable-net of discount		1,612,596			-
6% Callable convertible notes payable-net of discount		444,445			-

Total other liabilities		2,657,041			-

Commitments and contingencies
Stockholders’ equity (deficit):
Convertible preferred stock - $.01 par value; 18,750 shares authorized;
0 and 4,031 shares of Series F issued and outstanding
(liquidation preference $ 305,024 and $1,584,060) at June 30, 2007
and 2006, respectively		-			40
Convertible preferred stock - $.01 par value; 200 shares authorized;
0 shares of Series G issued and outstanding
at June 30, 2007 and 2006		-			-
Common stock - $.01 par value; 100,000,000 authorized; 10,325,687
and 4,210,729 shares issued; 10,308,025 and 4,193,067 shares
outstanding as of June 30, 2007 and 2006, respectively		103,257			42,107
Additional paid-in capital		256,074,720			238,371,269
Accumulated deficit		(255,812,488	)		(243,421,544	)
Accumulated other comprehensive income		-			88
Less: 17,662 shares of common stock in treasury, at cost		(1,393,710	)		(1,393,710	)

Total stockholders’ equity (deficit)		(1,028,221	)		(6,401,750	)
Total liabilities and stockholders’ equity (deficit)	$	4,878,694		$	2,201,470

The accompanying notes are an integral part of these Consolidated Financial Statements.

MSGI SECURITY SOLUTIONS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED JUNE 30,

	2007			2006

Product revenues	$	77,895		$	76,080
Referral fee revenue - related party		100,000			-
Product revenues - related party		-			50,750
Total revenue		177,895			126,830
Cost of revenue		49,886			38,322
Gross profit		128,009			88,508
Operating costs and expenses:
Salaries and benefits		2,127,453			3,527,859
Research and development - Apro		2,500,000			-
Provision for loss on note receivable from officer		-			1,209,457
Selling, general and administrative		2,882,459			3,800,702
Impairment on investment in Excelsa		1,650,000			2,416,192
Depreciation and amortization		131,819			199,318

Total operating costs and expenses		9,291,731			11,153,528

Loss from operations		(9,163,722	)		(11,065,020	)
Other income (expense):
Registration penalties		(74,000	)		-
Loss on settlement liability to strategic partner-CODA		(811,918	)		-
Interest income		617			69,770
Interest expense		(2,332,957	)		(4,518,373	)
Total other expense		(3,218,258	)		(4,448,603	)
Loss from continuing operations
before provision for income taxes		(12,381,980	)		(15,513,623	)
Provision for income taxes		8,964			34,150
Loss from continuing operations		(12,390,944	)		(15,547,773	)
Discontinued operations:
Loss from discontinued operations-AONet		-			(1,657,952	)
Loss from disposal of discontinued operations-AONet		-			(375,976	)
Loss from discontinued operations-other		-			(4,537	)

Loss from discontinued operations		-			(2,038,465	)
Net loss		(12,390,944	)		(17,586,238	)
Undeclared dividends on preferred stock		15,168			177,767
Net loss attributable to common stockholders	$	(12,406,112	)	$	(17,764,005	)

The accompanying notes are an integral part of these Consolidated Financial Statements.

MSGI SECURITY SOLUTIONS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS (Continued)

FOR THE YEARS ENDED JUNE 30,

	2007			2006

Basic loss per share attributable to common shareholders:
Continuing operations	$	( 1.96	)	$	(4.05	)
Discontinued operations		-			(0.52	)

Basic loss per share attributable to common shareholders	$	(1.96	)	$	(4.57	)
Diluted loss per share attributable to common shareholders:
Continuing operations	$	(1.96	)	$	(4.05	)
Discontinued operations		-			(0.52	)

Diluted loss per share attributable to common shareholders	$	(1.96	)	$	(4.57	)

Weighted average common shares outstanding - basic		6,328,467			3,884,681
Weighted average common shares outstanding - diluted		6,328,467			3,884,681

The accompanying notes are an integral part of these Consolidated Financial Statements

MSGI SECURITY SOLUTIONS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (DEFICIT) AND OTHER COMPREHENSIVE INCOME (LOSS)

FOR THE YEARS ENDED JUNE 30, 2007 AND 2006

	Common Stock				Preferred Stock						Additional Paid-in			Deferred			Other Comprehensive Income			Accumulated Other Comprehensive Income			Accumulated			Treasury Stock
	Shares		Amount		Shares			Amount			Capital			Compensation			(Loss)			(Loss)			Deficit			Share			Amount			Totals

Balance June 30, 2005		3,849,540	$	38,495		9,844		$	98		$	233,344,128		$	(1,301,974	)				$	28,974		$	(225,835,306	)	$	(17,662	)	$	(1,393,710	)	$	4,880,705
Elimination of deferred compensation
upon adoption of SFAS 123(R)												(1,301,974	)		1,301,974																		-
Legal fees associated with filing of
a registration statement												(5,104	)																				(5,104	)
Non-cash compensation expense under
SFAS 123(R)												1,523,406																					1,523,406
Warrants issued to placement agent in
NIR Group debt financing												57,054																					57,054
Warrants issued to notes holders in
NIR Group debt financing												2,629,600																					2,629,600
Beneficial conversion value of NIR
Group 8% convertible notes issued												1,066,377																					1,066,377
Warrants issued to placement agent
in vFinance debt financing												612,240																					612,240
Warrants issued to note holders in
vFinance debt financing												176,114																					176,114
Shares of common stock issued to the
NIR Group as payment against
8% convertible notes		75,000		750								272,232																					272,982
Conversion of Preferred Series F
shares to common stock		286,189		2,862		(5,813	)		(58	)		(2,804	)																				-
Foreign currency translation adjustment																	$	(28,886	)		(28,886	)											(28,886	)
Net loss																	$	(17,586,238	)					(17,586,238	)								(17,586,238	)
Total comprehensive loss																	$	(17,615,124	)														-

Balance June 30, 2006		4,210,729	$	42,107		4,031		$	40		$	238,371,269			-					$	88		$	(243,421,544	)	$	(17,662	)	$	(1,393,710	)	$	(6,401,750	)

Non-cash compensation expense under
SFAS 123(R)												486,302																					486,302
Conversion of Series F Convertible
Preferred Stock		198,470		1,985		(4,031	)		(40	)		(1,945	)																				-
Issuance of Series G Convertible
Preferred Stock						138			1			2,758,236																					2,758,237
Issuance of common stock to
corporate officers as a bonus		125,000		1,250								269,750																					271,000
Adjustment to fair market value
of warrants issued to lenders and
placement agents												533,271																					533,271
Issuance of common stock to
Anyuser, Inc. (a Hyundai designee)		865,000		8,650								471,350																					480,000
Issuance of common stock for
Conversion of Series G
Convertible Preferred Stock		2,758,400		27,584		(138	)		(1	)		(27,583	)																				-
Issuance of common stock to
lender for repayment of notes		1,318,088		13,181								1,173,100																					1,186,281
Issuance of common stock to
strategic partner -CODA		850,000		8,500								1,734,000																					1,742,500
Fair market value of warrants
issued to placement agents												732,734																					732,734
Fair market value of warrants
issued to lender for settlement of Note												215,319																					215,319
Fair market value of warrants
Issued to vendor for services												423,352																					423,352
Beneficial conversion
discount on 2005 8% convertible notes												935,565																					935,565
Beneficial conversion discount on 6%
convertible notes issued December 2006												2,000,000																					2,000,000
Beneficial conversion discount on 6%
convertible notes issued April 2007												1,000,000																					1,000,000
Beneficial conversion discount on 8%
Convertible notes issued May 2007												5,000,000																					5,000,000
Foreign currency translation adjustment																	$	(88	)		(88	)											(88	)
Net Loss																		(12,390,944	)					(12,390,944	)								(12,390,944	)
Total comprehensive loss																	$	(12,391,032	)
Balance June 30, 2007		10,325,687	$	103,257		-		$	-		$	256,074,720		$						$	-		$	(255,812,488	)		(17,662	)	$	(1,393,710	)	$	(1,028,221	)

The accompanying notes are an integral part of these Consolidated Financial Statements.

MSGI SECURITY SOLUTIONS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED JUNE 30,

	2007			2006
OPERATING ACTIVITIES:
Net loss	$	(12,390,944	)	$	(17,586,238	)
Loss from discontinued operations		-			2,038,465
Loss from continuing operations		(12,390,944	)		(15,547,773	)
Adjustments to reconcile net loss to net cash used
in operating activities:
Provision for loss on note receivable-related party		-			1,209,457
Provision for doubtful accounts		-			115,750
Write off of license agreement deposit		-			500,000
Depreciation		36,056			103,855
Amortization		95,764			95,762
Amortization of deferred financing costs		334,549			482,195
Non-cash compensation expense		757,302			1,523,406
Non-cash interest expense		1,648,383			3,909,510
Impairment on investment in Excelsa		1,650,000			2,416,192
Loss on settlement of liability to strategic partner - CODA		811,918			-
Non-cash expense warrants issued to vendors		423,352			-

Changes in assets and liabilities:
Accounts receivable		-			(14,851	)
Inventory		(1,053,143	)		(16,153	)
Other current assets		4,235			76,411
Other assets		(63,893	)		(14,605	)
Deferred revenue		(2,000	)		59,332
Accounts payable - trade		402,253			1,013,081
Accrued expenses and other liabilities		1,281,652			997,280

Net cash used in continuing operations		(6,064,516	)		(3,091,151	)
Net cash provided by discontinued operations		-			243,654
Net cash used in operating activities		(6,064,516	)		(2,847,497	)
INVESTING ACTIVITIES:
Purchase of investment in Excelsa		-			(3,115	)
Purchases of property and equipment		(5,715	)		(44,953	)
Deposit on license agreement		-			(500,000	)
Increase in related party note receivable		-			(69,770	)

Net cash used in continuing operations		(5,715	)		(617,838	)
Net cash used in discontinued operations		-			(605,888	)
Net cash used in investing activities		(5,715	)		(1,223,726	)

FINANCING ACTIVITIES:
Proceeds from the issuance of the 8% convertible notes		5,000,000			3,000,000
Payment of deferred financing costs		(440,000	)		(439,473	)
Payments of 8% convertible notes		-			(136,364	)
Proceeds from issuance of 6% convertible notes		3,000,000			-
Deferred financing costs related to issuance of 6% convertible notes		(243,715	)		-
Amounts received from Hyundai Syscomm		500,000			-
Proceeds from notes payable		-			1,849,585
Payments of notes payable		-			(300,000	)
Advance from strategic partner		959,474			300,000
Payments made to strategic partner		(233,526	)
Costs in connection with registration of stock		-			(5,104	)
Bank overdraft		(8,223	)		8,223

Net cash provided by continuing operations		8,534,010			4,276,867
Net cash used in discontinued operations		-			(289,407	)
Net cash provided by financing activities		8,534,010			3,987,460
Change in accumulated other comprehensive income		(88	)		(28,886	)
Net increase (decrease) in cash		2,463,691			(112,649	)
Cash at beginning of year		-			112,649
Cash at end of year	$	2,463,691		$	-

Supplemental disclosure of cash paid:

Interest	$	34,600		$	-

See Note 19 for further supplemental cash flow information.

The accompanying notes are an integral part of these Consolidated Financial Statements.

MSGI SECURITY SOLUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. LIQUIDITY AND COMPANY OVERVIEW:

Liquidity:

The Company has limited capital resources, has incurred significant historical losses and negative cash flows from operations and has limited current revenues. The Company was also in default of its debt service payments and other provisions of certain notes payable, but has successfully reached a resolution to these defaults (See Note 6). The Company believes that funds on hand combined with funds that will be available from its various operations will not be adequate to finance its operations and capital expenditure requirements and enable the Company to meet its financial obligations and payments under its convertible notes and promissory notes for the next twelve months. Further, there is uncertainty as to timing, volume and profitability of transactions that may arise from our relationship with Hyundai and Apro. The Company is in the process of consummating certain strategic transactions that may provide significant capital. The Company has engaged the investment banking firm of HC Wainwright to raise additional capital to fund operations and funding events were successfully closed on December 13, 2006, April 4, 2007 and May 21, 2007 (See Notes 5 and 6). There are no assurances that any further capital raising transactions will be consummated. Although certain transactions have been successfully closed, failure of our operations to generate sufficient future cash flow and failure to consummate our strategic transactions or raise additional financing could have a material adverse effect on the Company's ability to continue as a going concern and to achieve its business objectives. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying financial statements do not include any adjustments relating to the recoverability of the carrying amount of recorded assets or the amount of liabilities that might result should the Company be unable to continue as a going concern.

Company Overview:

MSGI Security Solutions, Inc. (“MSGI” or the “Company”) is a proprietary solutions provider developing a global combination of innovative emerging businesses that leverage information and technology. MSGI is principally focused on the homeland security and surveillance industry. Substantially all of the Company’s business activity is conducted with customers located within the United States.

Hyundai Transactions:

On September 11, 2006 the Company entered into a License Agreement with Hyundai Syscomm Corp. (“Hyundai”) whereby, in consideration of a one-time $500,000 fee (of which $300,000 was received in October 2006 and the remaining $200,000 was received in June 2007), MSGI granted to Hyundai a non-exclusive worldwide perpetual unlimited source, development and support license, for the use of the technology developed and owned by MSGI’s majority-owned subsidiary, Innalogic, LLC. This license entitles Hyundai to onward develop the source code of the technology to provide wireless transmission and encryption capabilities that work with any other of Hyundai’s products, to use the technology for the purposes of demonstrating the technology to potential customers, sub-licensees and distributors, market the technology world wide either under its existing name or any name that Hyundai may decide and to sub-license the technology to its customers and distributors generally. The License Agreement carries certain intellectual property rights which state that (i) Hyundai will follow all such reasonable instructions as MSGI may give from time to time with regard to the use of trademarks or other indications of the property and other rights of MSGI or its subsidiaries, (ii) warrants that MSGI is the sole proprietary owners of all copyright and intellectual property rights subsisting in the technology and undertakes to indemnify Hyundai at all times against any liability in respect of claims from third parties for infringement thereof and (iii) provides that Hyundai acknowledges that the intellectual property rights of any developments of the technology that are undertaken by MSGI rest and will remain owned by the Company.

On October 19, 2006, the Company entered into a Subscription Agreement with Hyundai for the issuance of 900,000 shares of the Company's common stock. Subject to the terms and conditions set forth in the Subscription Agreement, the Company agreed to issue up to 900,000 shares of common stock contingent upon the Company's receipt of $500,000 received in connection with a certain License Agreement, dated September 11, 2006 (See above and Note 15), and execution of a certain then pending Sub-Contracting Agreement (see below). Under the terms and conditions set forth in the Subscription Agreement, Hyundai agreed that the Company shall not be required to issue, or reserve for issuance at any time in accordance with Nasdaq rule 4350(i), in the aggregate, Common Stock equal to more than 19.99% of the Company's common stock outstanding (on a pre-transaction basis). Therefore the Company issued 865,000 shares of common stock at the initial closing of the transaction, and the remaining 35,000 shares of common stock shall be issued when and if: (a) the holders of a majority of the shares of common stock outstanding vote in favor of Hyundai owning more than 19.99% of the Company's common stock outstanding; or (b) additional issuances of common stock by the Company permit such issuance in accordance with Nasdaq rule 4350(i). As of the date of submission of this report, the Company is obligated to issue the remaining 35,000 shares of common stock to Hyundai, per the terms of the Subscription Agreement.

On February 7, 2007, the Company issued to Hyundai Syscomm Corp. a warrant to purchase a maximum of 24,000,000 shares of common stock in exchange for a maximum of $80,000,000 in revenue, which is to be realized by the Company over a maximum period of four years. The vesting of the Warrant will take place quarterly over the four-year period based on 300,000 shares for every $1 million in revenue realized by the Company. The revenue is subject to the sub-contracting agreement between Hyundai and the Company dated October 25, 2006. Additionally, when issued, the shares underlying the warrant were to be authorized through an increase in the total of authorized capital stock of the company to be approved by the stockholders. The warrant could not begin to vest until these underlying shares were authorized. Such approval was obtained at the Special Meeting of the Stockholders on March 6, 2007. No transactions under this agreement have occurred to date.

On May 10, 2007, the Company entered into an exclusive sub-contract and distribution agreement with Apro Media Corp (“Apro” or “Apro Media”) for at least $105 million of sub-contracting business over seven years to provide commercial security services to a Fortune 100 defense contractor. Under the terms of contract, MSGI will acquire components from Korea and deliver fully integrated security solutions at an average level of $15 million per year for the length of the seven-year engagement. MSGI will also immediately establish and operate a 24/7/365 customer support facility in the Northeastern United States. Apro will provide MSGI with a web-based interface to streamline the ordering process and create an opportunity for other commercial security clients to be acquired and serviced by MSGI. The contract calls for gross profit margins estimated to be between 26% and 35% including a profit sharing arrangement with Apro Media, which will initially take the form of unregistered MSGI common stock, followed by a combination of stock and cash and eventually just cash. The terms of the agreement call for 3,000,000 shares of unregistered MSGI common stock to be issued in exchange for $10 million in revenue, at the point when that revenue is recognizable by MSGI. Subsequent to the first $10 million in revenue, for every $1 million in revenue received, the Company will issue 300,000 warrants for shares of common stock under the agreement in years one and two. Starting with the third year of the agreement, the number of warrants to be issued decreases to 150,000 warrants and the contract then provides for a portion to be paid in cash at a rate of 25% of the gross profit received in exchange for each $1 million in revenue recognized. The contract terms continue to decrease the warrants and increase the cash portion to a point where in the seventh year of the contract, no warrants are issuable and cash is paid at a rate of 50% of the gross profit received. The contract provides for 12,750,000 in warrants to be issued over the term of the contract, provided that $90 million of revenue levels are attained.

In the aggregate, assuming all the revenue targets are met over the next seven years, Apro Media would eventually acquire approximately 15.75 million shares of MSGI common stock.

MSGI was referred to Apro Media by Hyundai Syscomm, an MSGI strategic investor; as part of a general expansion into the Asian security market, however this contract does not constitute revenue under the existing Hyundai Syscomm warrant to acquire common stock of MSGI. The Apro contract required working capital of at least $5 million due to considerable upfront expenses including a $2.5 million financial contribution by MSGI to Apro Media for the proprietary system development requirements of the Fortune 100 client and the formation of a staffed production and customer service facility and warehouse. MSGI paid the $2.5 million in May 2007, which is recognized as R&D expense on the statement of operations. MSGI financed this investment with the May 21, 2007 $5 million 8% Callable Convertible Notes. The first Apro Media purchase order was received during the three month period ended June 30, 2007 and will include monthly deliverables. The first shipment of product under the purchase order occurred during fiscal 2008.

The Company has taken a position that all of the transactions described above associated with Hyundai and Apro should be “bundled” and viewed together analogous to the concepts of EITF No. 00-21, and in consideration that all of the transactions with Hyundai have not yet been finalized. The Company had recognized a receivable and an equal amount in liability for the initial $500,000 license fee in the quarter ended September 30, 2006. As a result of the issuance of the 865,000 shares of common stock to Hyundai in the quarter ended December 31, 2006, $480,000 of the $500,000 liability (commensurate with the percentage of the shares issued out of the total subscription agreement) associated with the License Agreement has been reclassified from liabilities to additional paid in capital. As no other revenue or equity transactions occurred during fiscal 2007, there was no further accounting considerations required. Further, as the issuance of the warrants is conditioned upon the receipt of sales orders to be fulfilled by MSGI, these warrants are considered conditionally issued, and the resultant charge to operations will be recognized when the condition is met.

Other Operations:

On August 18, 2004, the Company acquired a 51% interest in Innalogic, LLC. In August 2005, MSGI’s equity ownership stake in Innalogic LLC increased to 76%. In September 2007, MSGI’s equity ownership stake in Innalogic LLC increased to 84%. Innalogic LLC is a wireless software product development firm that works with clients to custom-design technology products that meet specific user, functional and situational requirements. Innalogic has a recognized core competency in an area of increasingly vital importance to security: delivering rich-media content (video, audio, biometric, sensor data, etc.) to wirelessly enabled mobile devices for public-safety and security applications over wireless or wired networks. Innalogic has the resources and expertise to design and install building-wide wireless networks. The network’s technological foundation is a custom-designed network Command Center utilizing Innalogic’s proprietary SafetyWatch™ software. Innalogic-designed networks integrate with a building’s existing CCTV system and security infrastructure, thus creating a powerful network environment able to accommodate advanced building-wide security applications. Importantly, Innalogic’s wireless video applications help clients make the critical upgrade of CCTV video security systems from analog to digital technology. Innalogic software applications easily integrate with existing systems - camera or rich-media networks - and are specially designed to incorporate or integrate with new or replacement technologies as they come online. On April 1, 2007, Innalogic LLC executed a non-exclusive licensing agreement with the CODA Octopus Group, Inc. (“CODA”) whereby CODA assumed certain development and operational responsibilities and has the right to market the Innalogic proprietary technology to its client base in return for a royalty payment of 20% of all revenues earned from the sale of Innalogic technologies (See Note 7).

The Company, through its subsidiary Future Developments America, Inc. (“FDA”), is a non-exclusive licensee in the United States of certain products developed by Future Developments Limited (“FDL”) and of other products developed by outside organizations. The Company is also entitled to receive royalties on certain sales of products by FDL. FDA markets a broad variety of off-the-shelf and custom surveillance equipment, including antennas, audio “bugs”, body cameras, covert and overt color and black-and-white cameras, night vision fixed surveillance cameras, power supplies, recording devices and related supplies. The Company has not yet sold any FDA products or received any royalties.

On June 1, 2005, the Company acquired a 51% interest in the equity ownership interests in AONet International S.r.l. (“AONet”), an Italian company. AONet is focused primarily on providing outsourcing of data services and business continuity, and its offering of several applications that can be run through the data center, including video surveillance, digital data interception and mass distribution communications. Specifically, its data center was to serve as the backbone for the delivery of MSGI’s distribution agreement with Verisign for the promotion and provision of its NetDiscovery application for digital interception. The distribution agreement with Verisign was not finalized and the amounts advanced to Verisign during the fiscal year 2006 in pursuit of this license agreement of $500,000 were written off.

On March 31, 2006, the Company defaulted on certain payment provisions of the Stock Purchase Agreement of AONet which provided that, if the Company failed to pay any of the individual installments within 48 hours of the applicable due date, the Stock Purchase Agreement will be terminated and the Company will be obligated to return all acquired equity ownership interests in AONet to the previous owner, forfeiting any and all payments made to that date. As of April 1, 2006, all equity ownership interests reverted back to the previous owner and, as a result, the AONet subsidiary has been deconsolidated from the financial statements of the Company. As such, the operations and cash flows of AONet have been eliminated from ongoing continuing operations and the Company no longer has continuing involvement in the operations. All amounts have been reclassified into discontinued operations in the prior fiscal year ended June 30, 2006.

The Company learned that Excelsa had filed for bankruptcy in January 2007 and has ceased operations. As a result, we have fully impaired the investment in Excelsa and recognized a loss on the investment of $1,650,000 as of September 30, 2006 (See Note 4), which includes a restatement for the prior quarters.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Principles of Consolidation:

The consolidated financial statements include the accounts of MSGI and its majority owned subsidiaries. All material intercompany accounts and transactions have been eliminated in consolidation. Operations of subsidiaries acquired during the year are recorded from the date of the respective acquisition. Operations of any subsidiaries sold, or where control is lost, or where a plan has been instituted to dispose of an operation are presented as discontinued operations (See Note 3) for all periods presented and the results of those operations and financial position of those operations are reclassified into discontinued operations. Investments in unconsolidated subsidiaries where the Company has less than a 20% ownership interest and does not exert significant control and influence are recorded on the cost basis.

Cash and Cash Equivalents:

The Company considers investments with an original maturity of three months or less to be cash equivalents.

Accounts receivable and allowance for doubtful accounts:

The Company extends credit to its customers in the ordinary course of business. Accounts are reported net of an allowance for uncollectible accounts. Bad debts are provided on the allowance method based on historical experience and management’s evaluation of outstanding accounts receivable. In assessing collectibility the Company considers factors such as historical collections, a customer’s credit worthiness, age of the receivable balance both individually and in the aggregate, and general economic conditions that may affect a customer’s ability to pay. The Company does not require collateral from customers nor are customers required to make up-front payments for goods and services.

Deferred Financing and other debt-related Costs:

Deferred financing costs are amortized over the term of its associated debt instrument. The Company evaluates the terms of the debt instruments to determine if any embedded derivatives or beneficial conversion features exist. The Company allocates the aggregate proceeds of the notes payable between the warrants and the notes based on their relative fair values. The fair value of the warrants is calculated utilizing the Black-Scholes option-pricing model. The Company is amortizing the resultant discount or other features over the term of the notes through its earliest maturity date. If the maturity of the debt is accelerated because of defaults, then the amortization is also accelerated to the default date. The Company’s debt instruments do not contain any embedded derivatives at June 30, 2007.

Inventories

Inventories consist primarily of various networking equipment purchased as finished goods from third party vendors to be used as part of the Company’s product offerings. Inventory is recorded at the lower of cost or market.

Property, Plant and Equipment:

Property, plant and equipment are stated at cost. Depreciation and amortization are computed using the straight-line method over the estimated useful lives of the respective assets. Estimated useful lives are as follows:

Furniture and fixtures			3 to 7 years
Computer equipment and software			3 to 5 years
Machinery			6 years
Leasehold improvements			shorter of 6-11 years or life of lease

Leasehold improvements are amortized, using the straight-line method, over the shorter of the estimated useful life of the asset or the term of the lease.

The cost of additions and betterments are capitalized, and repairs and maintenance are expensed as incurred. The cost and related accumulated depreciation and amortization of property and equipment sold or retired are removed from the accounts and resulting gains or losses are recognized in current operations.

Investments in non-consolidated companies:

The Company accounts for its investments in non-consolidated companies under the cost basis method of accounting if the investment is less than 20% of the voting stock of the investee, or under the equity method of accounting if the investment is greater than 20% of the voting stock of the investee. Investments accounted for under the cost method are recorded at their initial cost, and any dividends or distributions received are recorded in income. For equity method investments, the Company records its share of earnings or losses of the investee during the period. Recognition of losses will be discontinued when the Company’s share of losses equals or exceeds its carrying amount of the investee plus any advances made or commitments to provide additional financial support.

An investment in non-consolidated companies is considered impaired if the fair value of the investment is less than its cost on an other than temporary basis. Generally, an impairment is considered other-than-temporary unless (i) the Company has the ability and intent to hold an investment for a reasonable period of time sufficient for an anticipated recovery of fair value up to (or beyond) the cost of the investment; and (ii) evidence indicating that the cost of the investment is recoverable within a reasonable period of time outweighs evidence to the contrary. If impairment is determined to be other-than-temporary, then an impairment loss is recognized equal to the difference between the investment’s cost and its fair value. The Company adopted the principles of SFAS No. 157, issued in September 2006, to determine the estimated fair value of its investment in Excelsa, as described in detail in Note 4.

Long-Lived Assets:

In accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”, the Company reviews for impairment of long-lived assets and certain identifiable intangibles whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In general, the Company will recognize impairment when the sum of undiscounted future cash flows (without interest charges) is less than the carrying amount of such assets. The measurement for such impairment loss is based on the fair value of the asset. Such assets are amortized over their estimated useful life.

Revenue Recognition:

Revenues are reported upon the completion of a transaction that meets the following criteria of SAB 104 when (1) persuasive evidence of an arrangement exists; (2) delivery of our services has occurred; (3) our price to our customer is fixed or determinable; and (4) collectibility of the sales price is reasonably assured.

The Company recognizes sales of its product upon shipment if the above criteria have been met. During the year ended June 30, 2006, MSGI sold approximately $50,000 of products to Excelsa at normal selling terms. During the year ended June 30, 2007, MSGI received $100,000 from CODA Octopus Group, Inc. for licensing royalty fees.

Cost of Revenue:

Innalogic costs of revenue are primarily the expenses related to acquiring, testing and assembling the components required to provide the specific technology applications ordered by each individual customer.

Research and Development Costs:

The Company recognizes research and development costs associated with certain product development activities. The Company realized expenses of $2.5 million during the year ended June 30, 2007 as a result of a payment made to Apro Media for costs associated with technological development expenses incurred in the process of securing a business relationship with and subsequent purchase order from a certain Fortune 100 client. There was no such expense in 2006.

Segment Information:

The Company believes it has only one reporting segment from continuing operations, the securities technologies segment. The operations of AONet which constituted our data center technologies product and service line is reported as discontinued operations in the year ended June 30, 2006 (see Note 3).

Income Taxes:

Use of Estimates:

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The most significant estimates and assumptions made in the preparation of the consolidated financial statements relate to the carrying amount of long lived assets, deferred tax valuation allowance, valuation of stock options, warrants and debt features, fair value of net assets acquired and the allowance for doubtful accounts. Actual results could differ from those estimates.

Concentration of Credit Risk:

The Company’s services are currently provided to a variety of customers, primarily located in the continental United States. One entity accounted for 56% of revenues for the year ended June 30, 2007. Two customers accounted for 91% of revenues for the year ended June 30, 2006. Our relationship with Apro Media Corp. and Hyundai is considered to be critical to the Company’s ongoing business activities.

The Company’s cash balance is maintained with one financial institution and may, at times, exceed federally insurable amounts. The Company has no financial instruments with off-balance-sheet risk of accounting loss.

Earnings (Loss) Per Share:

In accordance with SFAS No. 128, “Earnings Per Share,” basic earnings per share is calculated based on the weighted average number of shares of common stock outstanding during the reporting period. Diluted earnings per share gives effect to all potentially dilutive common shares that were outstanding during the reporting period; however such potentially dilutive common shares are excluded from the calculation of earnings (loss) per share if their effect would be anti-dilutive. Stock options and warrants with exercise prices below average market price in the amount of 6,608,196 and 450,000 shares for the years ended June 30, 2007 and 2006, respectively, were not included in the computation of diluted earnings per share as they are anti-dilutive as a result of net losses during the periods presented. In addition, stock options and warrants with exercise prices above average market price in the amount of 3,753,390 and 2,448,731shares for the years ended June 30, 2007 and 2006, respectively were not included in the computation of diluted earnings per share as they are anti-dilutive. Convertible preferred stock in the amount of 4,032 shares for the year ended June 30, 2006 were not included in the computation of diluted earnings per share as they are anti-dilutive as a result of net losses during the period presented. These amounts do not include any securities issuable under the Hyundai and Apro agreements, as such amounts are considered “contingently issuable”, and do not include any securities under the convertible debt as the impact would be anti-dilutive.

Employee Stock-Based Compensation:

The Company follows Statement of Financial Accounting Standards ("SFAS") No. 123 Revised 2004, "Share−Based Payment" (“SFAS 123R”). This Statement requires that the cost resulting from all share−based payment transactions are recognized in the financial statements of the Company. That cost will be measured based on the fair market value of the equity or liability instruments issued.

Fair Value of Financial Instruments:

The carrying amounts of the Company’s financial instruments, including cash, accounts payable and accrued liabilities, approximate fair value because of their short maturities. The carrying amount of the Company’s notes payable approximates the fair value of such instruments based upon management’s best estimate of interest rates that would be available to the Company for similar debt obligations at June 30, 2007 and 2006.

Reclassifications:

Certain reclassifications have been made to the prior years’ financial statements to conform to the current year’s presentation.

Summary of Recent Accounting Pronouncements:

3. TRANSACTIONS WITH AONET INTERNATIONAL SRL

Disposition

On March 31, 2006, the Company defaulted on certain payment provisions of the Stock Purchase Agreement which provided that, if the Company failed to pay any of the individual installments within 48 hours of the applicable due date, the Stock Purchase Agreement will be terminated and the Company will be obligated to return all acquired equity ownership interests in AONet to the previous owner, forfeiting any and all payments made to that date. As of April 1, 2006, all equity ownership interests reverted back to the previous owner and, as a result, the AONet subsidiary has been deconsolidated from the financial statements of the Company.

The loss from discontinued operations of AONet for the nine months ended March 31, 2006 which have been included in loss from discontinued operations-AONet for the years ended June 30, 2006, is as follows:

	For the year ended June 30, 2006
Revenues	$	1,806,255
Costs of revenues		1,712,278
Gross profit		93,977
Operating costs and expenses		1,558,202
Other expenses		166,180
Loss before taxes		(1,630,405	)
Provision for taxes		27,547
Net loss from discontinued operations	$	(1,657,952	)

The loss from disposal of discontinued operations of AONet from the Company’s financial statement of $375,976 reflects the write-off of the remaining assets and liabilities relating to this operation as of March 31, 2006, as the Company received no consideration in exchange for the forfeiture of its interest in AONet.

4. INVESTMENTS

On May 16, 2005, the Company entered into a Restructuring and Subscription Agreement with S.p.A. (“Excelsa”), a corporation organized under the laws of the Republic of Italy, and stockholders of Excelsa (other than MSGI) owning in the aggregate more than 51% of Excelsa’s issued and outstanding common stock, to acquire additional shares of Excelsa common stock for no additional consideration such that MSGI then owned approximately 19.5% of the issued and outstanding shares of common stock of Excelsa, which the parties agreed better reflects the value of Excelsa under US generally accepted accounting principles. The Company paid an aggregate of approximately $4.2 million for its cumulative investment in Excelsa.

As the Company has less than 20% ownership interest in Excelsa and does not have the ability to exercise significant influence over Excelsa, this aggregate investment is accounted for under the cost method. As of June 30, 2006, as we were given an indication that sales of Excelsa had declined, we evaluated the possibility of impairment to our investment in Excelsa. We determined that the investment in Excelsa currently had a fair value of $1,650,000. We followed the principles contained in SFAS No. 157 “Fair Value Measurements,” which was issued in September 2006, to determine its fair value estimate. The Company did not have a “market approach” based valuation or “income approach” based valuation to make its determination. Therefore the Company utilized the principles contained under SFAS 157; a weighted average of two “cost approach” metrics (Level 3 Hierarchy as defined in SFAS No. 157) as follows: 1.) a multiple of annualized historical revenues recognized by Excelsa (carrying a 2/3 portion of the weighted calculation) and 2.) the most recently reported book value of Excelsa (carrying a 1/3 portion of the weighted calculation). The Company believes this valuation is most representative of fair value within the range of values produced by these two metrics. If we used a multiple of annualized historical revenues that was 1 times more or less than the factor used in the calculated fair value, fair value would have been greater or lesser by approximately $540,000. The resulting impairment expense of $2,416,192 was recognized as a loss on the investment in Excelsa as of June 30, 2006. The Company has since learned that Excelsa has since filed for bankruptcy in January 2007 and has ceased operations.

As a result, we have fully impaired the investment in Excelsa and recognized a loss on the investment of $1,650,000 as of June 30, 2007. Through the three quarters ended March 31, 2007, we carried our investment in Excelsa at $1,650,000. Upon learning of the impairment of this investment, we recognized that the financial statements for the quarters ended September 30, 2006, December 31, 2006 and March 31, 2007 contained an error. As we should have known of the impairment earlier, we have taken the impairment in the first quarter of fiscal 2007. The effects of restating those financial statements, on a pro-forma basis, are below:

	As reported			Restatement Adjustment			As revised and restated
For the three months ended September 30, 2006
Total Assets	$	2,575,901		$	(1,650,000	)	$	925,901
Net Loss Attributable to Common shareholders		(1,391,031	)		(1,650,000	)		(3,041,031	)
Weighted average shares outstanding		4,300,950						4,300,950
Basic and Diluted Loss per share attributable to common shareholders	$	(0.32	)				$	(0.71	)

For the six months ended December 31, 2006
Total Assets	$	3,328,154		$	(1,650,000	)	$	1,678,154
Net Loss Attributable to Common shareholders		(2,659,946	)		(1,650,000	)		(4,309,946	)
Weighted average shares outstanding		4,702,909						4,702,909
Basic and Diluted Loss per share attributable to common shareholders	$	(0.57	)				$	(0.92	)

For the nine months ended March 31, 2007
Total Assets	$	2,494,584		$	(1,650,000	)	$	844,584
Net Loss Attributable to Common shareholders		(4,615,857	)		(1,650,000	)		(6,265,857	)
Weighted average shares outstanding		5,159,526						5,159,526
Basic and Diluted Loss per share attributable to common shareholders	$	(0.89	)				$	(1.21	)

There would have been no impact to the three months periods ended December 31, 2006 and March 31, 2007.

During the year ended June 30, 2006, MSGI sold approximately $50,000 of products to Excelsa at normal selling terms.

5. 8% CALLABLE CONVERTIBLE NOTES PAYABLE

The 8% Callable Convertible Notes Payable consist of the following as of June 30, 2007:

Instrument	Maturity		Face Amount		Discount		Carrying Amount at June 30, 2007, net of discount
8% Notes		Dec. 13, 2009	$	2,571,958	$	1,144,547	$	1,427,411
8% Debentures		May 21, 2010		5,000,000		4,814,815	$	185,185
Total							$	1,612,596

Further, the Holder had the option to convert all or any part of the outstanding principal to common stock if the average daily price, as defined in the agreement, for the preceding five trading days is greater than the defined Initial Market Price of $6.56. The original conversion price for this holder option was $4.92. The Company granted registration rights to the investors for the resale of the shares of common stock underlying the notes and certain warrants that were issued in the transaction.

The Note agreement provided the Company with the option to call the loan and prepay the remaining balance due. If the loan is called early, the Company will be required to pay 125% of the outstanding principal and interest as long as the common stock of the Company is at $6.00 or less. If the stock price is higher than $6.00 when the Company exercises the call option, then the amount owed is based upon a calculation, as defined in the agreement, using the average daily price. If in any month a default occurs, the note shall become immediately due and payable at 130% of the outstanding principal and interest.

On December 13, 2006, the Company entered into an agreement for the issuance of $2,000,000 of 6% callable convertible notes (see Note 6) and also entered into a letter agreement with certain of the 2006 Investors to amend the 8% Notes and warrants as well as the promissory notes (See Note 7) previously issued to these Investors by the Company, and to waive certain defaults under these notes and warrants. The letter agreement also serves to amend the amortization and payment terms of the 8% Notes. A single balloon payment will be due on the 8% Notes on the revised maturity date of December 13, 2009. As a result of the amendments to the 8% Notes, these notes will continue to accrue interest through the amended maturity date. In addition, the conversion rate was amended. The amended conversion price of the 8% Notes is 75% of the average of the lowest three closing prices of the Company’s common stock for the 20 day period prior to such conversion, with a minimum conversion price of $0.50 per share. In connection with the December 13, 2006 letter agreement, the terms of the warrants issued to the note holders were modified to change the exercise price to $1.00 per share and to extend the term of the warrants to expire on the seventh anniversary of the original issuance date.

This amendment is considered a debt extinguishment, as defined under generally accepted accounting principles, but did not result in a significant gain or loss. The amended note was treated similar to a newly issued note, and a the Company recorded a discount to the note payable of $1,396,735, of which $64,697 represented the discount allocated to the warrants and $1,332,038 represented the beneficial conversion feature of the note. The fair value of the warrants was determined using a Black-Scholes option pricing model. The discount on the note was allocated from the gross proceeds and recorded as additional paid-in capital. The discount is being amortized to interest expense over the three-year maturity date. Amortization expense was $252,188 for the year ended June 30, 2007.

On May 21, 2007, MSGI entered into a private placement with several institutional investors and issued 8% convertible debentures in the aggregate principal amount of $5,000,000 (the “8% Debentures”) and warrants for the purchase of up to 1,785,713 of common stock, exercisable over a five year period at an exercise price of $2.00.

The 8% Debentures have a maturity date of May 21, 2010 and accrue interest at a rate of 8% per annum. Payments of principal under the Debentures are not due until the maturity date and interest is deferred until the maturity date, however the investors can convert the principal amount of the 8% Debentures into common stock of the Company, provided certain conditions are met, and each conversion is subject to certain volume limitations. The conversion price of the 8% Debentures is $1.40 per share yielding an aggregate total of possible shares to be issued as a result of conversion of 3,571,428 shares.

The Company allocated the aggregate proceeds of the 8% Debentures between the warrants and the Notes based on their fair values in accordance with Accounting Principle Board No. 14 (“APB 14”), “Accounting for Convertible Debt and Debt Issued with Stock Purchase Warrants,” and calculated a beneficial conversion feature and warrant discount in an amount in excess of the $5 million in proceeds received. Therefore, the total discount was limited to $5 million. The fair value of the warrants was calculated utilizing the Black-Scholes option-pricing model. The discount on the note was allocated from the gross proceeds and recorded as additional paid-in capital. The discount is being amortized to interest expense over the three-year maturity date. Amortization expense was $185,185 for the year ended June 30, 2007. Should the 8% Notes be converted or paid prior to the payment terms, the amortization of the discount will be accelerated.

The 8% Debentures and the Warrants have anti-dilution protections and the Company has agreed to certain registration rights for the resale of the shares of common stock underlying the Debentures and Warrants, pursuant to a registration rights agreement entered into simultaneously with the transaction . The Company has also entered into a Security Agreement with the Investors in connection with the closing, which grants security interests in certain assets of the Company and the Company’s subsidiaries to the Investors to secure the Company’s obligations under the 8% Debentures and Warrants.

H.C. Wainwright acted as placement agent and received a placement fee of $400,000 and 5 year warrants exercisable for 357,142 shares of common stock at an exercise price of $2.00 per share. These have been valued at $456,650 under the Black-Scholes model and included as debt issuance costs, which are being amortized over the term of the debt into interest expense. Amortization expense was $24,907 for the year ended June 30, 2007.

6. 6% CALLABLE CONVERTIBLE NOTES PAYABLE

The 6% Callable Convertible Notes Payable consist of the following as of June 30, 2007:

Instrument	Maturity		Face Amount		Discount		Carrying Amount at June 30, 2007, net of discount
6% Notes		Dec. 13, 2009	$	2,000,000	$	1,638,889	$	361,111
6% April Notes		April 4, 2010		1,000,000		916,666		83,334
Total							$	444,445

The 6% Notes have single balloon payment of $2,000,000 due on the maturity date of December 13, 2009 and will accrue interest at a rate of 6% per annum. The Investors can convert the principal amount of the 6% Notes into common stock of the Company, provided certain conditions are met, and each conversion is subject to certain volume limitations. The conversion price of the 6% Notes is 75% of the average of the lowest three closing prices of the Company’s common stock for the 20 day period prior to such conversion, with a minimum conversion price of $0.50 per share. The payment obligation under the Notes may accelerate if the resale of the shares of common stock underlying the 6% Convertible Notes and warrants are not registered in accordance with the terms of the Registration Rights Agreement, payments under the Notes are not made when due or upon the occurrence of other defaults described in the Notes. The warrants became exercisable once Stockholder Approval was obtained, on March 6, 2007, and are exercisable through December 2013. The exercise price of the warrants is $1.00 per share.

The 6% Notes and the warrants have anti-dilution protections, and the Company has agreed to certain registration rights for the resale of the shares of common stock underlying the 6% Notes, pursuant to a Registration Rights Agreement entered into simultaneously with the transaction. The Company has also entered into a Security Agreement and an Intellectual Property Security Agreement with the Investors in connection with the closing, which grants security interests in certain assets of the Company and the Company’s subsidiaries to the Investors to secure the Company’s obligations under the 6% Notes and warrants. The registration rights agreement, as amended on December 13, 2006, provides for a registration filing 120 days from the date of closing and a registration effective date within 180 from the date of closing. The agreement provides for a cash penalty of approximately 2% of the value of the notes to be paid to each of the holders for each thirty-day period that is exceeded. This provision has been waived by the investors through June 30, 2007.

The Company allocated the aggregate proceeds of the 6% Notes between the warrants and the Notes based on their fair values in accordance with Accounting Principle Board No. 14 (“APB 14”), “Accounting for Convertible Debt and Debt Issued with Stock Purchase Warrants,” and calculated a beneficial conversion feature and warrant discount in an amount in excess of the $2 million in proceeds received. Therefore, the total discount was limited to $2 million. The fair value of the warrants was calculated utilizing the Black-Scholes option-pricing model. The Company is amortizing this discount over the remaining term of the 6% Notes through December 2009. Amortization expense was $361,111 for the year ended June 30, 2007. Should the 6% Notes be converted or paid prior to the payment terms, the amortization of the discount will be accelerated.

H.C. Wainwright acted as a placement agent for a portion ($1,000,000) of the offering. H.C. Wainwright received a placement fee of $100,000 and 5 year warrants exercisable for 225,000 shares of common stock at an exercise price of $1.00 per share. The agent warrants were valued at $199,084 using the Black-Scholes model and were recorded as part of the financing costs. The aggregate of all the finance charges related to this transaction was $362,799 and such costs have been deferred and are being amortized over the life of the 6% Notes to interest expense. The amortization expense related to the deferred financing costs for the year ended June 30, 2006 was $70,544.

The 6% April Notes have single balloon payment of $1,000,000 due on the maturity date of April 5, 2010 and will accrue interest at a rate of 6% per annum. The Investors can convert the principal amount of the 6% April Notes into common stock of the Company, provided certain conditions are met, and each conversion is subject to certain volume limitations. The conversion price of the 6% April Notes is 75% of the average of the lowest three closing prices of the Company’s common stock for the 20 day period prior to such conversion, with a minimum conversion price of $0.50 per share. The Company allocated the aggregate proceeds of the 6% April Notes between the warrants and the Notes based on their fair values in accordance with Accounting Principle Board No. 14 (“APB 14”), “Accounting for Convertible Debt and Debt Issued with Stock Purchase Warrants,” and calculated a beneficial conversion feature and warrant discount in an amount in excess of the $1 million in proceeds received. Therefore, the total discount was limited to $1 million. The fair value of the warrants was calculated utilizing the Black-Scholes option-pricing model. The Company is amortizing this discount to interest expense over the remaining term of the 6% April Notes through April 2010. Amortization expense was $83,334 for the year ended June 30, 2007. Should the 6% April Notes be converted or paid prior to the payment terms, the amortization of the discount will be accelerated.

The payment obligation under the Notes may accelerate if the resale of the shares of common stock underlying the 6% Convertible April Notes and warrants are not registered in accordance with the terms of the Registration Rights Agreement, payments under the Notes are not made when due or upon the occurrence of other defaults described in the Notes.

The April 6% Notes and Warrants also carry registration rights which contain penalty clauses if the underlying shares are not registered per the terms of the agreement. The agreement calls for a registration filing 90 days from closing date and a registration effective date within 150 days from the date of closing of the funding transaction. The agreement provides for a cash penalty of approximately 2% of the value of the notes to be paid to each of the holders for each thirty day period that is exceeded. This provision in the agreement has been waived by the investors through June 30, 2007.

H.C. Wainwright acted as a placement agent for the offering. H.C. Wainwright received a placement fee of $80,000 and 5 year warrants exercisable for 150,000 shares of common stock at an exercise price of $1.00 per share. The agent warrants were valued at $77,000 using the Black-Scholes model and were recorded as part of the financing costs. The aggregate of all the finance charges related to this transaction was $157,000 and such costs have been deferred and are being amortized over the life of the 6% April Notes to interest expense. The amortization expense related to the deferred financing costs for the year ended June 30, 2006 was $13,083.

7. OTHER NOTES PAYABLE

Other Notes payable consist of the following as of June 30, 2007:

January 2006 Note Payable

600,000

January 2006 Note Payable

On January 19, 2006, the Company entered into four short-term notes with the same lenders that also hold the 8% Callable Convertible Notes (See Note 5). These promissory notes provided proceeds totaling $500,000 to the Company. The notes were originally due and payable on April 19, 2006 in the aggregate total of $600,000, including imputed interest of $100,000 at an annual imputed interest rate of 80%. In the event of any defined event of default declared by the lenders by written notice to the Company, the notes shall become immediately due and payable and the Company shall incur a penalty of an additional 15% of the amounts due and payable under the notes.

vFinance note payable

In addition, warrants for the purchase of up to 585,062 shares of the Company's common stock were issued to the individual lenders. The warrants carry an original exercise price of $6.50 and a term of 5 years. The warrants may be exercised 65 days after the date of issuance. The warrant agreement contains a re-price provision that provides for a change in the exercise price if the Company issues more favorable terms to another party, as defined in the agreement. Due to the 800,000 warrants issued in connection with the 8% Callable Convertible Notes above at an exercise price of $4.50, the exercise price of the warrants issued with the vFinance note payable were modified to $4.50 as of June 30, 2006. Due to the December 13, 2006 issuance of warrants related to the 6% Notes (see Note 6), the exercise price of the vFinance warrants were modified to $1.00. The Company valued the modification of the warrant using the Black-Scholes model. This resulted in an additional discount to the Note of approximately $250,000, which was fully amortized over the remaining life of the Note by June 30, 2007.

The vFinance Agreement also contains a registration rights agreement for the warrants which contains penalty clauses if the underlying warrant shares are not registered per the terms of the agreement. The agreement calls for a Registration Filing Date within 180 days from closing date and a Registration Effective Date within 90 days from the Registration Filing Date. The agreement provides for a cash penalty of approximately 1.5% of the value of the notes for each thirty day period that is exceeded. As of June 30, 2007, the Company has a liability recorded of $74,000 to provide for this penalty.

Placement fees in the amount of $73,133 were paid to vFinance Investments, Inc. as placement agent. In addition to the placement fees, warrants for the purchase of up to 73,134 shares of the Company's common stock were issued to the placement agent and its designees. The agent warrants carry an exercise price of $6.50, a term of 5 years and may be exercised 65 days after the date of issuance. The agent warrants were valued at $176,114 using the Black-Scholes option pricing model and recorded as part of the financing costs. In addition, a third party received a fee equal to 5% of the aggregate offering, in an amount of $40,000, which was recorded as part of the financing costs. These warrants also contain a reprice provision that provides for a change in the exercise price if the Company issues more favorable terms to another party, as defined in the agreement. Due to the December 13, 2006 issuance of warrants related to the 6% Notes (see Note 6), the exercise price of the placement agent warrants were modified to $1.00. The Company valued the modification of the warrant using the Black-Scholes model. This resulted in an additional financing charge of $35,739, which will be amortized over the remaining life of the Note as part of the deferred financing charges. Total financing costs recorded in connection with the Notes were $351,706, including the modification noted above. The deferred financing has been fully amortized during the year ended June 30, 2007. The Company recorded an original discount to the note payable of $612,240, which represented the discount allocated to the warrants. The fair value of the warrants was determined using a Black-Scholes option pricing model. The discount on the note, and subsequent adjustments as noted above, was allocated from the gross proceeds and recorded as additional paid-in capital. The total discount has been amortized to interest expense as a result of the negotiated payment of the notes per the terms below. Interest expense for the year ended June 30, 2007 and 2006 was $633,000 and $229,590, respectively.

In addition, the Company recorded additional interest expense of $197,700 as part of the transaction based upon the fair value of the stock issued to settle the debt. The common stock was issued in reliance upon the exemption from registration provided by Section 3(a)(9) of the Securities Act of 1933, as amended. Further, per the terms of the Letter Agreements, the liquidated damages accruing from the non-filing and non-timely effectiveness of a registration statement related to the shares of common stock which underlie certain warrants that were issued by the Company to the investors in the transaction will be addressed separately. The Company has quantified and accrued those amounts as of June 30, 2007 as noted above. The Company also issued 100,000 warrants to an investment firm in connection with the settlement on these notes. These warrants were valued at $215,319 using the Black-Scholes model and this was recorded as expense in selling, general and administrative expense.

Advance from Strategic Partner-CODA

On April 1, 2007, the Company, through its majority-owned subsidiary Innalogic, LLC, entered into a non-exclusive License Agreement with CODA. This agreement allows for CODA to market the Innalogic, LLC “SafetyWatch” technology to its client base, sub-license the Technology to its customers and distributors, use the Technology for the purposes of demonstration to potential customers, sub-licensors and/or distributors and to further develop the source code of the Technology as it sees fit. In return, CODA will pay a 20% royalty to MSGI from the sale of the Technology to its customers, and further CODA assumed certain development and operational activities of Innalogic in connection with this transaction.

During the year ended June 30, 2007, the Company earned a $100,000 fee from CODA resulting from a contract referral we provided them.

Other Notes Payable

During December 2005, the Company issued a short-term note in the amount of $250,000. This loan bore interest at a rate of 10% through June 30, 2006 and had an annual imputed interest rate of 18.25%. Further, the full amount of interest was to be paid to the lender regardless of any possible early payment of principal. This amount has been paid in full through the issuance to the lender of Series G Convertible Preferred Stock in December 2006 and the subsequent conversion of such preferred stock into shares of common stock.

8. ABANDONED LEASE OBLIGATION

In December 2002, the Company terminated a lease for abandoned property. Under the termination agreement, the Company was obligated to pay $20,000 per month until August 2010, which liability was fully accrued at that point. On December 22, 2006, the Company issued shares of Series G Preferred Stock to the landlord and its designee for then outstanding $1.0 million remaining obligation, which reduced the liability to $100,000. On March 6, 2007, the shares of Series G Preferred Stock converted into shares of the Company’s common stock automatically upon the approval of the shareholders (See Note 18). The remaining $100,000 balance was paid by the Company in cash during the year ended June 30, 2007. There was no gain or loss recorded on this transaction.

9. PROPERTY, PLANT AND EQUIPMENT:

Property, plant and equipment at June 30, consist of:

	2007			2006
Machinery, equipment and furniture	$	44,948		$	207,577
Software		-			4,907
Total, at cost	$	44,948		$	212,484
Less: accumulated depreciation		(25,395	)		(59,443	)
Property, plant & equipment, net	$	19,553		$	153,041

Depreciation expense was approximately $36,000 and $104,000 for the years ended June 30, 2007 and 2006, respectively, including certain direct write offs.

10. INTANGIBLE ASSETS:

Identifiable intangible assets are amortized under the straight-line method over the period of expected benefit of five years.

In connection with the acquisition of Innalogic, intangible assets related to unpatented technologies totaling $287,288 were acquired.

The gross carrying amount and accumulated amortization of the Company's intangible assets as of June 30, 2007 and 2006 are as follows:

	June 30, 2007			June 30, 2006
Amortized intangible assets
Unpatented technology	$	287,288		$	287,288
Accumulated amortization		(274,675	)		(178,911	)
Net book value	$	12,613		$	108,377

Amortization expense recorded for each of the years ended June 30, 2007 and 2006 were approximately $96,000. The remaining amortization expense of $12,613 will be recognized in fiscal 2008.

11. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES:

Accrued expenses as of June 30, 2007 and 2006 consist of the following:

	2007		2006
Accrued Salaries and Benefits	$	481,290	$	972,336
Accrued audit and tax preparation fees		247,090		213,040
Accrued legal fees		26,500		58,085
Accrued consulting fees		-		126,000
Accrued interest		365,802		60,767
Accrued travel & entertainment		16,669		118,487
Accrued penalty for stock registration		74,000		63,400
Accrued taxes		26,907		17,907
Accrued Board fees		205,125		12,086
Accrued Settlement of abandoned contract		150,000		-
Other		74,112		52,534
Total	$	1,667,495	$	1,694,642

12. RELATED PARTY TRANSACTIONS:

On December 31, 2001, the Company advanced $1,000,000 pursuant to a promissory note receivable agreement with Mr. J. Jeremy Barbera due and payable to the Company at maturity, October 15, 2006. The Company recorded the note receivable at a discount of approximately $57,955 to reflect the incremental borrowing rate of the officer and is being amortized as interest income over the term of the note using the straight-line method. The note receivable was collateralized by current and future holdings of MSGI common stock owned by the officer and bore interest at prime. Interest was due and payable yearly on October 15th. The Company recognized interest income of $69,770 for the year ended June 30, 2006. As of June 30, 2006, interest due of approximately $162,600 was in arrears. Since collectibility of the note receivable was uncertain, the Company had provided for the loss of the note receivable during the year ended June 30, 2006. The collection of this note by its October 15, 2006 due date did not occur. The Board of Directors of the Company subsequently elected to forgive such note receivable at that point. The full amount had been written off during the fiscal year ended June 30, 2006.

In July 2005, an officer of the company provided $100,000 of working capital to the Company that was repaid within that same month.

During December 2005, the Company entered into a short-term note with a related party in the amount of $250,000. This loan bears interest at a rate of 10% through June 30, 2006 and has an annual imputed interest rate of 18.25%. The entire principal, as well as interest of $25,000, was to be paid in full upon completion of a contemplated future funding event. Further, the full amount of interest will be paid to the lender regardless of any possible early payment of principal. The total interest due under this note has been fully accrued as of June 30, 2006. This note was paid in full in by virtue of the issuance, to the holder of the note, of shares of Series G Convertible Preferred Stock in December of 2006, and the subsequent conversion to shares of common stock in March 2007.

See Note 1 for description of transactions with Hyundai and Note 7 for description of transactions with CODA.

13. COMMITMENTS AND CONTINGENCIES:

Operating Leases:

The Company leases certain office space. All of the Company’s current leases are for short-terms less than one year and are cancelable. The Company incurs all costs of insurance, maintenance and utilities.

Future minimum rental commitments under all leases as of June 30, 2007 are as follows:

	Rent Expense
2008		50,000
	$	50,000

Rent expense was approximately $199,600 and $182,000 for fiscal years ended June 30, 2007 and 2006, respectively.

Contingencies and Litigation:

Certain legal actions in the normal course of business are pending to which the Company is a party. The Company does not expect that the ultimate resolution of the pending legal matters will have a material effect on the financial condition, results of operations or cash flows of the Company.

14. PREFERRED STOCK:

Series F

In November 2004, the Company entered into a private placement agreement with certain strategic investors in which the Company sold an aggregate of 9,376 shares of Series F Convertible Preferred Stock, par value $.01 ("Series F Preferred Stock") and warrants to acquire 230,797 shares of common stock for gross proceeds of $3 million. The preferred stock was convertible into shares of common stock, at any time at the option of the holder, at a conversion rate of $6.50. Further, registration rights of the holders of Series F Preferred Stock called for a registration statement to be filed by the Company with the Securities and Exchange Commission, covering the resale of the shares of the Company's common stock underlying the Series F Preferred Shares (the "Reserved Shares"), within 180 days of the initial closing date, November 10, 2004. In the event that the Company did not file such registration statement within 180 days, the Company would have to issue to the holders additional shares of Series F Preferred Shares equal to 5% of the number of Reserved Shares issued in the private placement, for each 30 day period, following the 180 day period, during which such registration statement has not been filed. The registration statement was not filed within the initial 180 day period, but was filed within the next 30 day period. Therefore, the Company issued an additional 468.8 Series F Preferred Stock, which was convertible into approximately 23,079 shares of common stock. The holders of Series F Preferred Stock were entitled to receive cumulative dividends at the rate of six percent (6%) payable in additional shares of common stock of the Company, based on the average closing price per share of the Company's common stock for the ten (10) consecutive trading days prior to the payment of any dividend. During the year ended June 30, 2006, approximately 5,813 shares of Series F preferred stock were converted into common stock. During the year ended June 30, 2007, 4,031 shares of Series F Preferred Stock were converted to 198,470 shares of common stock. As of June 30, 2007, all of the outstanding shares of Series F Preferred Stock have been converted into shares of common stock. The Company has $305,024 of undeclared but accumulated dividends at June 30, 2007. Since these dividends have not yet been declared, they are not accrued. However, these dividends have been reflected in each period earned in determining net loss available to common stockholders.

Series G

On December 20, 2006, MSGI filed a certificate of designation with the Secretary of State of the State of Nevada to designate 200 shares of the Company's preferred stock, par value $0.01, as Series G Preferred Stock with a stated value of $20,000 per share. The Company had previously entered into Subscription Agreements with certain vendors, officers and employees of the Company for the issuance of a total of approximately 150 shares of Series G Preferred Stock, in exchange for the conversion of debt owed by the Company for past due invoices and accrued salary of approximately $3.0 million. The Series G Preferred Stock automatically converted into common stock of the Company once the holders of a majority of the common stock of the Company approved such conversion, at a conversion rate of the higher of $1.00 per share or the market price as of the day the stockholders approve such conversion. The Company obtained such approval at the Special Meeting of the Stockholders held on March 6, 2007 (See Note 18). The market price at the close of business on March 6, 2007 was $0.90, therefore the effective conversion rate of the Series G Preferred Stock was $1.00. The conversion rate of $1.00 will not result in any beneficial conversion feature effect to the Company. All Series G Preferred Stock was deemed issued and converted to common stock as of March 6, 2007, which resulted in the issuance of 2,758,400 shares of common stock and the conversion of $2,758,400 of liabilities (including $642,200 in accrued salaries to officers) from our balance sheet.

There are no outstanding shares of any series of preferred stock as of the period ended June 30, 2007.

15. COMMON STOCK, STOCK OPTIONS, AND WARRANTS:

Common Stock Transactions:

During May 2007, the Company issued 100,000 shares of common stock to an officer of the Company as a bonus, resulting in a non-cash compensation charge of $210,000. In addition, the Company approved the issuance of 100,000 shares of common stock to the officer at the end of one year and an additional 100,000 shares of common stock to the officer at the end of two years. The Company has accounted for this additional stock as a liability, under SFAS 123R, in the amount of $37,500.

During October 2006, the Company issued 865,000 shares of common stock to a designee of Hyundai Syscomm Corp. See Note 1 for full details of the transaction.

During July 2006, the Company issued 25,000 shares of common stock to an officer as a bonus, resulting in a non−cash compensation expense of $61,000.

During the period of January through March, 2007, the Company issued 2,758,400 shares of common stock from the conversion of 150 shares of Series G preferred stock.

During the year ended June 30, 2007, 4,031 shares of Series F Preferred Stock was converted to 198,470 shares of common stock.

In March, 2007, the Company issued 1,318,088 shares of common stock in connection with the settlement of promissory notes issued to vFinance.

During January 2006 through April 2006, 75,000 shares of common stock were issued to the holders of the 8% Callable Convertible Note for payment of debt service.

During April 2006 through June 2006, approximately 5,813 shares of Series F Convertible Preferred Stock have been converted into approximately 286,189 shares of the Company’s common stock, at the election of certain holders of the Series F Convertible Preferred Stock.

During 2007, the Company issued 850,000 shares to CODA as payment of amounts due (See Note 7). In connection with this transaction, CODA assumed certain development and operational obligations of Innalogic, and entered into license agreement for the Innalogic technology. The Company recognized a loss of $811,918 on the settlement transaction, representing the excess fair value of the shares issued as compared to the obligations due CODA.

Stock Options:

The Company maintains a qualified stock option plan (the “1999 Plan”) for the issuance of up to 1,125,120 shares of common stock under qualified and non-qualified stock options. The plan is administered by the compensation committee of the Board of Directors which has the authority to determine which officers and key employees of the Company will be granted options, the option price and vesting of the options. In no event shall an option expire more than ten years after the date of grant.

The Company accounts for employee stock-based compensation under SFAS 123R, “Share-Based Payment”, which requires all share−based payments to employees, including grants of employee stock options, to be recognized in the financial statement at their fair values. The expense is being recognized on a straight−line basis over the vesting period of the amounts. The Company did not record a tax benefit related to the share−based compensation expense since the Company has a full valuation allowance against deferred tax assets.

The Company adopted SFAS 123R effective July 1, 2005, and in connection with the adoption and provisions of SFAS 123R, the Company reversed the deferred compensation balance of $1,301,974, resulting from the application of the intrinsic value method of accounting for stock options, at July 1, 2005 against Additional paid−in capital. This expense is now superseded by the SFAS 123R expense, which will be recorded over the remaining vesting period of the stock options.

The Company has elected to apply the short-cut method to determine the hypothetical APIC pool provided by FSP FAS 123R-3, “Transition Election Related to Accounting for the Tax Effects of Share-Based Payment Awards.” In future periods, excess tax benefits resulting from stock option exercises will be recognized as additions to APIC in the period the benefit is realized. In the event of a shortfall (i.e., the tax benefit realized is less than the amount previously recognized through periodic stock compensation expense recognition and related deferred tax accounting), the shortfall would be charged against APIC to the extent of previous excess benefits, including the hypothetical APIC pool, and then to tax expense.

The stock based compensation expense related to stock options for the years ended June 30, 2007 and 2006 was approximately $486,000 and $1,523,000, respectively.

The fair value of each stock option is estimated on the date of grant using the Black-Scholes option pricing model. The following assumptions were used for grants for fiscal year ended June 30, 2007. There were no stock option grants during the fiscal year ended June 30, 2006.

	2007
Expected term (years)		6.00
Dividend yield		None
Expected Volatility		140% - 142	%
Risk-free interest rate		4.75	%
Forfeiture rate		0	%

Weighted average fair value
Options issued equal to market value	$	1.39
Options issued below market value	$	1.98

Expected volatility is based solely on historical volatility of our common stock over the period commensurate with the expected term of the stock options. We rely solely on historical volatility because our traded options do not have sufficient trading activity to allow us to incorporate the mean historical implied volatility from traded options into our estimate of future volatility. The expected term calculation for stock options is based on the “simplified” method described in Staff Accounting Bulletin No. 107, Share−Based Payment. The risk−free interest rate is based on the U.S. Treasury yield in effect at the time of grant for an instrument with a maturity that is commensurate with the expected term of the stock options. The dividend yield of zero is based on the fact that we have never paid cash dividends on our common stock, and we have no present intention to pay cash dividends. The forfeiture rate is estimated at 0% for options granted to directors and officers.

The following summarizes the stock option transactions under the 1999 Plan for the two years ended June 30, 2007:

	Number of Shares		Exercise Price Per Share		Weighted Average Exercise Price		Aggregate Intrinsic Value
Outstanding at June 30, 2005		520,000	$	1.50 to $7.00	$	2.40

Granted		—
Exercised		—
Cancelled		—

Outstanding at June 30, 2006		520,000	$	1.50 to $7.00	$	2.40	$	466,550


Granted		475,000	$	1.40 to $1.50	$	1.49	$	2,500
Exercised		—
Cancelled		10,000	$	4.45	$	4.45

Outstanding at June 30, 2007		985,000	$	1.40 to $7.00	$	1.94	$	4,650

In addition to the 1999 Plan, the Company has option agreements with current directors of the Company. The following summarizes transactions for the two years ended June 30, 2007:

	Number of Shares		Exercise Price Per Share		Weighted Average Exercise Price		Aggregate Intrinsic Value
Outstanding at June 30, 2005		40,000	$	1.50 to $4.13	$	2.81

Granted		—
Exercised		—
Cancelled		—

Outstanding at June 30, 2006		40,000	$	1.50 to $4.13	$	2.81	$	21,700

Granted		—
Exercised		—
Cancelled		—

Outstanding at June 30, 2007		40,000	$	1.50 to $4.13	$	2.81	$	100

As of June 30, 2007, 523,332 options are exercisable, with an aggregate intrinsic value of $2,250 and a weighted average contractual life of 6.8 years. The weighted average exercise price of all outstanding options is $1.98 and the weighted average remaining contractual life is 8.2 years. At June 30, 2007, 140,122 options were available for grant.

Warrants:

The following summarizes the warrant transactions for the two years ended June 30, 2007:

	Number of Shares		Exercise Price
Outstanding at June 30, 2005		793,340	$	6.00 to $8.25

Granted		1,545,391	$	1.00
Issued		-
Cancelled		-
Outstanding at June 30, 2006		2,338,731	$	1.00 to $8.25

Granted		7,317,855	$	1.00 to $2.00
Issued		-
Cancelled		270,000	$	6.00
Outstanding at June 30, 2007		9,386,586	$	1.00 to $8.25

As of June 30, 2007, the Company has 9,386,586 warrants outstanding to purchase shares of common stock at prices ranging from $1.00 to $8.25. All warrants are currently exercisable.

In December 2006, the Company adjusted the exercise price of certain previously issued warrants to certain lenders and placement agents. This adjustment was mandated by certain anti−dilution and exercise price protection provisions in the previously issued warrants agreements. The Company used the Black-Scholes model to value the modification and recorded an expense of $250,000. See discussion of the effects of the fiscal 2007 modifications of the warrants issued to lenders in Note 5, 6 and 7.

On February 7, 2007, the Company issued to Hyundai Syscomm Corp. a warrant to purchase a maximum of 24,000,000 shares of common stock in exchange for a maximum of $80,000,000 in revenue, which is to be realized by the Company over a maximum period of four years. The vesting of the warrant will take place quarterly over the four−year period based on 300,000 shares for every $1 million in revenue realized by the Company. The revenue is subject to the sub−contracting agreement between Hyundai and the Company dated October 25, 2006. Such warrants are considered contingent and are not reflected above, and therefore, the Company will not recognize the accounting impact of these warrants until the vesting event occurs.

On May 10, 2007, the Company entered into an agreement with Apro Media, which provides for the issuance of up to 12,750,000 warrants to purchase shares of common stock in exchange for a maximum of $90,000,000 in revenue, which is to be realized by the Company over a maximum period of seven years. The vesting of the warrant will take place based on 300,000 shares for every $1 million in revenue realized by the Company. Such warrants are considered contingent and are not reflected above, and therefore, the Company will not recognize the accounting impact of these warrants until the vesting event occurs.

The Company issued 200,000 warrants to a vendor as a bonus compensation for services. These warrants were valued at $423,352 using the Black-Scholes model and this was recorded as expense in selling, general and administrative expense. The Company issued 100,000 warrants to an investment firm in connection with a stock settlement on certain notes payable. These warrants were valued at $215,319 using the Black-Scholes model and this was recorded as expense in selling, general and administrative expense.

16. INCOME TAXES:

Income tax expense consists of domestic minimum state franchise and income taxes.

Deferred tax assets are comprised of the following:

	As of June 30,
	2007			2006
Deferred tax assets:

Net operating loss carry-forwards	$	42,959,480		$	39,552,928
Abandoned lease reserves		-			460,345
Compensation on option grants		1,109,708			1,555,269
Amortization of intangibles		94,776			(52,090	)
Provision for loss on note receivable		-			519,870
Capital loss carryfoward		2,762,739			-
Other		119,471			169,613

Total deferred tax assets		47,046,174			42,205,935
Valuation allowance		(47,046,174	)		(42,205,935	)
Net deferred tax assets	$	-		$	-

The difference between the Company’s U.S. federal statutory rate of 35%, as well as its state and local rate net of federal benefit of 5%, when compared to the effective rate is principally the result of no current domestic income tax as a result of net operating losses and the recording of a full valuation allowance against resultant deferred tax assets. The recorded income tax expense reflects domestic state income taxes.

The Company has a U.S. federal net operating loss carry forward of approximately $113,000,000 available, which expires from 2011 through 2026. The Company has U.S. Federal capital loss carryforwards of approximately $6 million which expires in 2012. These loss carry forwards are subject to annual limitations under Internal Revenue Code Section 382 and some loss carry forwards are subject to SRLY limitations. The Company has recognized a full valuation allowance against deferred tax assets because it is more likely than not that sufficient taxable income will not be generated during the carry forward period available under the tax law to utilize the deferred tax assets. Of these net operating loss carry forwards approximately $61,000,000 is the result of deductions related to the exercise of non-qualified stock options in previous years. The realization of these net operating loss carry forwards would result in a credit to equity.

The Company has reviewed its deferred tax assets and has determined that the entire amount of its deferred tax assets should be reserved as the assets are not considered to be more likely than not recoverable in the future.

17. EMPLOYEE RETIREMENT SAVINGS 401(k) PLANS:

The Company sponsors a tax deferred retirement savings plan (“401(k) plan”) which permits eligible employees to contribute varying percentages of their compensation up to the annual limit allowed by the Internal Revenue Service.

The Company currently matches the 50% of the first $3,000 of employee contribution up to a maximum of $1,500 per employee. There were no matching contributions made during the fiscal years ended June 30, 2007 or 2006. There were no employee contributions to the plan in fiscal 2007 or 2006.

The plan also provided for discretionary Company contributions. There were no discretionary contributions in fiscal years 2007 or 2006.

18. SPECIAL MEETING OF THE STOCKHOLDERS

On March 6, 2007, the Company held a Special Meeting of the Stockholders where the following proposals were put before the stockholders for approval:

(1)

To consider a proposal to increase the authorized shares of capital stock for the Company from 9,393,750 to 100,050,000. The capital stock of the Company shall be divided into two classes as follows: (i) 50,000 shares of preferred stock of the par value of $.01 per share ("Preferred Stock"), and (ii) 100,000,000 shares of common stock of the par value of $.01 per share (“Common Stock”).

(2)	To approve the automatic conversion of our Series G Convertible Preferred Stock (the “Series G Preferred Stock”) into up to 3,000,000 shares of Common Stock.

(3)	To ratify the issuance of our Series G Preferred Stock to certain of our executive officers.

(4)	To ratify the private placement transaction with certain institutional investors, of the issuance of $2,000,000 in callable secured convertible notes and warrants exercisable for 3,000,000 shares of Common Stock (the "Private Placement") (See Note 6).

(5)	To consider a proposal to amend the Amended and Restated Articles of Incorporation of the Company to remove certain business combination and reclassification provisions.

Proposals number 1 - 4 passed. Proposal number 5 did not pass.

19. SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:

For the year ended June 30, 2007:

Liabilities in the amount of $2,758,237 were paid with approximately 150 shares of Series G Preferred Stock.

Approximately 150 shares of Series G preferred stock was converted into 2,758,400 shares of common stock. Approximately 4,031 shares of Series F preferred stock was converted into 198,470 shares of common stock.

The Company recorded an aggregate discount of $9,396,735 in connection with 8% and 6% Convertible Notes payable, which represents the beneficial conversion feature and allocation of fair value of the warrants.

In connection with the 8% and 6% Convertible Notes financings, the Company issued 732,142 warrants to the placement agents with a fair market value of $732,734.

The Company issued 1,318,088 shares of common stock in payment of the vFinance Notes payable in the amount of $988,568 for principal and interest. This transaction resulted in an additional $197,713 of interest expense which represented the excess fair value of the common shares over the debt payment due.

Certain warrants issued to vFinance were repriced to an exercise price of $1.00 due to anti-dilution provisions and as a result of the issuance of the 6% Convertible Notes. This resulted in an additional discount to the debt of $249,933 as well as additional financing charges of $35,739.

For the year ended June 30, 2006:

A discount of $1,471,169 was recorded on the NIR 8% convertible notes, which represents a beneficial conversion feature of the note of $1,066,377 and the allocated fair value of the warrants of $404,792.

In connection with the NIR Group 8% convertible note financing, the company issued 12,195 warrants to the placement agent with a fair market value of $57,054.

In connection with the NIR Group financing, the company issued 800,000 warrants to the note holders with a fair market value of $2,665,568.

A discount of $612,240 was recorded on the vFinance notes, which represents the allocated fair value of the 585,062 warrants issued in connection with this debt.

In connection with the vFinance financing, the company issued 73,134 warrants to the placement agent and its designees with a fair market value of $176,114

In connection with the 8% convertible note, the company issued 75,000 of its common stock, in lieu of cash payments, with a fair market value of $272,982

In connection with the adoption of SFAS 123R, deferred compensation expense of $1,301,974 was reversed against additional paid in capital.

Approximately 5,813 shares of preferred stock were converted into 286,189 shares of common stock

20. SUBSEQUENT EVENTS:

On May 31, the Company announced that it had received its first purchase order from Apro Media Corp. in the amount of $10 million as part of the sub-contracting agreement to provide commercial security services to a Fortune 100 defense contractor. MSGI acquired the first shipment of components from a Korean company in June 2007 and began to deliver fully integrated security systems in August 2007. MSGI will continue to fulfill client requests throughout the first two quarters of the fiscal year ended June 30, 2008. The company has secured a new production and customer service facility in Manhattan.

On October 9, 2007, the Company announced that Callable Secured Convertible 8% Notes originally issued during July 2005 to September 2005 and Callable Secured 6% Notes originally issued on December 13, 2006 were purchased by certain institutional investors on September 30 and October 3, 2007, from the original note holders The Company did not receive any proceeds from this transaction. The negotiated transaction required that the conversion price for the underlying shares be set at the floor of $0.50. In October 2007, the Board of Directors of MSGI voted in favor of allowing the conversion price to be set at the floor of $0.50 so that the transaction could be consummated. These institutional investors have submitted notification to the Company of their intentions to fully convert the Notes into shares of the Company’s common stock, which is expected to be accomplished during October 2007. The transaction, when completed, will have the effect of eliminating approximately $3.95 million of note liabilities, on a fully accreted basis, from the Company’s balance sheet. The exercise will result in the issuance of 6,700,000 shares of the Company’s common stock, bringing the total shares outstanding to approximately 18,265,000.

Item 8 - Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

N/A

Item 8 A - Controls and Procedures

Annual Evaluation of the Company's Disclosure Controls and Internal Controls. As of the end of the period covered by this Annual Report on Form 10-KSB/A, the Company evaluated the effectiveness of the design and operation of its "disclosure controls and procedures" ("Disclosure Controls"), and its "internal controls and procedures for financial reporting" ("Internal Controls"). This evaluation (the "Controls Evaluation") was done under the supervision and with the participation of our chief executive officer ("CEO") and principal financial officer. Rules adopted by the Securities and Exchange Commission ("SEC") require that in this section of the Annual Report we present the conclusions of the CEO and the principal financial officer about the effectiveness of our Disclosure Controls and Internal Controls based on and as of the date of the Controls Evaluation.

Disclosure Controls and Internal Controls. As provided in Rule 13a-14 of the General Rules and Regulations under the Securities and Exchange Act of 1934, as amended, Disclosure Controls are defined as meaning controls and procedures that are designed with the objective of insuring that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), is recorded, processed, designed and reported within the time periods specified by the SEC's rules and forms. Disclosure Controls include, within the definition under the Exchange Act, and without limitation, controls and procedures to insure that information required to be disclosed by us in our reports is accumulated and communicated to our management, including our CEO and principal financial officer, as appropriate to allow timely decisions regarding disclosure. Internal Controls are procedures which are designed with the objective of providing reasonable assurance that (1) our transactions are properly authorized; (2) our assets are safeguarded against unauthorized or improper use; and (3) our transactions are properly recorded and reported, all to permit the preparation of our financial statements inconformity with generally accepted accounting principles.

Scope of the Controls Evaluation. The evaluation made by our CEO and principal financial officer of our Disclosure Controls and our Internal Controls included a review of the controls' objectives and design, the controls' implementation by the Company and the effect of the controls on the information generated for use in this Annual Report. In the course of the Controls Evaluation, we sought to identify data errors, control problems or acts of fraud and to confirm that appropriate corrective action, including process improvements, were being undertaken. This type of evaluation will be done on a quarterly basis so that the conclusions concerning controls effectiveness can be reported in our Quarterly Reports on Form 10-QSB and Annual Report on Form 10-KSB. The overall goals of these various evaluation activities are to monitor our Disclosure Controls and our Internal Controls and to make modifications as necessary; our intent in this regard is that the Disclosure Controls and the Internal Controls will be maintained as dynamic systems that change (including with improvements and corrections) as conditions warrant.

Among other matters, we sought in our evaluation to determine whether there were any "significant deficiencies" or "material weaknesses" in the Company's Internal Controls, or whether the Company had identified any acts of fraud involving personnel who have a significant role in the Company's Internal Controls. In the professional auditing literature, "significant deficiencies" are control deficiencies that adversely affects the entity’s ability to record, process, summarize and report financial data in the financial statements such that there is more than a remote likelihood that a misstatement of the entity’s financial statements that is more than inconsequential will not be prevented or detected by the entity’s internal control. A "material weakness" is defined in the auditing literature as a significant deficiency or combination of significant deficiencies that results in more than a remote likelihood that a material misstatement to the financial statements will not be prevented or detected by the entity’s internal control.We also sought to deal with other controls matters in the Controls Evaluation, and in each case if a problem was identified, we considered what revision, improvement and/or correction to make in accord with our on-going procedures.

On October 12, 2007, our independent registered accounting firm Amper, Politziner & Mattia, P.C. ("AP&M"), informed us and our Audit Committee of the Board of Directors that they had discovered conditions which they deemed to be material weaknesses in our internal controls (as defined by standards established by the Public Company Accounting Oversight Board) summarized as follows:

A lack of sufficient resources and an insufficient level of monitoring and oversight, which restricts the Company's ability to gather, analyze and report information relative to the financial statement assertions in a timely manner, including insufficient documentation and review of selection and application of generally accepted accounting principles to significant non-routine transactions.

The limited size of the accounting department makes it impracticable to achieve an appropriate segregation of duties.

There are no formal documented closing and reporting calendar and checklists.

There are no uniform policies with respect to the accounting policies utilized by all subsidiaries.

The Whistleblower and certain other corporate governance policies should be disseminated to all employees.

There are no formal cash flow forecasts, business plans, and organizational structure documents to guide the employees in critical decision-making processes.

Documentation (and retention thereof) of certain transactions was not completed on a timely basis.

The Company does not have procedures to routinely monitor the progress and financial results of subsidiaries and affiliates.

The Company does not have procedures in place to monitor inventory procurement activities and costing.

The Company does not have a procedure to ensure the timely issuance of equity securities upon Board or contractual approval.

Material weaknesses identified in the past have not been remediated.

In accordance with SEC requirements, our CEO and principal financial officer each have confirmed that, during the most recent fiscal quarter and since the date of the Controls Evaluation to the date of this Annual Report, there have been no significant changes in Internal Controls or in other factors that have materially affected, or are reasonably likely to materially affect, the Company’s Internal Controls, including any corrective actions with regard to significant deficiencies and material weaknesses.

Conclusions. Based upon the Controls Evaluation, our CEO and principal financial officer have each concluded that, given the current lack of resources available to the Company, our Disclosure Controls are not effective to ensure that all material information relating to the Company and its consolidated subsidiaries is made known to management, including the CEO and principal financial officer, particularly during the periods when our periodic reports are being prepared and as of the fiscal reporting period ended June 30, 2007. Our CEO and principal financial officer also concluded that our Disclosure Controls are not effective to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our CEO and principal financial officer, to allow timely decisions regarding required disclosures. The primary reason for said deficiencies is a lack of adequate resources and personnel. The Company intends to take action to hire additional staff and develop the adequate policies and procedures with said enhanced staff to ensure that adequate Disclosure Controls are in place to allow for effective and timely management and reporting commensurate with the recent change in the business strategy.

Item 8A (T) - Controls and Procedures

N/A

Item 8B - Other Information

None

PART III

Item 9 - Directors, Executive Officers, Promoters, Control Persons and Corporate Governance: Compliance With Section 16(a) of the Exchange Act

The Company's executive officers and directors and their positions with MSGI are as follows:

Name	Age	Positions and Offices, if any, Held	Director Since
J. Jeremy Barbera	50	Chairman of the Board of Directors	1996
		and Chief Executive Officer
Richard J. Mitchell, III	48	Chief Accounting Officer, Treasurer
		and Secretary
Joseph C. Peters	50	President and Director	2004
John T. Gerlach	75	Director	1997
Seymour Jones	76	Director	1996
David C. Stoller	57	Director	2004

Mr. Barbera has been Chairman of the Board and Chief Executive Officer of the Company and its predecessor businesses since April 1997, and has served as Director and officer since October 1996 when MSGI Direct was acquired in an exchange of stock. He founded MSGI Direct in 1987, which was twice named to the Inc. 500 list of the fastest growing private companies in America. Mr. Barbera pioneered the practice of database marketing for the live entertainment industry in the 1980’s, achieving nearly one hundred percent market share in New York. Under his leadership, MSGI originated the business of web-based ticketing in 1995 and became the dominant services provider in every major entertainment market in North America. Their principal areas of concentration also included: financial services, fundraising and publishing. MSGI was named one of the 50 fastest growing public companies in both 2001 and 2002 by Crains New York Business. In April 2004, Mr. Barbera completed the divestiture of the legacy businesses and re-birthed the company in the homeland security industry as MSGI Security Solutions, Inc. Prior to founding MSGI Direct, Mr. Barbera was a research scientist based at NASA/Goddard Space Flight Center, working on such groundbreaking missions as Pioneer Venus and the Global Atmospheric Research Program. Mr. Barbera has more than 20 years of experience in the areas of technology, marketing and database management services. Mr. Barbera is a Physicist educated at New York University and the Massachusetts Institute of Technology.

Mr. Mitchell has been the Company's Chief Accounting Officer and Treasurer since December 2003. Mr. Mitchell was appointed as Secretary by the Board of Directors of the Company in December 2006. Mr. Mitchell has been with the Company since May of 1999, when the former CMG Direct Corp. was acquired from CMGi, Inc. Mr. Mitchell has since served in a variety of positions for MSGI, including VP, Finance and Controller of CMG Direct Corp., VP, Finance for MKTG Services, Inc. and Senior V.P. and General Manager of MKTG Services Boston, Inc. Prior to joining the MSGI team, Mr. Mitchell served as a senior financial consultant to CMGi. During his tenure with CMGi, he participated on the Lycos IPO team, assisting in preparing Lycos for it's highly successful initial offering in April 1996. As a consultant to CMGi, Mr. Mitchell was also involved in corporate accounting and finance, including involvement in the formation of companies such as Navisite and Engage Technologies. In addition, Mr. Mitchell participated in the mergers and acquisition team of SalesLink, a wholly owned subsidiary of CMGi,where he assisted in the post-acquisition financial reporting systems migration and financial management of Pacific Link, a fulfillment operation located in Newark, CA. Mr. Mitchell performed a variety of financial management and accounting functions for Wheelabrator Technologies Inc., a $1.5 billion environmental services company, from 1987 through 1994. Those responsibilities included Northeast Regional Controller for the Wheelabrator Clean Water Corp. division, Corporate Director of Internal Audit and Corporate Accounting Manager. Mr. Mitchell graduated from the University of Lowell, Lowell, Massachusetts (now named the University of Massachusetts at Lowell) with a Bachelor of Science degree in Accounting.

Mr. Peters has served as President of the Company since November 2004 and has served as a Director of the Company since April 2004. Mr. Peters served President George W. Bush as the Assistant Deputy Director for State and Local Affairs of the White House's Drug Policy Office - commonly referred to as the Drug Czar's Office. There his duties included supervision of the country's High Intensity Drug Trafficking Area (HIDTA) Program. Mr. Peters also served as the Drug Czar's Liaison to the White House Office of Homeland Security and Governor Tom Ridge. Previously, Mr. Peters joined the Clinton White House, to direct the country's 26 HIDTA's, with an annual budget of a quarter billion dollars. Mr. Peters also represented the White House with police, prosecutors, governors, mayors and many non-governmental organizations. Mr. Peters began his career as a State prosecutor when he joined the Pennsylvania Attorney General's office in 1983. He later served as a Chief Deputy Attorney General of the Organized Crime Section, and in 1989 was named the first Executive Deputy Attorney General of the newly created Drug Law Division. In that capacity, Mr. Peters oversaw the activities of 56 operational drug task forces throughout the State, involving approximately 760 local police departments with 4,500 law enforcement officers. Mr. Peters consults to national and international law enforcement organizations on narco-terrorism and related intelligence and prosecution issues. He is an associate member of the Pennsylvania District Attorney's Association and a member of the International Association of Chiefs of Police, where he sits on their Terrorism Committee. Mr. Peters has devoted his entire career to public service.

Mr. Gerlach has been a Director of the Company since December 1997. Mr. Gerlach is Chairman of the M&A Committee and a member of the Audit and Compensation Committees of the Board of Directors. He is currently Senior Executive Professor with the graduate business program and Associate Professor of Finance at Sacred Heart University in Fairfield, CT. Previously, Mr. Gerlach was a Director in Bear Stearns' corporate finance department, with responsibility for mergers and financial restructuring projects, President and Chief Operating Officer of Horn & Hardart and Founder and President of Consumer Growth Capital. Mr. Gerlach also serves as a director for Uno Restaurant Co., SAFE Inc., Cycergie (a French company), Akona Corp., and the Board of Regents at St. John's University in Collegeville, MN. Mr. Gerlach is also a member of an advisory board for Drexel University’s College of Business & Administration.

Mr. Jones has been a Director of the Company since June 1996 and is a member of the Audit Committee of the Board of Directors. Mr. Jones has been Professor of Accounting at New York University since September 1993. From April 1974 to September 1995, Mr. Jones was a senior partner of the accounting firm of Coopers and Lybrand, a legacy firm of PriceWaterhouseCoopers LLP. In addition to 40-plus years of accounting experience, Mr. Jones has more than ten years of experience as an arbitrator and an expert witness, particularly in the areas of fraud, mergers and acquisitions, and accounting matters. Mr. Jones also functions as a consultant to Milberg Factors Inc. and CHF Industries Inc., and serves as a director for Arotech Corporation.

Mr. Stoller has served as a Director of the Company since March 2004, and is a member of the Audit Committee. Mr. Stoller has been involved in public and private finance for the last 20 years. Mr. Stoller began his professional career as an attorney. He was partner and co-head of global finance for Milbank, Tweed, Hadley & McCloy, LLP where he helped build one of the world's largest and most successful finance practices, participating personally in financings totaling more than $4 billion. At the end of 1992, Mr. Stoller joined Charterhouse Group International, a large New York City-based private equity firm, as chairman of its Environmental Capital Group. In 1993, Mr. Stoller, through the Charterhouse Environmental Group, launched American Disposal Services, an integrated waste management company that ultimately acquired and consolidated, with $34 million in equity capital, more than 70 waste management companies, located principally in the Midwest. American Disposal had a successful initial public offering in July 1996, and shortly afterward, Mr. Stoller, still chairman, became a general partner at Charterhouse and actively participated in raising $1 billion for Charterhouse's third private equity fund. American Disposal was sold in 1998 to Allied Waste for a price exceeding $1.3 billion. In August of 1998, Mr. Stoller left Charterhouse to launch Americana Financial Services, raising over $25 million in private equity capital. Americana (now the American Wholesale Insurance Group) is currently one of the top five largest private wholesale insurance brokerages in the United States. In 2002, Mr. Stoller launched TransLoad America LLC, which is principally in the business of transloading and transporting waste materials by rail, with an initial focus on the northeastern section of the United States. Mr. Stoller holds a B.A. from the University of Pennsylvania, an M.A. from the Graduate Faculty of the New School for Social Research, and a J.D. from Fordham University School of Law. He is also a graduate of the Harvard Business School Advanced Management Program.

Relationships and Interests in Proposals; Involvement in Certain Legal Proceedings

There are no family relationships among any of the directors or executive officers of MSGI Security Solutions, Inc. and no arrangements or understandings exist between any director or nominee and any other person pursuant to which such director or nominee was or is to be selected at the Company’s next annual meeting of stockholders. No director or officer is party to any corporate relevant legal proceeding.

Section 16(A) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934 requires that the Company's officers and directors, and persons who own more than ten percent of a registered class of the Company's equity securities, file reports of ownership on Forms 3, 4 and 5 with the Commission and the NASDAQ Market. Officers, directors and greater than ten percent stockholders are required by the Commission's regulations to furnish the Company with copies of all Forms 3, 4 and 5 they file.

Based solely on the Company's review of the copies of such forms it has received and written representations from certain reporting persons that they were not required to file reports on Form 5 for the fiscal year ended June 30, 2007, the Company believes that all its officers, directors and greater than ten percent beneficial owners complied with all filing requirements applicable to them with respect to transactions during the fiscal year ended June 30, 2007.

Code of Ethics

The Company has adopted a written Code of Ethics and Business Conduct, which complies with the requirements for a code of ethics pursuant to Item 406(b) of Regulation S-B under the Securities Exchange Act of 1934, that applies to our principal executive officer, principal financial officer, principal accounting officer or controller, and persons performing similar functions. A copy of the Code of Ethics and Business Conduct will be provided, without charge, to any shareholder who sends a written request to the Chief Accounting Officer of MSGI at 575 Madison Avenue, New York, NY 10022. Any substantive amendments to the code and any grant of a waiver from a provision of the code requiring disclosure under applicable SEC rules will be disclosed in a report on Form 8-K.

Board of Directors and Committee Information

The Board of Directors of MSGI Security Solutions, Inc. currently has two standing committees, the Audit Committee and the Compensation Committee. As described below, the entire Board of Directors acts with respect to nomination and corporate governance matters.

Audit Committee

The Company's Board of Directors has established a standing audit committee, which is currently comprised of the following directors: Mr. Seymour Jones, Mr. John T. Gerlach and Mr. David C. Stoller. All members of the audit committee are non-employee directors and satisfy the current standards with respect to independence, financial expertise and experience. Our Board of Directors has determined that Mr. Seymour Jones meets the Securities and Exchange Commission's definition of "audit committee financial expert."

Compensation Committee

The members of the Compensation Committee during fiscal year 2007 were Mr. Seymour Jones, Mr. Joseph Peters, and Mr. John Gerlach. Mr. Gerlach is Chairman of the Committee. Mr. Gerlach and Mr. Jones served as members of the Compensation Committee of the Company's Board of Directors during all of fiscal years 2006 and 2007. Mr. Peters served as a member of the committee in fiscal year 2007. Mr. Peters was also an officer and employee of the Company during the fiscal year ended June 30, 2007.

Nomination Matters

The Board of Directors does not currently have a nominating committee or a committee performing similar functions. Given the size of the Company and the historic lack of director nominations by stockholders, the Board has determined that no such committee is necessary. Similarly, although the Company’s By-laws contain procedures for stockholder nominations, the Board has determined that adoption of a formal policy regarding the consideration of director candidates recommended by stockholders is not required. The Company intends to review periodically both whether a more formal policy regarding stockholder nominations should be adopted and whether a nominating committee should be established. Until such time as a nominating committee is established, the full Board, which includes two directors employed by the Company and therefore not “independent” under applicable standards, will participate in the consideration of candidates. The Board does not utilize a nominating committee charter when performing the functions of such committee. The procedures for stockholder nominations and the desired qualifications of candidates, among other nominations matters, did not change during the 2007 fiscal year.

Item 10 - Executive Compensation:

The following table provides certain information concerning compensation of the Company's Chief Executive Officer and any other executive officer of the Company who received compensation in excess of $100,000 during the fiscal year ended June 30, 2007 (the "Named Executive Officers"):

SUMMARY COMPENSATION TABLE

	Fiscal
	Year												Non-Equity		Non-qualified
	Ended		Annual		Annual		Stock			Option			Incentive		Deferred		All Other
Name and Principal	June 30,		Salary		Bonus		Awards			Awards			Compensation		Compensation		Compensation			Total

Position

J. Jeremy Barbera (1)		2007	$	387,500		—	$	210,000	(4)	$	278,000	(6)		—		—	$	1,162,600	(9)	$	2,038,100
Chairman of the		2006		350,000		—		—			—			—		—		—			350,000
Board and Chief
Executive Officer

Joseph Peters (2)		2007		100,000		—		61,000	(5)		69,500	(7)		—		—		—			230,500
President and Director		2006		200,000		—		—			—			—		—		—			200,000

Richard J. Mitchell III (3)		2007		125,000		—		—			118,900	(8)		—		—		25,000	(10)		268,900
Chief Accounting Officer 2006				125,000		—		—			—			—		—		—			125,000
Treasurer and Secretary

(1)

In February 2003, Mr. Barbera voluntarily forgave a portion of his compensation to effect a reduction of approximately 30% to $350,000. Beginning in January 2005, Mr. Barbera elected to defer a portion of his compensation for the third and fourth quarters of the fiscal year ended June 30, 2005 until further notice. During the fiscal year ended June 30, 2006, Mr. Barbera deferred an additional $92,038 of his compensation. The deferred compensation totaled approximately $215,692 at June 30, 2006. The deferred compensation was paid during fiscal year ended June 30, 2007 through the issuance of convertible preferred series G stock to Mr. Barbera. Mr. Barbera elected to return his compensation level to the contractual obligation of $500,000 annually on April 1, 2007.

(2)

During the fiscal year ended June 30, 2006, Mr. Peters deferred approximately $82,400 of his salary. This deferred salary was paid to Mr. Peters during the fiscal year ended June 30, 2007 by issuance of shares of convertible preferred series G stock. The salary of Mr. Peters has been reduced to $100,000 annually as of December 1, 2006.

(3)	During the fiscal year ended June 30, 2006, Mr. Mitchell deferred approximately $61,100 of his salary. This deferred salary was paid to Mr. Mitchell during the fiscal year ended June 30, 2007 through the issuance of shares of convertible preferred series G stock.

(4)

On May 7, 2007, the Board of Directors voted unanimously to authorize the issuance of 300,000 shares of the Company’s common stock to Mr. Barbera as an incentive to retain the services of Mr. Barbera. The shares are to be issued in three equal installments of 100,000 shares each over a period of three years. The first issuance of 100,000 occurred on May 7, 2007. The shares were valued at the current market price of $2.10 per share resulting in an aggregate value of $210,000. The remaining 200,000 shares authorized will be issued to Mr. Barbera in installments of 100,000 each on May 7, 2008 and May 7, 2009.

(5)

In July 2007, the Board of Directors voted unanimously to authorize the issuance of 25,000 shares of the Company’s common stock to Mr. Peters as an incentive to retain the services of Mr. Peters. These shares were issued to Mr. Peters on July 5, 2007. The shares were valued at the current market price of $2.44 resulting in an aggregate value of $61,000.

(6)

Represents options to purchase 200,000 shares of the Company’s common stock at $1.50 per share. Options were issued on June 29, 2007 and expire 10 years from the date of issuance. The dollar amount presented represents the aggregate fair value of the award on the date of grant. This fair value was estimated using the Black-Scholes option pricing model with the following assumptions applied; dividend yield of zero, expected volatility of 142.3%, risk-free interest rate of 4.75% and an expected term of 6 years. None of these options are exercisable at June 30, 2007. There were no such issuances in the prior year.

(7)

Represents options to purchase 50,000 shares of the Company’s common stock at $1.50 per share. Options were issued on June 29, 2007 and expire 10 years from the date of issuance. The dollar amount presented represents the aggregate fair value of the award on the date of grant. This fair value was estimated using the Black-Scholes option pricing model with the following assumptions applied; dividend yield of zero, expected volatility of 142.3%, risk-free interest rate of 4.75% and an expected term of 6 years. None of these options are exercisable at June 30, 2007. There were no such issuances in the prior year.

(8)

Represents options to purchase 25,000 shares of the Company’s common stock at $1.40 per share and 50,000 shares at $1.50 per share. Options were issued on May 7, 2007 and June 29, 2007, respectively, and expire 10 years from the dates of issuance. The dollar amount presented represents the aggregate fair values of the award on the date of grant. The fair value of the May 7 grant was estimated using the Black-Scholes option pricing model with the following assumptions applied; dividend yield of zero, expected volatility of 140.9%, risk-free interest rate of 4.75% and an expected term of 6 years. The fair value of the June 29 grant was estimated using the Black-Scholes option pricing model with the following assumptions applied; dividend yield of zero, expected volatility of 142.3%, risk-free interest rate of 4.75% and an expected term of 6 years. None of these options are exercisable at June 30, 2007. There were no such issuances in the prior year.

(9)	Represents the principal value of $1,000,000 of a note payable to the Company plus accrued interest of $162,600, which was forgiven by unanimous vote of the Board of Directors during the fiscal year ended June 30, 2007.

(10)	On May 7, 2007, the Board of Directors voted unanimously to authorize the payment of a one-time bonus of $25,000 to Mr. Mitchell as an incentive to retain the services of Mr. Mitchell. This bonus was paid by the Company on May 18, 2007.

STOCK OPTION GRANTS

The Company maintains a qualified stock option plan (the "1999 Plan") for the issuance of up to 1,125,120 shares of common stock under qualified and non-qualified stock options. The plan is administered by the compensation committee of the Board of Directors which has the authority to determine which officers and key employees of the Company will be granted options, the option price and vesting of the options. In no event shall an option expire more than ten years after the date of grant.

There were 475,000 options granted during the fiscal year ended June 30, 2007. There were no options granted in the fiscal year ended June 30, 2006.

Outstanding Equity Awards at Fiscal Year End

The following table sets forth certain information regarding unexercised options, unvested stock and quity incentive plan awards for each Named Executive Officer outstanding as of the end of the Company’s fiscal year 2007:

	Option Awards												Stock Awards
Name	Number of Securities Underlying Unexercised Options (#) Exercisable			Number of Securities Underlying Unexercised Options (#) Unexercisable			Equity Incentive Plan Awards Number of Securites Underlying Unexercised Unearned Options (#)		Option Exercise Price ($)		Option Expiration Date		Number of Shares or Units of Stock That Have Not Vested (#)			Market Value of Shares or Units of Stock That Have Not Vested ($)			Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested ($)		Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($)

J. Barbera		100,000	(1)		—			—		1.50		3/24/14		—			—			—		—
		200,000	(2)		—			—		1.50		3/24/14		—			—			—		—
		—			200,000	(6)		—		1.50		6/29/17		200,000	(10)		300,000	(11)		—		—


J. Peters		20,000	(3)		—			—		4.13		3/24/14		—			—			—		—
		53,332	(4)		26,668	(4)		—		7.00		3/01/15		—			—			—		—
		—			50,000	(7)		—		1.50		6/29/17		—			—			—		—

R. Mitchell		10,000	(5)		—			—		1.50		3/24/14		—			—			—		—
		—			25,000	(8)		—		1.40		5/07/17		—			—			—		—
		—			50,000	(9)		—		1.50		6/29/17		—			—			—		—

(1)

Represents grant of options to purchase 100,000 shares of common stock at $1.50 per share, vested immediately, with a term of 10 years.

(2)

Represents a grant of options to purchase 200,000 shares of common stock at $1.50 per share, vested over three years on each anniversary date of the grant, with a term of 10 years.

(3)

Represents a grant of 20,000 options to purchase common stock at $4.13 per share, vested over three years on each anniversary date of the grant, with a term of 10 years.

(4)

Represents a grant of 80,000 options to purchase common stock at $7.00 per shares, vested over three years on each anniversary date of the grant, with a term of 10 years.

(5)

Represents a grant of 10,000 options to purchase common stock at $1.50 per shares, vested over three years on each anniversary date of the grant, with a term of 10 years.

(6)

Represents a grant of 200,000 options to purchase common stock at $1.50 per shares, vested equally over 18 months, with a term of 10 years.

(7)

Represents a grant of 50,000 options to purchase common stock at $1.50 per shares, vested equally over 18 months, with a term of 10 years.

(8)

Represents a grant of 25,000 options to purchase common stock at $1.40 per shares, vested over three years on each anniversary date of the grant, with a term of 10 years.

(9)

Represents a grant of 50,000 options to purchase common stock at $1.50 per shares, vested equally over 18 months, with a term of 10 years.

(10)

Represents remaining shares to be issued from a grant of 300,000 shares total, authorized by unanimous vote of the Board of Directors on May 7, 2007, to be issued in equal installments of 100,000 on each of the follow two anniversary dates of the grant.

(11)

Represents the fair value of the remaining 200,000 shares to be issued at the closing price of $1.50 on June 29, 2007.

Equity Compensation Plan Information

	Number of securities to be		Weighted-average		Number of Securities remaining
	issued upon		exercise		available
	exercise of		price of		for future
	outstanding		outstanding		issuances
	options,		options,		under equity
Plan Category	warrants and rights		warrants and rights		compensation plans


Equity compensation plans
approved by security holders
1999 Stock Option Plan (1)		985,000	$	1.94		140,122
Executive Options (1)		40,000	$	2.81		—

Equity compensation plans not
approved by security holders		—		—		—

Total		1,025,000	$	1.97		140,122

(1)

COMPENSATION OF DIRECTORS

Beginning in October 2003, directors who are not employees of the Company receive an annual retainer fee of $5,000, $1,000 for each Board Meeting attended, $500 for each standing committee meeting attended and $500 for each standing committee meeting for the Chairman of such Committee. Such Directors will also be reimbursed for their reasonable expenses for attending board and committee meetings, and will receive an annual grant of options on June 30 of each year to acquire 10,000 shares of common stock for each fiscal year of service, at an exercise price equal to the fair market value on the date of grant. Any Director who is also an employee of the Company is not entitled to any compensation or reimbursement of expenses for serving as a Director of the Company or a member of any committee thereof. The Directors agreed to waive the annual option grant for the fiscal years ended June 30, 2003, 2004, 2005 and 2006. The annual options grants previously waived were issued on June 29, 2007.

The following table sets forth certain information regarding all compensation earned by directors for the Company’s 2007 fiscal year.

	Fees Earned										Nonqualified
	or Paid								Non-Equity		Deferred
	in			Stock		Option			Incentive Plan		Compenstion		All Other
	Cash			Awards		Awards			Compensation		Earnings		Compensation		Total
Name	($)			($)		($)			($)		($)		($)		($)

J. Gerlach	$	17,500	(1)		—	$	69,500	(2)		—		—		—	$	87,000

S. Jones	$	17,000	(1)		—	$	69,500	(2)		—		—		—	$	86,500

D. Stoller	$	15,500	(1)		—	$	69,500	(2)		—		—		—	$	85,000

(1)

Represents compensation of an annual retainer fee of $5,000, $1,000 for each Board Meeting attended, $500 for each standing committee meeting attended and $500 for each standing committee meeting for the Chairman of such Committee.

(2)

Represents a grant of 50,000 options to purchase common stock at $1.50 per shares, vested equally over 18 months, with a term of 10 years

EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL ARRANGEMENTS

The Company had entered into employment agreements with only one of its Named Executive Officers.

Mr. Barbera was appointed to the position of Chairman of the Board, Chief Executive Officer and President of the Company by the Board, effective March 31, 1997. Mr. Barbera had previously also served as President and CEO of MSGI Direct. Mr. Barbera entered into a new employment agreement effective January 1, 2000. The agreement provides for a three year term expiring December 31, 2002 (the "Employment Term"). The base salary during the employment term is $500,000 for the first year and an amount not less than $500,000 for the remaining two years. Mr. Barbera is eligible to receive bonuses equal to 100% of the base salary each year at the determination of the Compensation Committee of the Board of Directors of the Company, based on earnings and other targeted criteria. The $500,000 annual salary for Mr. Barbera under his employment agreement reflected a raise from $350,000. Notwithstanding, Mr. Barbera forgave this increase for the period January 2000 through December 2000. In March 2002, Mr. Barbera agreed to decrease his annual salary to $450,000. In December 2003, Mr. Barbera agreed to further decrease his annual salary to $350,000. In April 2007, Mr. Barbera’s annual salary was returned to the contractually obligated level of $500,000. The Employment Agreement was automatically renewed for up to an additional three years and will now expire on December 31, 2008. In March 2004, Mr. Barbera was granted stock options to purchase 75,000 shares of Common Stock of the company at $1.50 per share, all of which are now fully vested as of June 30, 2007. On February 7, 2005, upon approval of an increase of the number of options available under the 1999 Plan by a vote of shareholders, Mr. Barbera was granted stock options to purchase 225,000 shares of Common Stock of the company at $1.50 per share, all of which are now fully vested as of June 30, 2007. On June 29, 2007, Mr. Barbera was granted stock options to purchase 200,000 shares of Common Stock of the company at $1.50 per share. These options vest in equal installments over an 18 month period beginning one month from the date of issuance. If Mr. Barbera is terminated without cause (as defined in the agreement), then the Company shall pay him a lump sum payment equal to 2.99 times the compensation paid during the preceding 12 months and all outstanding stock options shall fully vest and become immediately exercisable.

Mr. Barbera has agreed in his employment agreement (i) not to compete with the Company or its subsidiaries, or to be associated with any other similar business during the employment term, except that he may own up to 5% of the outstanding common stock of certain corporations, as described more fully in the employment agreement, and (ii) upon termination of employment with the Company and its subsidiaries, not to solicit or encourage certain clients of the Company or its subsidiaries to cease doing business with the Company and its subsidiaries and not to do business with any other similar business for a period of three years from the date of such termination.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The members of the Compensation Committee during fiscal year 2007 were Seymour Jones, Joseph Peters, and John Gerlach. Mr. Gerlach was Chairman of the Committee. There were no compensation interlocks.

Mr. Gerlach and Mr. Jones served as members of the Compensation Committee of the Company's Board of Directors during all of fiscal year 2007. Mr. Peters was also an officer and employee of the Company during the fiscal year ended June 30, 2007.

No interlocking relationships exist between the member of the Company's Board of Directors or Compensation Committee and the Board of Directors or Compensation Committee of any other Company, nor has any such relationship existed in the past.

COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION

Decisions regarding compensation of our executive officers are made by the Compensation Committee. In making decision on compensation, the Compensation Committee solicits and receives the recommendations of the Chief Executive Officer.

COMPENSATION POLICIES FOR EXECUTIVE OFFICERS

The Compensation Committee desires to set compensation at levels through arrangements that will attract and retain managerial talent desired by us, reward employees for past contributions and motivate managerial efforts consistent with corporate growth, strategic progress and the creation of stockholder value. The Compensation Committee believes that a mix of salary, incentive bonus and stock options will achieve those objectives.

RELATIONSHIP OF PERFORMANCE TO EXECUTIVE COMPENSATION

The base salary of Mr. Barbera is set by terms of his employment agreement, which was negotiated to attract and retain him. The Compensation Committee believes this salary is competitive and represents a fair estimate of the value of the services rendered by Mr. Barbera.

Respectively submitted,

COMPENSATION COMMITTEE

John T. Gerlach

Item 11. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Common Stock - Five Percent Holders

The following table sets forth, as of September 30, 2007, certain information with respect to any person, including any group, who is known to the Company to be the beneficial owner of more than 5% of the common stock of the Company.

Title of Class	Name and Address of Beneficial Owner	Amount and Nature of Beneficial Owner (1)	Percent of Class

Common	Anyuser, Inc. (2)	900,000	8.39%
	228 Hamilton Ave
	Palo Alto, CA 94301

	Coda Octopus Group, Inc.	850,000	8.24%
	245 Park Avenue
	New York, NY 10167

(1)

Unless otherwise indicated, each of the persons named in the table has sole voting and investment power with respect to the shares set forth opposite such person’s name. With respect to each person or group, percentages are calculated based on the number of shares beneficially owned, including shares that may be acquired by such person or group within 60 days of September 30, 2007 upon the exercise of stock options, warrants or other purchase rights, but not the exercise of options, warrants or other purchase rights held by any other person.

(2)	Anyuser, Inc. is an affiliate of Hyundai Syscomm Corp.

Common Stock - Management

The following table sets forth, as of September 30, 2007, certain information certain information concerning the ownership of the Company’s common stock of each (i) director, (ii) nominee, (iii) executive officers and former executive officers named in the Summary Compensation Table and referred to as the “Named Executive Officers,” and (iv) all current directors and executive officers of the Company as a group.

Title of	Name and Address of	Beneficial	Percent of
Class	Beneficial Owner	Ownership (1)	Class

Common	J. Jeremy Barbera (2)	1,200,000	10.7%
	575 Madison Ave
	New York, NY 10022

Common	Seymour Jones (3)	115,292	1.0%
	575 Madison Ave
	New York, NY 10022

Common	John Gerlach (4)	113,609	1.0%
	575 Madison Ave
	New York, NY 10022

Common	David Stoller (5)	70,000	*
	575 Madison Ave
	New York, NY 10022

Common	Joseph Peters (6)	327,400	2.9%
	575 Madison Ave
	New York, NY 10022

Common	Richard Mitchell (7)	169,200	1.5%
	575 Madison Ave
	New York, NY 10022

All Directors and Named Executive Officers reported as a group		1,995,501	17.8%

* Less than 1%

(1)

Unless otherwise indicated in these footnotes, each stockholder has sole voting and investment power with respect to the shares beneficially owned. All share amounts reflect beneficial ownership determined pursuant to Rule 13d-3 under the Exchange Act. All information with respect to beneficial ownership has been furnished by the respective Director, executive officer or stockholder, as the case may be. Except as otherwise noted, each person has an address in care of the Company.

(2)

Includes (i) 415,000 issued upon conversion of Series G Convertible Preferred Shares, (ii) 100,000 issued as retention incentive, (iii) 185,000 shares previously owned and purchased on the open market and (iv) 500,000 options to purchase shares of common stock. With respect to the options to purchase shares of common stock, 333,333 are exercisable at September 30, 2007.

(3)

Includes (i) 5,292 shares previously owned and purchased on the open market and (ii) 110,000 options to purchase shares of common stock. With respect to the options to purchase shares of common stock, 68,333 are exercisable at September 30, 2007.

(4)

Includes (i) 3,609 shares previously owned and purchased on the open market and (ii) 110,000 options to purchase shares of common stock. With respect to the options to purchase shares of common stock, 68,333 are exercisable at September 30, 2007.

(5)

Consists entirely of options to purchase shares of common stock. With respect to the options to purchase shares of common stock, 28,333 are exercisable at September 30, 2007.

(6)

Includes (i) 143,000 issued upon conversion of Series G Convertible Preferred Shares, (ii) 25,000 issued as retention incentive, (iii) 9,400 shares previously owned and purchased on the open market and (iv) 150,000 options to purchase shares of common stock. With respect to the options to purchase shares of common stock, 81,665 are exercisable at September 30, 2007.

(7)

Includes (i) 84,200 issued upon conversion of Series G Convertible Preferred Shares and (ii) 85,000 options to purchase shares of common stock. With respect to the options to purchase shares of common stock, 18,333 are exercisable at September 30, 2007.

Item 12 - Certain Relationships and Related Transactions, and Director Independence

Transactions with Mr. Barbera, Chief Executive Officer and Chairman of the Board of Directors: During the year ended June 30, 2002, the Company advanced $1,000,000 pursuant to a promissory note receivable to Mr. Barbera due and payable to the Company at maturity, October 15, 2006. The note was entered into as an inducement to the continued employment of Mr. Barbera and to provide additional security in the event of a change in control. Accordingly, the note will be forgiven in the event of a change in control. The Company recorded the note receivable at a discount of approximately $57,955 to reflect the incremental borrowing rate of Mr. Barbera and is being amortized as interest income over the term of the note using the straight-line method. The note receivable was collateralized by current and future holdings of MSGI common stock owned by the officer and bore interest at prime. Interest is due and payable yearly on October 15th. The Company recognized interest income of approximately $69,770 for the year ended June 30, 2006. As of June 30, 2006, interest due of approximately $162,600 is in arrears. Since collectibility of the note receivable was uncertain, the Company had provided for the loss of the note receivable during the year ended June 30, 2006. The collection of this note by its October 15, 2006 due date did not occur. The Board of Directors of the Company subsequently elected to forgive such note receivable at that point. The full amount has been written off during the fiscal year ended June 30, 2006.

Relationship with Hyundai Syscomm Corp. :

On May 10, 2007, The Company announced today that it had entered into an exclusive sub-contract and distribution agreement with Apro Media Corp for at least $105 million of sub-contracting business over seven years to provide commercial security services to a Fortune 100 defense contractor. Under the terms of contract, MSGI will acquire components from Korea and deliver fully integrated security solutions at an average level of $15 million per year for the length of the seven-year engagement. MSGI will also immediately establish and operate a 24/7/365 customer support facility in the Northeastern United States. Apro will provide MSGI with a web-based interface to streamline the ordering process and create an opportunity for other commercial security clients to be acquired and serviced by MSGI. The contract calls for gross profit margins estimated to be between 26% and 35% including a profit sharing arrangement with Apro Media, which will initially take the form of unregistered MSGI common stock, followed by a combination of stock and cash and eventually just cash. The terms of the agreement call for 3,000,000 shares of unregistered MSGI common stock to be issued in exchange for $10 million in revenue, at the point when the revnue is recognizable by MSGI. Subsequent to the first $10 million in revenue, for every $1 million in revenue received, the Company will issue 300,000 warrants for shares of common stock under the agreement in years one and two. Starting with the third year of the agreement, the number of warrants to be issued decreases to 150,000 warrants and the contract then provides for a portion to be paid in cash at a rate of 25% of the gross profit received in exchange for $1 million in revenue recognized. The contract terms continue to decrease the warrants and increase the cash portion to a point where in the seventh year of the contract, no warrants are issuable and cash is paid at a rate of 50% of the gross profit received. The contract provides for 12,750,000 in warrants to be issued over the term of the contract, provided that $90 million of revenue levels are attained. In the aggregate, assuming all the revenue targets are met over the next seven years, Apro Media would eventually acquire approximately 15.75 million shares of MSGI common stock.

MSGI was referred to Apro Media by Hyundai Syscomm, an MSGI strategic investor; as part of a general expansion into the Asian security market, however revenue under the Apro contract does not constitute revenue under the existing Hyundai Syscomm warrant to acquire common stock of MSGI. The Apro contract required working capital of at least $5 million due to considerable upfront expenses including a $2.5 million financial contribution made by MSGI to Apro Media for the proprietary system development requirements of the Fortune 100 client and the formation of a staffed production and customer service facility and warehouse. MSGI paid the $2.5 million in May 2007, which is recognized as R&D expense on the statement of operations. MSGI financed this investment with the May 21, 2007 $5 million 8% Callable Convertible Notes. The first Apro Media purchase order was received during the three month period ended June 30, 2007 and will include monthly deliverables. The first shipment of product under the purchase orderoccurred during fiscal 2008.

Relationship with Coda Octopus Group, Inc. :

On April 1, 2007 the Company, through its majority-owned subsidiary Innalogic, entered into a non-exclusive License Agreement with the Coda Octopus Group, Inc.. This agreement allows for CODA to market the Innalogic, LLC “SafetyWatch” technology to its client base, sub-license the Technology to its customers and distributors, use the Technology for the purposes of demonstration to potential customers, sub-licensors and/or distributors and to further develop the source code of the Technology as it sees fit. In return, CODA will pay a 20% royalty to MSGI from the sale of the Technology to its customers, and further CODA has assumed certain development and operational activities of Innalogic in connection with this transaction. During the year ended June 30, 2007, the Company received funding, in the amount of approximately $722,000 from CODA as well as CODA paid directly approximately $537,000 of certain operating expenses of Innalogic LLC. During 2007, the Company repaid CODA $234,000 as well as issued 850,000 unregistered common shares to CODA as payment of amounts due to CODA for advancing funds to us. During the fiscal year ended June 30, 2007, the Company received a $100,000 referral fee from CODA.

Stock Performance Graph

The graph below compares our cumulative total return, the Russell 2000 index and the Nasdaq Non-Financial index from June 30, 2002, through June 30, 2007. Total return is based on an assumed investment of $100 on June 30, 2002.

EDGAR PRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

DOLLARS

MSGI SECURITY SOLUTIONS, INC. RUSSELL 2000 NASDAQ NON-FINANCIAL

6/02	100	100	100
6/03	30	98	114
6/04	125	128	143
6/05	196	140	140
6/06	84	210	147
6/07	49	242	181

	6/02		6/03		6/04		6/05		6/06		6/07


MSGI		100		30		125		196		84		49
RUSSELL 2000		100		98		128		140		210		242
NASDAQ NON-FINANCIAL		100		114		143		140		147		181

Item 13. Exhibits

(a)(1) Financial statements - see "Index to Financial Statements" on page 28.

2.1		Amended and Restated Limited Liability Company Agreement, dated as of August 18, 2004, Incorporated by reference to Exhibit No. 2.1of the Company's Current Report on Form 8-K, filed September 2, 2004

2.2		Investment Agreement, dated as of August 18, 2004, Incorporated by reference to Exhibit No. 2.2 of the Company's Current Report on Form 8-K, filed September 2,

2.3		Subscription Agreement, dated December 1, 2004, Incorporated by reference to Exhibit No. 2.1 of the Company's Current Report on Form 8-K, filed December 7, 2004

2.4		Subscription Agreement, dated January 3, 2005, Incorporated by reference to Exhibit No. 2.1 of the Company's Current Report on Form 8-K, filed January 7, 2005

2.5		Restructuring and Subscription Agreement, dated as of May 16, 2005, Incorporated by reference to Exhibit No. 2.1 of the Company's Current Report on Form 8-K, filed May 20, 2005

2.6		Stock Purchase Agreement, dated as of June 1, 2005, Incorporated by reference to Exhibit No. 2.1 of the Company's Current Report on Form 8-K, filed June 7, 2005

2.7		Stock Purchase Agreement dated as of July 1, 2005, Incorporated by reference to Exhibit No. 2.1 of the Company's Current Report on Form 8-K, filed July 7, 2005

(3) Exhibits:

3.1		Amended and Restated Articles of Incorporation, incorporated herein by reference to the Company's Report on Form 8-K dated April 25, 1995

3.2		Certificate of Amendment to the Amended and Restated Articles of Incorporation of the Company, incorporated by reference to the Company's Report on Form 10K- for the fiscal year ended June 30, 2001

3.3		Certificate of Amendment to the Articles of Incorporation for change of name to All-Comm Media Corporation, incorporated by reference to the Company's Report on Form 10-K for the fiscal year ended June 30, 1995

3.4		By-Laws, included in the Company's Report on Form 10K- for the fiscal year ended June 30, 2004

3.5		Certificate of Amendment of Articles of Incorporation for increase in number of authorized shares to 36,300,000 total, incorporated by reference to the Company's Report on Form 10-K dated June 30, 1996

3.6		Certificate of Amendment of Articles of Incorporation for change of name to Marketing Services Group, Inc., incorporated by reference to the Company's Report on Form 10-KSB for the fiscal year ended June 30, 1997

3.7		Certificate of Amendment of Articles of Incorporation for increase in number of authorized shares to 75,150,000 total, incorporated by reference to the Company's Report on Form 10-KSB dated June 30, 1998

3.8		Certificate of Amendment of Articles of Incorporation for change of name to MKTG Services, included in the Company's Report on Form 10K- for the fiscal year ended June 30, 2004

4.1		Form of Subscription Agreement, Incorporated by reference to Exhibit No. 4.1 of the Company's Current Report on Form 8-K, filed January 5, 2005

4.2		Form of Subscription Agreement, Incorporated by reference to Exhibit No. 4.1 of the Company's Current Report on Form 8-K, filed November 16, 2004

4.3		Form of Investors' Warrant, Incorporated by reference to Exhibit No. 4.2 of the Company's Current Report on Form 8-K, filed November 16, 2004

4.4		Form of Investors’ Warrant, Incorporated by reference to Exhibit No. 4.2 of the Company's Current Report on Form 8-K, filed January 5, 2005

4.5		Form of Agent's Warrant, Incorporated by reference to Exhibit No. 4.3 of the Company's Current Report on Form 8-K, filed November 16, 2004

4.6		Form of Agent’s Warrant, Incorporated by reference to Exhibit No. 4.3 of the Company's Current Report on Form 8-K, filed January 5, 2005

4.7		Form of Securities Purchase Agreement, Incorporated by reference to Exhibit No. 4.1 of the Company's Current Report on Form 8-K, filed July 9, 2005

4.8		Form of Callable Secured Convertible Note, Incorporated by reference to Exhibit No. 4.2 of the Company's Current Report on Form 8-K, filed September 9, 2005

4.9		Form of Securities Purchase Warrant, Incorporated by reference to Exhibit No. 4.3 of the Company's Current Report on Form 8-K, filed August 9, 2005

4.10		Registration Rights Agreement, Incorporated by reference to Exhibit No. 4.4 of the Company's Current Report on Form 8-K, filed August 9, 2005

4.11		Security Agreement, Incorporated by reference to Exhibit No. 4.5 of the Company's Current Report on Form 8-K, filed August 31, 2005

4.12		Form of Agent's Warrant, Incorporated by reference to Exhibit No. 4.6 of the Company's Current Report on Form 8-K, filed August 31, 2005

4.13		Form of Agreement to Issue Additional Company Interests, Incorporated by reference to Exhibit No. 4.1 of the Company's Current Report on Form 8-K, filed September 7, 2005

4.14		Form of Stock Purchase Warrant, Incorporated by reference to Exhibit No. 4.1 of the Company's Current Report on Form 8-K, filed July 7, 2006

4.15		Form of Subscription Agreement, Incorporated by reference to Exhibit No. 4.1 of the Company's Current Report on Form 8-K, filed October 25, 2006

4.16		Form of Sub-Contracting Agreement, Incorporated by reference to Exhibit No. 4.1 of the Company's Current Report on Form 8-K, filed October 31, 2006

4.17		Form of Callable Secured Convertible Note, Incorporated by reference to Exhibit No. 4.1 of the Company's Current Report on Form 8-K, filed December 18, 2006

4.18		Form of Stock Purchase Warrant, Incorporated by reference to Exhibit No. 4.2 of the Company's Current Report on Form 8-K, filed December 18, 2006

4.19		Form of Convertible Debenture, Incorporated by reference to Exhibit No. 4.2 of the Company's Current Report on Form 8-K, filed May 23, 2007

4.20		Form of Stock Purchase Warrant, Incorporated by reference to Exhibit No. 4.2 of the Company's Current Report on Form 8-K, filed May 23, 2007

4.21		Form of Security Agreement, Incorporated by reference to Exhibit No. 4.3 of the Company's Current Report on Form 8-K, filed May 23, 2007

4.22		Form of Subsidiary Gurantee,Incorporated by reference to Exhibit No. 4.4 of the Company's Current Report on Form 8-K, filed May 23, 2007

4.23		Form of Registration Rights Agreement, Incorporated by reference to Exhibit No. 4.5 of the Company's Current Report on Form 8-K, filed May 23, 2007

10.1		J. Jeremy Barbera Employment Agreement, incorporated by reference to the Company's Report on Form 10-K for the fiscal year ended June 30, 2000

10.2		Form of Bridge Loan Agreement, Incorporated by reference to Exhibit No. 10.1 of the Company's Current Report on Form 8-K, filed February 27, 2006

10.3		Form of Promissory Note, Incorporated by reference to Exhibit No. 10.2 of the Company's Current Report on Form 8-K, filed February 27, 2006

10.4		Form of Warrant, Incorporated by reference to Exhibit No. 10.3 of the Company's Current Report on Form 8-K, filed February 27, 2006

10.5		Form of Registration Rights Agreement, Incorporated by reference to Exhibit No. 10.4 of the Company's Current Report on Form 8-K, filed February 27, 2006

10.7		Securities Purchase Agreement, dated December 13, 2006, by and among MSGI Security Solutions, Inc. and each of the Purchasers set forth on the signature pages thereto, Incorporated by reference to Exhibit No. 10.1 of the Company's Current Report on Form 8-K, filed December 18, 2006

10.8		Registration Rights Agreement, dated December 13, 2006 by and among MSGI Security Solutions, Inc. and each of the undersigned, Incorporated by reference to Exhibit No. 10.2 of the Company's Current Report on Form 8-K, filed December 18, 2006

10.9		Security Agreement, dated as of December 13, 2006 by and among MSGI Security Solutions, Inc., certain subsidiaries of MSGI and the secured parties which are signatories thereto, Incorporated by reference to Exhibit No. 10.3 of the Company's Current Report on Form 8-K, filed December 18, 2006

10.10		Intellectual Property Agreement, dated as of December 13, 2006 by and among MSGI Security Solutions, Inc., certain subsidiaries of MSGI and the secured parties which are signatories thereto, Incorporated by reference to Exhibit No. 10.4 of the Company's Current Report on Form 8-K, filed December 18, 2006

10.5		Letter Agreement, dated December 13, 2006 by and among MSGI Security Solutions, Inc. and the parties thereto, Incorporated by reference to Exhibit No. 10.5 of the Company's Current Report on Form 8-K, filed December 18, 2006

10.6		Sub-contracting and distribution agreement, dated as of May 9, 2007 by and among MSGI Security Solutions, Inc., and Apro Media Corp. and the secured parties which are signatories thereto, Incorporated by reference to Exhibit No. 10.1 of the Company's Current Report on Form 8-K, filed May 15, 2007

10.7		Form of Securities Purchase Agreement, dates as of May 21, 2007, by and among MSGI Security Solutions, Inc., certain subsidiaries of MSGI and the secured parties which are signatories thereto, Incorporated by reference to Exhibit No. 10.1 of the Company's Current Report on Form 8-K, filed May 3, 2007

21		List of Company's subsidiaries

23.1		Consent of Amper, Politziner & Mattia, P.C.

31.1		Certifications of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2		Certifications of the Chief Accounting Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1		Certifications of the Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2		Certifications of the Chief Accounting Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Item 14. Principal Accountant Fees and Services

The aggregate fees billed by Amper, Politziner & Mattia, P.C., independent accountants, for professional services rendered to MSGI Security Solutions, Inc during the fiscal years ended June 30, 2007 and 2006 were comprised of the following:

	Fiscal Year		Fiscal Year
	2007		2006
Audit Fees	$	281,200	$	215,300
Tax Fees		30,900		30,900
All other Fees		—		—

Total Fees	$	312,100	$	246,200

Audit fees include fees for professional services rendered in connection with the audit of our consolidated financial statements for each year and reviews of our unaudited consolidated quarterly financial statements, as well as fees related to consents and reports in connection with regulatory filings for those fiscal years.

Tax fees related primarily to tax compliance and advisory services, and the preparation of federal and state tax returns for each year.

The Company's Audit Committee pre-approves all services provided by Amper, Politziner & Mattia, P.C.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


	MSGI SECURITY SOLUTIONS, INC. (Registrant)

	By:	/s/ J. Jeremy Barbera
		J. Jeremy Barbera Chief Executive Officer



	By:	/s/ Richard J. Mitchell III
		Richard J. Mitchell III Chief Accounting Officer and Principle Financial Officer

Date: October 29, 2007

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

Signature	Title	Date


/s/ J. Jeremy Barbera	Chairman of the Board and Chief Executive	October 29, 2007
J. Jeremy Barbera	Officer (Principal Executive Officer)


/s/ John T. Gerlach	Director	October 29, 2007
John T. Gerlach


/s/ Seymour Jones	Director	October 29, 2007
Seymour Jones


/s/ Joseph Peters	Director	October 29, 2007
Joseph Peters


/s/ David Stoller	Director	October 29, 2007
David Stoller

		State of Incorporation
Future Developments America, Inc.		Delaware
Innalogic LLC		New York



Dated: October 29, 2007	By:	/s/ J. Jeremy Barbera
		J. Jeremy Barbera
		Chairman of the Board and Chief Executive Officer
		(Principal Executive Officer)


Dated: October 29, 2007	By:	/s/ Richard J. Mitchell III
		Richard J. Mitchell III
		Chief Accounting Officer
		(Principal Financial Officer)