Special Note Regarding Forward-Looking Statements

Some of the statements contained in this Report on Form 10-Q 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 including, but not limited to, statements regarding our near-term objectives and long-term strategies, expectations of short-term and long-term liquidity requirements and needs, statements that are not historical facts, and/or statements containing words such as "anticipate(s)," "expect(s)," "intend(s)," "plan(s)," "target(s)," "project(s)," "will," "believe(s)," "may," "would," "seek(s)," "estimate(s)" and similar expressions. These statements are based on management's current expectations, beliefs and assumptions and are subject to a number of known and unknown risks, uncertainties and other factors that could lead to actual results materially different from those described in the forward-looking statements. The Company can give no assurance that its expectations will be attained. 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; 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 and telecommunication costs.

Introduction

This discussion summarizes the significant factors affecting the consolidated operating results, financial condition and liquidity/cash flows of the Company for the three-month periods ended September 30, 2008 and 2007. This should be read in conjunction with the financial statements, and notes thereto, included in this Report on Form 10-Q and the Company's financial statements and notes thereto, included in the Company's Annual Report on Form 10-KSB for the year ended June 30, 2008.

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. The following is a brief description of the more significant accounting policies and methods used by the Company.

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 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 majority of our revenues are derived from the shipment of product, without installation or maintenance requirements by us, and accordingly revenue is recognized upon shipment, when the above criteria have been met. Revenue for maintenance contracts are deferred and recognized over the term of the maintenance period. There was no deferred revenue as of September 30, 2008.

The Company had certain shipments to various customers during fiscal 2008 in the aggregate of approximately $6.5 million that were not recognized as revenue in fiscal 2008 or to date in fiscal 2009 due to certain revenue recognition criteria not being met in these periods, related to the assurance of collectibility among other factors. Through September 30, 2008, these factors have not been met. These transactions will be recognized as revenue in the period in which all the revenue recognition criteria, as noted above, have been fully met. Inventory costs related to these transactions for which revenue has not been recognized are reported on the balance sheet in Costs of product shipped to customers for which revenue has not been recognized.

Costs of product shipped to customers for which revenue has not been recognized:

As of June 30 and September 30, 2008, the Company has capitalized the expense recognition of approximately $5.4 million in product costs for goods that were shipped to customers during fiscal 2008 but for which revenue has not yet been recognized in either fiscal 2008 or to date in fiscal 2009. The Company has also recorded a reserve against these product costs in the amount of approximately $1.4 million. This reserve estimates the potential costs that may be unrecoverable. The remaining product costs will be recognized as costs of goods sold by the Company at such time as the associated revenues are recognized upon completion of all the revenue recognition criteria, which is expected to be upon receipt of payment from the customers, or when product is returned or these product costs are considered unrealizable and are written off.

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. At September 30, 2008 and June 30, 2008, the Company has an allowance for doubtful accounts of $60,000 for accounts receivable from CODA.

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 asset and 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.

The Company follows the provisions of Financial Standards Accounting Board Interpretation No. 48, "Accounting for Uncertainty in Income Taxes, an interpretation of SFAS 109" (FIN 48). FIN 48 provides recognition criteria and a related measurement model for uncertain tax positions taken or expected to be taken in income tax returns. FIN 48 requires that a position taken or expected to be taken in a tax return be recognized in the financial statements when it is more likely than not that the position would be sustained upon examination by tax authorities. Tax positions that meet the more likely than not threshold are then measured using a probability weighted approach recognizing the largest amount of tax benefit that is greater than 50% likely of being realized upon ultimate settlement. There is no liability related to unrecognized tax benefits at September 30, 2008 and June 30, 2008.

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 and the allowance for doubtful accounts. Actual results could differ from those estimates.

Equity Based Compensation:

We follow Statement of Financial Accounting Standards No. 123 Revised 2004 (SFAS 123R), "Share-Based Payment". 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 in accordance with Accounting Principles Board No. 14 ("APB 14"), "Accounting for Convertible Debt and Debt Issued with Stock Purchase Warrants". 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 using the effective interest method. Under this method, the interest expense recognized each period will increase significantly as the instrument approaches its maturity date. If the maturity of the debt is accelerated because of defaults or conversions, then the amortization is accelerated. The Company's debt instruments do not contain any embedded derivatives at September 30, 2008 and June 30, 2008.

Investments in Non-Consolidated Entities:

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 another-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.

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. The Company has not elected to fair value its financial assets and liabilities under SFAS No. 159 and therefore the application of this statement has not had a material impact on the Company's consolidated financial statements.

In May 2008, the FASB issued FASB Staff Position (FSP) APB 14-1, "Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement)" (FSP APB 14-1). FSP APB 14-1 clarifies that convertible debt instruments that may be settled in cash upon either mandatory or optional conversion (including partial cash settlement) are not addressed by paragraph 12 of APB Opinion No. 14, "Accounting for Convertible Debt and Debt issued with Stock Purchase Warrants."

Additionally, FSP APB 14-1 specifies that issuers of such instruments should separately account for the liability and equity components in a manner that will reflect the entity's nonconvertible debt borrowing rate when interest cost is recognized in subsequent periods. FSP APB 14-1 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. We will adopt FSP APB 14-1 beginning in the first quarter of 2010, and this standard must be applied on a retrospective basis. We are currently evaluating the impact the adoption of FSP APB 14-1 will have on our consolidated financial position and results of operations.

Significant Events:

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

On December 13, 2007, the Company entered into four short-term notes with private institutional lenders. These promissory notes provided proceeds totaling $2.86 million to the Company. The proceeds of these notes were used to purchase inventory to fulfill the contract referred to us by Apro.

On January 10, 2008, the Company issued (i) 5,000,000 shares of the Company's Series H Convertible Preferred Stock (ii) a Put Option agreement and (iii) warrants exercisable for 5,000,000 shares of Common Stock at an exercise price of $2.50 per share. The Buyers paid a total of $5,000,000 for securities issued in the Preferred Stock Transaction. From the Total Purchase Price, $2,000,000 was used to purchase the securities of Current Technology and $1,800,000 was placed in a restricted cash account to be used as collateral for the Company's obligations under the Put Option Agreement. See below for a description of the Securities Exchange Transaction.

On January 10, 2008, the Company entered into a Subscription Investment Agreement with Current Technology Corporation, a corporation formed under the laws of the Canada Business Corporation Act. Under this agreement, at June 30, 2008, the Company has invested a total of $2 million and owns 20 million shares of the common stock of Current Technology, which represents approximately 15% ownership of their outstanding common stock. In addition, the Company held warrants to purchase 20 million additional shares of common stock. As of June 30, 2008, the Company has an option to invest an additional $500,000 under the original agreement terms. Subsequent to year end, the 20 million warrants were assigned to a third party as part of a Securities Exchange Agreement involving the Company's Preferred Stock.

On August 22, 2008, the Company entered into a Securities Exchange Agreement with Enable Growth Partners, LP ("Enable"), an existing institutional investor of MSGI and as of that date, holder of 100% of MSGI's Series H Convertible Preferred Stock pursuant to which MSGI retired all outstanding shares of the Series H Preferred Stock, 5,000,000 warrants issued in connection with the preferred stock, exercisable for shares of common stock of MSGI and put options exercisable for 5,000,000 shares of Common Stock. Enable recently acquired the Series H Preferred Stock, Warrants and Put Options pursuant to a private transaction with third parties

Results of Operations for the Three Months Ended September 30, 2008, Compared to the Three Months Ended September 30, 2007

There were no reported revenues during the three months ended September 30, 2008 (the Current Period). Revenues from the sale of products of approximately $3.8 million for the three months ended September 30, 2007 (the Prior Period) were directly attributed to transactions introduced to us through Apro Media, and a referral fee of $100,000 associated with the Coda Octopus Group arrangement.

There were no costs of goods sold in the Current Period compared to costs of goods sold of approximately $2.8 million in the Prior Period. The 25% gross margin recognized under the product sale in the Prior Period is within the range expected for transactions referred to us by Apro.

Salaries and benefits of approximately $375,000 in the Current Period were in line with salaries and benefits of approximately $370,000 in the Prior Period.

Selling, general and administrative expenses of approximately $0.6 million in the Current Period decreased by approximately $1.2 million or 66% over comparable expenses of $1.8 million in the Prior Period. This decrease is due primarily to a reduction in expense for the fair market value of shares to be issued to Apro Media Corp in the amount of approximately $1.3 million offset by increases in investor relations expenses, consulting fees and travel expenses.

Depreciation and amortization expenses of approximately $4,000 were realized in the Current Period and represent a decrease of approximately $12,000 from comparable expenses during the Prior Period. This decrease is primarily the result of reductions in amortization as all intangible assets have been fully amortized in the Prior Period.

As a result of the above, loss from operations of approximately $1.0 million in the Current Period decreased by approximately $0.1 million from comparable loss from operations of $1.1 million in the Prior Period.

During the Current Period, the Company recognized expenses for adjustments to the fair market value of certain put options of $150,000. There were no such expenses in the Prior Period. These expenses represent the adjustment to the fair market value of the put options as of August 22, 2008 on which date the put options were redeemed and subsequently cancelled.

During the Current Period, the Company recognized a gain on the securities exchange agreement of $1.7 million. There was no such gain recognized in the Prior Period. This gain is the result of the redemption and subsequent cancellation of all put options, Series H Preferred Stock and certain related warrants held by Enable on August 22, 2008 and the related issuance by us of the new $4 million convertible Note, a $1 million cash payment and the issuance of 20 million warrants fro shares of common stock of Current Technology Corporation.

The Company realized interest income of approximately $13,000 during the Current Period. There was no income in the Prior Period. This increase in interest income is the result of earnings on the restricted cash on hand during the Current Period.

Interest expense of approximately $1.0 million in the Current Period represents a decrease of approximately $0.4 million from expenses of approximately $1.4 in the Prior Period. This decrease is due primarily to a reduction in non-cash interest expenses derived from the amortization of certain debt discounts.

As a result of the above, net loss of approximately $0.4 million in the Current Period decreased by approximately $2.1 million from comparable net loss of approximately $2.5 million in the Prior Period.

Capital Resources and Liquidity

Liquidity:
Historically, the Company has funded its operations, capital expenditures and acquisitions primarily through private placements of equity and debt transactions. The Company currently has limited capital resources, has incurred significant historical losses and negative cash flows from operations and has no current period revenues. At September 30, 2008, the Company had approximately $72,000 in cash and no accounts receivable and a working capital deficit of $4.3 million. The Company believes that funds on hand combined with funds that will be available from its various operations may 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. Certain promissory notes in the amount of $1,900,000 are due December 31, 2008, and one promissory note in the amount of $960,000 is technically in arrears athough we are attempting to negotiate an amendment. Further, there is uncertainty as to timing, volume and profitability of transactions that may arise from our relationship with Hyundai, Apro and others. Further, there can be no assurance as to the timing of when or if we will receive amounts due to us for products shipped to customers prior to June 30, 2008, which transactions have not yet been recognized as revenue. 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.

On October 24, 2008 the Company received an irrevocable commercial letter of credit from Shinhan Bank Seoul Korea in conjunction with Wells Fargo Bank, NA. The letter of credit was in the amount of $920,000 for the purpose of acquiring hardware and inventory required in order to fulfill specific purchase orders from clients. This letter of credit expires December 15, 2008. A second irrevocable letter of credit for approximately $3.0 million has been approved and is in the process of execution by Shinhan Bank Seoul Korea.

The Company recognized a net loss of approximately $0.4 million in the Current Period. Cash used in operating activities was approximately $0.9 million. Cash used in operating activities principally resulted from our operating loss, decreases in accounts payable offset by increases in accrued liabilities and decreases in accounts receivable. Cash used in operating activities in the Prior Period was approximately $1.5 million.

In the Current Period, net cash of $800,000 was provided by financing activities. Net cash provided by financing activities consisted of restricted cash that was released to the Company in connection with the August 22, 2008 securities exchange transaction. In the Prior Period there was no cash used in or provided by financing activities.

Debt
The Company does not have any credit facilities as of September 30, 2008. Debt
obligations as of September 30, 2008 are summarized as follows:

                                                                          Carrying
                                                                          Amount at
                                                                          September
                                                             Coupon       30, 2008,
                                                            Interest       net of
Instrument               Maturity          Face Amount        Rate        discount
8% Debentures           May 21, 2010           4,000,000             8 %         263
8% Notes                May 21, 2010           4,000,000             8 %   4,000,000
6% Notes                Dec. 13, 2009          1,000,000             6 %         467
6% April Notes          April 4, 2010          1,000,000             6 %         213
                        December, 31,
                          2008 and
Term Notes              September 30,
short-term                  2008               2,860,000            18 %   2,860,000
Advances from
Apro Media                   N/A                 200,000           N/A       200,000

As of September 30, 2008, the Company has the following debt commitments outstanding:

Callable Secured Convertible Note financing

8% Notes

On August 22, 2008, the Company entered into a Securities Exchange Agreement with Enable Growth Partners, an existing institutional investor of MSGI (See Note 3). In connection with that Agreement, MSGI entered into an 8% convertible note in the aggregate principal amount of $4,000,000 (the 8% Notes).

The 8% Notes have a maturity date of May 21, 2010 and accrue interest at a rate of 8% per annum. Payments of principal and interest under the Notes are not due until the maturity date. The investors can convert the principal amount of the 8% 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 8% Notes is currently at $0.50.

8% Debentures

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), of which $4,000,000 is currently outstanding with the remaining principal balance having been converted into shares of common stock during fiscal 2008. There were no conversions during the period ended September 30, 2008.

The 8% Debentures have a maturity date of May 21, 2010 and accrue interest at a rate of 8% per annum. Payments of principal and interest under the Debentures are not due until the maturity date. 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, at a conversion price of $0.50. In connection with this debt, the note holders have warrants for the purchase of up to 7,142,852 of common stock exercisable over a five-year period at an exercise price of $0.50.

6% Notes

On December 13, 2006, 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 6% Notes have a single balloon . . .