MSGI Security Solutions Reports Third Fiscal Quarter 2008 Financial Results

May 15, 2008 4:07 PM EDT

NEW YORK--(BUSINESS WIRE)--

MSGI Security Solutions Inc. (OTCBB: MSGI) "MSGI" today reported financial results for the third fiscal quarter ended March 31, 2008.

Revenue for the three months ended March 31, 2008 was $4,025,600. Revenue for the previous fiscal year quarter was inconsequential at $100,000.

For the three months ended March 31, 2008, loss from operations was $(1,191,205) as compared to loss from operations of $(1,079,589) for the same quarter in 2007. The $111,616 increase in loss of operations was primarily related to increases in certain infrastructure costs and equity based compensation charges, offset in part by the gross profit earned on the sales in the current quarter.

During the three month period ended March 31, 2008, the Company recognized approximately $2.1 million in non-cash expenses resulting from the accretion of certain debt discounts, the amortization of deferred expenses related to the debt, SFAS 123(R) expenses for stock options and stock compensation accruals and the fair value of certain put options issued in the Series H Convertible Preferred Stock issuance transaction.

The Company reported a net loss applicable to common stockholders of $(2,797,272) million or $(0.14) per basic share for the third fiscal quarter. The current quarter net loss compares to a net loss of $(1,955,911) or $(0.32) for the third fiscal quarter 2007.

Cash and equivalents as of March 31, 2008 were $2.3 million including $1.5 million in restricted cash. Accounts receivable totaled $4.1 million at March 31, 2008.

The Company's commitment to invest $2.5 million in Current Technology Corporation (CRTCF:OB) appears on our balance sheet as $1.5 million representing the amount paid as of March 31, 2008. As of the date of this press release, our significant minority interest in Current Technology is now worth $15 million based upon its quoted market price.

To supplement MSGI's consolidated financial statements presented in accordance with GAAP, MSGI is providing certain non-GAAP measures of financial performance. These non-GAAP measures include non-GAAP net loss and non-GAAP loss per share. MSGI's reference to these non-GAAP measures should be considered in addition to results prepared under current accounting standards, but are not a substitute for, nor superior to, GAAP results. These non-GAAP measures are included to enhance investors' overall understanding of MSGI's current financial performance. Specifically, the Company believes the non-GAAP measures provide useful information to management and to investors by isolating certain expenses, gains and losses that may not be indicative of its core operating results and business outlook. Reconciliation to GAAP measures included in this press release is as follows:

                    SELECT NON-GAAP RECONCILIATION
                 For the Three Months Ended March 31,

                                                 2008         2007
                                             ------------ ------------
Net Loss                                     $(2,797,272) $(1,955,911)
  Adjustments:
    Non-cash Stock-based expenses-Apro            326,619            -
    Non-cash Stock-based compensation             123,203      140,208
    Non-cash Depreciation & amortization          161,328       83,129
    Non-cash expense for put options            1,150,000            -
    Non-cash expense for shares issued            536,421            -
    Non-cash interest expenses                    109,038      576,792
Total adjustments                               2,406,609      800,129
Non-GAAP adjusted loss                       $  (390,663) $(1,155,782)
                                             ============ ============

Shares used in computing basic
and fully diluted                              19,475,358    6,093,054

Non-GAAP adjusted loss
per basic and diluted share                  $     (0.02) $     (0.19)

Jeremy Barbera, Chairman and CEO commented, "Last month, MSGI announced that it had executed a $40 million contract with a Korea based technology partner to manufacture and supply the military with proprietary touch screen systems. The initial $40 million order is expected to be completed this year and is part of a five-year contract. We are hopeful that the new line of military products and services will increase in volume and scope with successful reports of live use in the battlefield. This is our second material multi-year contract, as we are currently executing and making deliveries upon the requirements of last year's $15 million sub-contracting agreement with Apro Media Corp.

Earlier this year MSGI announced an expansion of our mission critical wireless product offerings by taking a significant $2.5 million minority investment in Current Technology Corporation (OTCBB: CRTCF). Current Technology subsequently acquired a 51% stake in Celevoke, Inc., developers of a proprietary GPS asset-tracking platform hosting a variety of marquee clients including General Electric, Travelers Group, CrimeStopper, News Corp., Tracell and many others. In recent weeks Current Technology has themselves announced initiatives in Latin-American markets where the use of GPS technology has become mandated by law, as well as significant domestic client victories with the risk control unit of Travelers Group, and the Federal Credit Union of 20th Century Fox.

As part of our strategic investment, Current Technology has agreed to outsource 25% of its GPS asset-tracking business to MSGI for a period of three years. Our investment of $2.5 million in Current Technology is now worth $15 million as of the date of this press release.

Our strategic objective is to utilize innovative, patented mobile technology to provide protection and risk mitigation for valuable assets, critical infrastructure and high-ranking government executives. This network of wireless applications will eventually expand to form an unprecedented global security platform, which we call LSAD: Land-Sea-Air-Defense."

About MSGI Security Solutions, Inc.

MSGI Security Solutions, Inc. is a leading international 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. More information on MSGI is available on the company's website at www.msgisecurity.com

The information contained in this news release, other than historical information, consists of forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. These statements may involve risks and uncertainties that could cause actual results to differ materially from those described in such statements. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to have been correct. Important factors, including general economic conditions, spending levels and other factors could cause actual results to differ materially from the Company's expectations.

            MSGI SECURITY SOLUTIONS, INC. AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED BALANCE SHEET
                             (Unaudited)

                                                         As of March
                                                           31, 2008
                                                        --------------
ASSETS
-------------------------------------------------------

Current Assets
    Cash                                                $      845,219
    Restricted cash                                          1,500,000
    Accounts receivable                                      4,025,600
    Accounts receivable - Coda                                  60,000
    Due from investors - restricted                            300,000
    Deposits on inventory                                      714,667

                                                        --------------
      Total current assets                                   7,445,486

Investment in Current Technology Corp                        1,500,000
Property and equipment, net                                     30,333
Other assets, principally deferred financing costs, net      1,133,196

                                                        --------------
      Total assets                                      $   10,109,015
                                                        ==============

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
-------------------------------------------------------

Current liabilities:
    Term notes payable, net of discount of $8,586       $    2,851,414
    Accounts payable - trade                                   724,909
    Accrued liability for put options                        6,150,000
    Accrued expenses and other current liabilities           1,819,340
                                                        --------------
      Total current liabilities                             11,545,663
                                                        --------------

Long-term Liabilities:
    Promissory notes payable                                   600,000
    6% Callable convertible notes payable, net of
     discount of $1,999,964                                         36
    8% Callable convertible notes payable, net of
     discount of $4,978,572                                         18
                                                        --------------
        Total long-term liabilities                            600,054
                                                        --------------

COMMITMENTS
Stockholders' equity (deficit):

    Preferred Series H Convertible Stock - $0.01 par
     value; 5,000,000 shares authorized, issued and
     outstanding                                                50,000
    Common stock - $.01 par value; 100,000,000 shares
     authorized; 19,815,781 shares issued; 19,798,119
     shares outstanding                                        198,159
    Additional paid-in capital                             269,846,569
    Accumulated deficit                                  (270,737,720)
    Less: 17,662 shares of common stock in treasury, at
     cost                                                  (1,393,710)
                                                        --------------
        Total stockholders' equity (deficit)               (2,036,702)
                                                        --------------
        Total liabilities and stockholders' equity
         (deficit)                                      $   10,109,015
                                                        ==============

            MSGI SECURITY SOLUTIONS, INC. AND SUBSIDIARIES
           CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
            FOR THE THREE AND NINE MONTHS ENDED MARCH 31,
                             (Unaudited)

                     Three Months Ended         Nine Months Ended
                           March 31                  March 31
                      2008         2007         2008          2007
Revenues
Product revenues  $  2,400,000 $          - $   2,400,000 $     77,895
Product revenues
 - Apro              1,625,600            -     5,442,160            -
Referral fee
 revenues - Coda             -      100,000       100,000      100,000
                  ------------ ------------ ------------- ------------
   Total revenue     4,025,600      100,000     7,942,160      177,895

                  ------------ ------------ ------------- ------------
Cost of product
 sold                3,291,645            -     6,135,972       49,886

                  ------------ ------------ ------------- ------------
Gross profit           733,955      100,000     1,806,188      128,009

Operating costs
 and expenses:
  Research and
   development          88,200            -        88,200            -
  Salaries and
   benefits            352,101      444,617     1,101,673    1,411,251
  Selling,
   general and
   administrative    1,153,795      699,899     2,510,911    1,691,798
  Non-cash
   expense for
   shares to be
   issued to Apro
   Media               326,619            -     1,464,486            -
  Depreciation
   and
   Amortization          4,445       35,073        23,363      104,983
                  ------------ ------------ ------------- ------------
 Total operating
  costs and
  expenses           1,925,160    1,179,589     5,188,633    3,208,032
                  ------------ ------------ ------------- ------------

Loss from
 Operations        (1,191,205)  (1,079,589)   (3,382,445)  (3,080,023)

Other income
 (expense):
 Non-cash expense
  for revaluation
  of put options
  to fair value    (1,150,000)            -   (1,150,000)            -
 Interest income         4,708            -         5,333          617
 Interest expense    (460,775)    (865,322)  (10,392,120)  (1,501,282)
                  ------------ ------------ ------------- ------------
Total other
 income (expense)  (1,606,067)    (865,322)  (11,536,787)  (1,500,665)

Net loss before
 provision for
 income taxes      (2,797,272)  (1,944,911)  (14,919,232)  (4,580,688)
Provision for
 income taxes                -       11,000         6,000       20,000

                  ------------ ------------ ------------- ------------

Net loss           (2,797,272)  (1,955,911)  (14,925,232)  (4,600,688)

Undeclared
 dividends on
 preferred stock             -            -             -     (15,169)
Net loss
 attributable to
 common
 stockholders     $(2,797,272) $(1,955,911) $(14,925,232) $(4,615,857)
                  ============ ============ ============= ============

Basic and diluted
 loss per share
 attributable
to common
 stockholders:    $     (0.14) $     (0.32) $      (0.94) $     (0.89)

Weighted average
 common shares
 outstanding
basic and diluted   19,475,358    6,093,054    15,829,699    5,159,526

Source: MSGI Security Solutions Inc.

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