UNITED
      STATES


SECURITIES
      AND EXCHANGE COMMISSION


Washington,
      D.C. 20549





**FORM
      10-Q**


(Mark
      One) ****


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


the
      quarter ended June 30, 2008





OR




 ̈ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
      OF
      1934 for


the
      transition period from _______ to _______




Commission
      file number 000-32231


WINSONIC DIGITAL MEDIA GROUP Logo


**WINSONIC
      DIGITAL MEDIA GROUP, LTD.**


(Exact
      name of registrant as specified in its charter)





Nevada
            
            52-2236253(State
                or other jurisdiction of incorporation or
              organization)
            
            (I.R.S.
                Employer Identification No.)





101
                Marietta Street, Suite 2600Atlanta,
                Georgia
              (Address
                of principal executive offices)
            
            30303
              (Zip
                Code)





(404)
      230-5705


(Registrant’s
      telephone number, including area code)





(not
      applicable)


(former
      name, former address, if changed since last report)





Indicate
      by check mark whether the registrant: (1) filed all reports required to be
      filed
      by Section 13 or 15(d) of the Exchange Act 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 past 90 days. Yes x No  ̈





Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, a non-accelerated filer, or a smaller reporting
      company.




Large Accelerated Filer ̈
              Accelerated Filer ̈Non-Accelerated Filer ̈
              Smaller Reporting Companyx(do not check if smaller reporting company)




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





Yes  ̈  No x





Indicate
      the number of shares outstanding of each of the issuer’s classes of common
      stock, as of the latest practical date. As of August 10, 2008, 88,964,810 shares
      of the registrant’s Common Stock, $0.001 par value, were
      outstanding.








**Quarterly
      Report on Form 10-Q**


**Quarter
      Ended June 30, 2008**





**Table
      of Contents**




PagePART
                I FINANCIAL INFORMATIONItem
                1. Condensed Financial Statements:Condensed
                Consolidated Balance Sheets, June 30, 2008 (Unaudited) and December
                31,
                2007 (Audited)
            3Condensed
                Consolidated Statements of Operations, for the three and six month
                periods
                ended June 30, 2008 and 2007 and from inception (September 10, 2002)
                to
                June 30, 2008 (Unaudited)
            4Condensed
                Consolidated Statements of Cash Flows, for the six months ended June
                30,
                2008 and 2007 and from inception (September 10, 2002) to June 30,
                2008
                (Unaudited)
            5Condensed
                Statement of Stockholders’ Deficit (Unaudited)
            6Condensed
                Notes to the Financial Statements (Unaudited)
            7Item
                2. Management’s Discussion and Analysis of Financial Condition and Results
                of Operations
            29Item
                3. Quantitative and Qualitative Disclosures About Market
                Risk
            39Item
                4T. Controls and Procedures
            39PART
                II OTHER INFORMATIONItem
                1. Legal Proceedings
            40Item
                1A. Risk Factors
            40Item
                2. Unregistered Sales of Equity Securities and Use of Proceeds
            40Item
                3. Defaults Upon Senior Securities
            41Item
                4. Submission of Matters to a Vote of Security Holders
            41Item
                5. Other Information
            41Item
                6. Exhibits
            42SIGNATURES
            43EXHIBIT
                INDEX


2 OF 43


**PART
      I - FINANCIAL INFORMATION**





**Item
      1. Financial Statements.**





WINSONIC
      DIGITAL MEDIA GROUP, LTD.


(A
      DEVELOPMENT STAGE COMPANY)


**CONDENSED
      CONSOLIDATED BALANCE SHEETS**


**As of**
              
              **As of****June 30, 2008**
              
              **Dec 31, 2007****(Unaudited)**
              
              **(Audited)****ASSETS**ASSETS:Cash
              
              $
              35,452
              
              $
              90,893Accounts
                  receivable, net of allowance for doubtful accounts of$178,558
                  and $155,000, respectively
              
              
              79,391
              
              
              103,501Prepaid
                  expense
              
              
              18,819
              
              
              38,373Inventory
              
              
              5,883
              
              
              5,994Construction
                  in process
              
              
              162,669
              
              
              305,648Other
                  current assets
              
              
              12,272
              
              
              8,094**Total
                  current assets**
              
              
              **314,486**
              
              
              **552,503**Fixed
                  assets, net of accumulated depreciation of $983,482 and $908,539,respectively:
              
              
              776,079
              
              
              767,190Goodwill
              
              
              263,524
              
              
              263,524Intangibles
              
              
              465,000
              
              
              -Other
                  assets
              
              
              544,901
              
              
              486,392**TOTAL
                  ASSETS**
              
              **$**
              **2,363,990**
              
              **$**
              **2,069,609****LIABILITIES
                  AND STOCKHOLDER'S DEFICIT**LIABILITIES:Current
                  liabilities:Accounts
                  payable and accrued expenses
              
              $
              4,665,722
              
              $
              5,588,287Bank
                  overdraft
              
              
              72,602
              
              
              -Customer
                  deposits
              
              
              247,332
              
              
              333,336Accrued
                  payroll and related taxes
              
              
              7,075,426
              
              
              7,011,351Legal
                  settlement liabilities
              
              
              268,870
              
              
              1,213,225Due to
                other related
                parties
              
              
              -
              
              
              1,091Loans
                  Payable
              
              
              1,254,813
              
              
              507,518Loans
                  Payable-related party
              
              
              260,036
              
              
              201,903Derivative
                  liability related to convertible debentures
              
              
              6,169
              
              
              34,466Warrant
                  liability related to convertible debentures
              
              
              3,881
              
              
              29,909Convertible
                  debentures 2004/2005
              
              
              36,481
              
              
              35,514Convertible
                  debentures, net of debt discount totaling$86,062and
                  $762,915, respectively
              
              
              1,488,957
              
              
              1,223,217Convertible
                  debentures – related party, net of debt discount totaling$19,121and
                  $42,017, respectively
              
              
              47,753
              
              
              46,379Notes
                  Payable
              
              
              532,220
              
              
              -Notes
                  Payable-related party
              
              
              83,731
              
              
              80,950Other
                  current liabilities
              
              
              19,294
              
              
              -**Total
                  current liabilities**
              
              
              **16,063,287**
              
              
              **16,307,146****TOTAL
                  LIABILITIES**
              
              
              **16,063,287**
              
              
              **16,307,146**Stockholders'
                  deficit:Preferred
                  stock, $0.001 par value, 20,000,000 shares authorized, no shares
                  issued
                  and outstanding at June 30, 2008 and December 31, 2007,
                  respectively
              
              
              -
              
              
              -Common
                  stock, $0.001 par value, 200,000,000 shares authorized, 88,114,810
                  and
                  71,319,648 shares issued and outstanding at June 30, 2008 and December
                  31,
                  2007
              
              
              88,114
              
              
              71,319Additional
                  paid-in capital
              
              
              32,684,410
              
              
              26,520,895Common
                  stock receivable
              
              
              -
              
              
              (1,200
              )Accumulated
                  deficit during development stage
              
              
              (46,471,821
              )
              
              (40,828,551
              )**Total
                  stockholders' deficit**
              
              
              **(13,699,297**
              **)**
              
              **(14,237,537**
              **)****TOTAL
                  LIABILITIES AND STOCKHOLDERS' DEFICIT**
              
              **$**
              **2,363,990**
              
              **$**
              **2,069,609**





*The
      accompanying notes to the financial statements should be*


*read
      in conjunction with these Balance Sheets.*


3 OF 43


WINSONIC
      DIGITAL MEDIA GROUP, LTD.


(A
      DEVELOPMENT STAGE COMPANY)


**CONSOLIDATED
      STATEMENTS OF OPERATIONS**


FOR
      THE
      THREE & SIX MONTH PERIODS ENDED JUNE 30, 2008 & 2007


AND
      FROM
      INCEPTION (September 10, 2002) TO JUNE 30, 2008 (UNAUDITED)


**For the three-****months ended**
                **June 30,**
              
              **For the six months ended**
                **June, 30**
              
              **September**
                **10, 2002**
                **(Inception)**
                **to**
                **J****une 30,****2008**
              
              **2007**
              
              **2008**
              
              **2007**
              
              **2008**REVENUE
              
              $
              210,222
              
              $
              481,177
              
              $
              418,895
              
              $
              1,135,684
              
              $
              2,761,196COST
                  OF SALES
              
              
              186,917
              
              
              816,038
              
              
              592,582
              
              
              1,780,551
              
              
              4,348,929GROSS
                  PROFIT
              
              
              23,305
              
              
              (334,861
              )
              
              (173,687
              )
              
              (644,867
              )
              
              (1,587,733
              )EXPENSES:Selling,
                  general and administrative
              
              
              1,436,228
              
              
              1,947,370
              
              
              2,759,018
              
              
              3,618,674
              
              
              27,429,624Research
                  & development
              
              
              155,220
              
              
              74,363
              
              
              155,220
              
              
              134,816
              
              
              640,603Depreciation
                  and amortization expense
              
              
              15,903
              
              
              11,942
              
              
              32,385
              
              
              24,161
              
              
              1,214,903Total
                  expenses
              
              
              1,607,351
              
              
              1,833,675
              
              
              2,946,623
              
              
              3,777,651
              
              
              29,285,130OPERATING
                  LOSS
              
              
              (1,584,046
              )
              
              (2,168,536
              )
              
              (3,120,310
              )
              
              (4,422,518
              )
              
              (30,872,863
              )OTHER
                  INCOME/(EXPENSES):Interest
                  expense
              
              
              (1,496,467
              )
              
              (1,000,705
              )
              
              (2,569,924
              )
              
              (2,396,768
              )
              
              (12,926,627
              )Interest
                  expense – related party
              
              
              (3,640
              )
              
              (38,991
              )
              
              (7,356
              )
              
              (84,346
              )
              
              (346,905
              )Impairment
                  of goodwill
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (720,767
              )Legal
                  settlement costs
              
              
              
              
              
              (60,000
              )
              
              -
              
              
              (60,000
              )
              
              (3,325,213
              )Gain
                  on legal settlement
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              942,636Unrealized
                  (loss) gain on adjustments of
                derivative
                  and warrant liability to fair value of underlying securities
              
              
              15,320
              
              
              (147,213
              )
              
              54,325
              
              
              233,883
              
              
              657,248Interest
                  income
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              730Other
                  income
              
              
              (4
              )
              
              -
              
              
              (5
              )
              
              -
              
              
              119,940Total
                  other income/(expenses)
              
              
              (1,484,791
              )
              
              (1,246,909
              )
              
              (2,522,960
              )
              
              (2,307,231
              )
              
              (15,598,958
              )NET
                  LOSS BEFORE PROVISION FOR
                INCOME
                  TAXES
              
              
              (3,068,837
              )
              
              (3,415,445
              )
              
              (5,643,270
              )
              
              (6,729,749
              )
              
              (46,471,821
              )PROVISION
                  FOR INCOME TAXES
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -**NET
                  LOSS**
              
              $
              **(3,068,837**
              **)**
              **$**
              **(3,415,445**
              **)**
              **$**
              **(5,643,270**
              **)**
              **$**
              **(6,729,749**
              **)**
              **$**
              **(46,471,821**
              **)**Basic
                  weighted average number of common shares outstanding
              
              
              85,419,314
              
              
              49,578,057
              
              
              80,627,046
              
              
              49,618,941Net
                  loss per basic common share
              
              $
              (0.04
              )
              $
              (0.07
              )
              $
              (0.07
              )
              $
              (0.14
              )





*The
      accompanying notes to the financial statements should be*


*read
      in conjunction with these Statements of Operations.*




4 OF 43




WINSONIC
      DIGITAL MEDIA GROUP, LTD.


(A
      DEVELOPMENT STAGE COMPANY)


**CONDENSED
      CONSOLIDATED STATEMENTS OF CASH FLOWS**


FOR
      THE
      SIX MONTHS ENDED JUNE 30, 2008 & 2007


AND
      FROM
      INCEPTION (September 10, 2002) TO JUNE 30, 2008


(UNAUDITED)




**For the six months ended**
                **June 30,**
              
              **September 10, 2002**
                **(Inception) to****2008**
              
              **2007**
              
              **June 30, 2008****CASH
                  FLOWS FROM OPERATING ACTIVITIES:**Net
                  loss
              
              $
              (5,643,270
              )
              $
              (6,729,749
              )
              $
              (46,471,821
              )Adjustments
                  to reconcile net loss to net cash used in operating activities:Depreciation
              
              
              74,944
              
              
              71,252
              
              
              1,257,462Accretion
                  of principal and interest related to convertible debentures
              
              
              736,550
              
              
              724,377
              
              
              4,963,341Unrealized
                  gain on adjustment of derivative and warrant liability to fair
                  value of
                  underlying securities
              
              
              (54,325
              )
              
              (233,883
              )
              
              (657,248
              )Stock
                  based compensation
              
              
              383,373
              
              
              1,085,070
              
              
              6,812,825Operating
                  expenses paid with stock, options and warrants
              
              
              -
              
              
              -
              
              
              1,036,822Consulting
                  expenses paid with stock, options and warrants
              
              
              150,500
              
              
              -
              
              
              588,150Operating
                  expenses paid by note payable
              
              
              -
              
              
              -
              
              
              60,000Interest
                  expense paid with stock
              
              
              -
              
              
              -
              
              
              185,621Financing
                  costs paid with stock
              
              
              1,614,479
              
              
              1,673,104
              
              
              5,015,031Financing
                  costs related to conversion of loans payableand
                  loans payable – related parties
              
              
              -
              
              
              -
              
              
              285,424Amortization
                  of common stock advances for future services
              
              
              -
              
              
              42,050
              
              
              48,175Interest
                  accrued
              
              
              227,962
              
              
              60,948
              
              
              543,538Forgiveness
                  of accrued interest - Digital Services International, Inc.
              
              
              -
              
              
              -
              
              
              152,592Provision
                  for doubtful accounts
              
              
              509,431
              
              
              -
              
              
              664,431Impairment
                  of goodwill
              
              
              -
              
              
              -
              
              
              720,767Gain
                  on legal settlement
              
              
              -
              
              
              -
              
              
              (942,636
              )Other
              
              
              -
              
              
              22,736
              
              
              29,032Change
                  in operating assets and liabilities:
              
              
              -
              
              
              -Decrease
                  (increase) in accounts receivable
              
              
              (35,321
              )
              
              42,507
              
              
              (319,218
              )Decrease
                  (increase) in prepaid expenses
              
              
              19,554
              
              
              3,083
              
              
              (16,499
              )Decrease
                  (increase) in inventory
              
              
              111
              
              
              (732
              )
              
              (496
              )Decrease
                  (increase) in construction in process
              
              
              142,979
              
              
              (12,922
              )
              
              (132,705
              )Increase
                  in other assets
              
              
              (62,687
              )
              
              (43,104
              )
              
              (307,173
              )Increase
                  in advances to related companies
              
              
              -
              
              
              -
              
              
              1,091
 Increase
                  in accounts payable and accrued expenses
              
              
              382,294
              
              
              756,063
              
              
              5,851,546(Decrease)
                  increase in customer deposits
              
              
              (86,004
              )
              
              (118,770
              )
              
              321,190Increase
                  in accrued payroll and related taxes
              
              
              548,600
              
              
              1,699,018
              
              
              8,612,307Increase
                  (decrease) in legal settlement liabilities
              
              
              (9,920
              )
              
              60,000
              
              
              3,322,293Increase
                  (decrease) in other liabilities
              
              
              (18,203
              **)**
              
              -
              
              
              (18,203
              )**Net
                  cash used in operating activities**
              
              
              **(1,082,547**
              **)**
              
              **(898,952**
              **)**
              
              **(8,357,955**
              **)****CASH
                  FLOWS FROM INVESTING ACTIVITIES:**Cash
                  acquired through business acquisitions
              
              
              -
              
              
              -
              
              
              16,670Purchase
                  of fixed assets
              
              
              (83,833
              )
              
              (33,247
              )
              
              (1,701,723
              )**Net
                  cash used in investing activities**
              
              
              **(83,833**
              **)**
              
              **(33,247**
              **)**
              
              **(1,685,053**
              **)****CASH
                  FLOWS FROM FINANCING ACTIVITIES:**Increase
                  (decrease) in bank overdraft
              
              
              72,602
              
              
              62,023
              
              
              72,602Proceeds
                  from loans payable
              
              
              692,792
              
              
              40,000
              
              
              1,318,043Payment
                  on loans payable
              
              
              (40,000
              )
              
              -
              
              
              (63,335
              )Proceeds
                  from loan payable - related party
              
              
              54,932
              
              
              320,013
              
              
              1,389,536Payment
                  on note payable - related party
              
              
              -
              
              
              (10,000
              )
              
              (350,056
              )Payment
                  on note payable
              
              
              (28,493
              )
              
              (9,680
              )
              
              (93,306
              )Proceeds
                  from share notes
              
              
              52,000
              
              
              553,000
              
              
              52,000Proceeds
                  from convertible debentures
              
              
              -
              
              
              -
              
              
              5,283,270Proceeds
                  from common stock issued in connection with exercise of
                  warrants
              
              
              307,106
              
              
              -
              
              
              469,606Proceeds
                  from common stock issued
              
              
              
              
              
              -
              
              
              2,000,100**Net
                  cash provided by financing activities**
              
              
              **1,110,939**
              
              
              **937,008**
              
              
              **10,078,460****NET
                  (DECREASE) INCREASE IN CASH**
              
              
              **(55,441**
              **)**
              
              **4,809**
              
              
              **35,452********CASH,
                  BEGINNING OF PERIOD**
              
              
              **90,893**
              
              
              **3,506**
              
              
              **-********CASH,
                  END OF PERIOD**
              
              **$**
              **35,452**
              
              **$**
              **8,315**
              
              **$**
              **35,389**
 **SUPPLEMENTARY
                  INFORMATION:**Interest
                  paid
              
              $
              14
              
              $
              8,335
              
              $
              54,806Income
                  taxes paid
              
              $
              -
              
              $
              -
              
              $
              -**NON-CASH
                  ACTIVITIES:**Forgiveness
                  of salary payable to officer
              
              $
              -
              
              $
              -
              
              $
              702,644Forgiveness
                  of payroll tax for officer
              
              $
              -
              
              $
              -
              
              $
              20,655Issuance
                  of common stock as deposit on lease obligation
              
              $
              -
              
              $
              -
              
              $
              250,000Issuance
                  of common stock and stock payable as payment for subsidiaries acquired
              
              $
              465,000
              
              $
              -
              
              $
              1,404,528Issuance
                  of common stock as payment on notes payable - related party
              
              $
              -
              
              $
              -
              
              $
              896,984Conversion
                  of share notes to common stock
              
              $
              535,263
              
              $
              
              
              $
              535,263Issuance
                  of common stock and warrants for salary payable
              
              $
              538,287
              
              $
              
              
              $
              1,053,966Issuance
                  of common stock as payment of note interest
              
              $
              1,917
              
              $
              -
              
              $
              1,917Issuance
                  of common stock upon conversion of debentures
              
              $
              -
              
              $
              -
              
              $
              3,569,218Adjustment
                  to paid in capital for accumulated depreciation
              
              $
              -
              
              $
              -
              
              $
              281,481Issuance
                  of common stock for legal settlement
              
              $
              934,435
              
              $
              58,000
              
              $
              2,353,320Issuance
                  of common stock as payment for accrued financing costs
              
              $
              261,000
              
              $
              -
              
              $
              261,000Issuance
                  of common stock as payment for accrued consulting expense
              
              $
              944,833
              
              $
              -
              
              $
              944,833Issuance
                  of common stock as excercise of stock options
              
              $
              8,517
              
              $
              -
              
              $
              8,517





*The
      accompanying notes to financial statements should be*


*read
      in conjunction with these Statements of Cash Flows.*


5 OF 43




WINSONIC
      DIGITAL MEDIA GROUP, LTD.


(A
      DEVELOPMENT STAGE COMPANY)


**CONDENSED
      STATEMENT OF STOCKHOLDERS' DEFICIT**


(UNAUDITED)




**Common**
                      **Stock**
                    
                    **Accumulated****Advance**
                    
                    **Deficit****Additional**
                    
                    **Common**
                    
                    **Common**
                    
                    **for**
                    
                    **During**
                    
                    **Total****Preferred
                        Stock**
                    
                    **Common
                        Stock**
                    
                    **Paid-in**
                    
                    **Stock**
                    
                    **Stock**
                    
                    **Future**
                    
                    **Development**
                    
                    **Stockholders’****Shares**
                    
                    **Amount**
                    
                    **Shares**
                    
                    **Amount**
                    
                    **Capital**
                    
                    **Payable**
                    
                    **Receivable**
                    
                    **Services**
                    
                    **Stage**
                    
                    **Deficit****Balance,
                        December 31, 2007**
                    
                    
                    **-**
                    
                    **$**
                    **-**
                    
                    
                    **71,319,648**
                    
                    **$**
                    **71,319**
                    
                    **$**
                    **26,520,895**
                    
                    **$**
                    **-**
                    
                    **$**
                    **(1,200**
                    **)**
                    **$**
                    **-**
                    
                    **$**
                    **(40,828,551**
                    **)**
                    **$**
                    **(14,237,537**
                    **)**Incentive
                        stock optionfor
                        employees
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    297,123
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    297,123Issuance
                        of stock for financing costs
                    
                    
                    -
                    
                    
                    -
                    
                    
                    7,834,445
                    
                    
                    7,834
                    
                    
                    2,551,478
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    2,559,312Issuance
                        of common stock as employee bonus
                    
                    
                    -
                    
                    
                    -
                    
                    
                    575,000
                    
                    
                    575
                    
                    
                    85,675
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    86,250Issuance
                        of stock inDVerb
                        acquisition
                    
                    
                    -
                    
                    
                    -
                    
                    
                    1,500,000
                    
                    
                    1,500
                    
                    
                    463,500
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    465,000Issuance
                        of stock insatisfaction
                        ofconvertible
                        debentures
                    
                    
                    -
                    
                    
                    -
                    
                    
                    2,676,633
                    
                    
                    2,677
                    
                    
                    532,586
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    535,263Issuance
                        of stock for consulting services
                    
                    
                    -
                    
                    
                    -
                    
                    
                    1,050,000
                    
                    
                    1,050
                    
                    
                    410,450
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    411,500Issuance
                        of stock as payment of loan interest
                    
                    
                    -
                    
                    
                    -
                    
                    
                    3,994
                    
                    
                    4
                    
                    
                    1,913
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    1,917Issuance
                        of stock in lieu of employee salaries
                    
                    
                    -
                    
                    
                    -
                    
                    
                    1,537,962
                    
                    
                    1,538
                    
                    
                    536,749
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    538,287Issuance
                        of stock for exercise of stock options
                    
                    
                    -
                    
                    
                    -
                    
                    
                    851,666
                    
                    
                    852
                    
                    
                    7,665
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    8,517Issuance
                        of stock for exercise of warrants
                    
                    
                    -
                    
                    
                    -
                    
                    
                    1,035,534
                    
                    
                    1,035
                    
                    
                    306,071
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    307,106Discount
                        allocated to warrant on convertible debt
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    10,550
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    10,550Discount
                        allocated to the beneficial conversion feature
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    26,250
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    26,250Shares
                        returned toCompany
                    
                    
                    -
                    
                    
                    -
                    
                    
                    (2,346,593
                    )
                    
                    (2,347
                    )
                    
                    1,147
                    
                    
                    -
                    
                    
                    1,200
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -Issuance
                        of common stock for legal settlement liability
                    
                    
                    -
                    
                    
                    -
                    
                    
                    2,076,521
                    
                    
                    2,077
                    
                    
                    932,358
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    934,435Net
                        loss
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    (5,643,270
                    )
                    
                    (5,643,270
                    )**Balance,
                        June 30, 2008 (Unaudited)**
                    
                    
                    **-**
                    
                    **$**
                    **-**
                    
                    
                    **88,114,810**
                    
                    **$**
                    **88,114**
                    
                    **$**
                    **32,684,410**
                    
                    **$**
                    **-**
                    
                    **$**
                    **-**
                    
                    **$**
                    **-**
                    
                    **$**
                    **(46,471,821**
                    **)**
                    **$**
                    **(13,699,297**
                    **)**




*The
      accompanying notes to the financial statements should be*


*read
      in conjunction with this Statement of Stockholders’
Deficit.*


6 OF 43


**WINSONIC
      DIGITAL MEDIA GROUP, LTD**


(A
      DEVELOPMENT STAGE COMPANY)


**NOTES
      TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
      STATEMENTS**


**June
      30, 2008**




**NOTE
      1 - ORGANIZATION AND PURPOSE**





WinSonic
      Digital Media Group, Ltd. (the “Company”) is a media
      distribution solutions company which historically has focused on distributing
      digital content to the public and providing high-speed, high-quality, low-cost
      solutions that enable users to view, interact, and listen to all types of audio,
      online video and digital TV in full screen format.





During
      2006, the Company acquired a 49% equity interest in WinSonic Diversity, LLC
      and
      completed the acquisitions of Automated Interiors, LLC (“AI”), Tytess Design and
      Development, Inc. (“Tytess”) and WinSonic Digital Store, Ltd. (formerly DV Photo
      Shop, Ltd.) (the “Digital Store”). These actions represent a series of strategic
      investments in new markets and new services that expand the offering of the
      Company, while complimenting our existing business. Together with our existing
      digital distribution platform comprised of the WinSonic Digital Cable Systems
      Network, Ltd. networks, we are now able to deliver customized, bundled solutions
      to a wider range of customers that include custom wiring, centrally located
      utilities, project management, telephone, internet, audio/video and digital
      TV.





The
      accompanying financial statements have been prepared in accordance with the
      Statement of Financial Accounting Standards (“SFAS”) No. 7 “Accounting and
      Reporting by Development Stage Enterprises.” A development stage enterprise is
      one in which planned principal operations have not commenced; or if its
      operations have commenced, there has been no significant revenues derived
      therefrom. As of June 30, 2008, the Company has not fully commenced operations
      nor has it received significant revenues from its planned principal
      operations.





The
      accompanying consolidated financial statements have been prepared by the Company
      without audit. In the opinion of management, all adjustments (which include
      normal recurring adjustments) necessary to present fairly the financial
      position, results of operations and cash flows as of and for the six months
      ended June 30, 2008 and for all periods presented have been made.





Certain
      information and footnote disclosures normally included in financial statements
      prepared in accordance with generally accepted accounting principles in the
      United States have been condensed or omitted for purposes of filing interim
      financial statements with the Securities and Exchange Commission. The condensed
      consolidated financial statements included in this report should be read in
      conjunction with the consolidated financial statements and notes thereto
      included in the Company’s audited financial statements for the year ended
      December 31, 2007. The results of operations for the six months ended June
      30,
      2008 are not necessarily indicative of the operating results for the full
      year.





**NOTE
      2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**





**Segment
      and Geographic Information**





In
      accordance with the provisions of SFAS No. 131, “Disclosures about Segments of
      an Enterprise and Related Information”, the Company has begun to report in five
      reportable operating segments as follows: (i) Digital Media Group (ii) Digital
      Distribution Group, (iii) Integrated Services Group, (iv) WinSonic Diversity
      Group, and (v) Corporate Group. The Company operates primarily in the greater
      Atlanta, Georgia metropolitan area.


7 OF 43





As
      further described herein, the Company now combines business and financial
      activity of its various subsidiary companies and operating divisions within
      business segments. The business activity associated with the development,
      marketing and sale of digital media & entertainment products and services of
      WinSonic Digital Media Group, Ltd., and the Store **** are
      combined in the Digital Media Group business segment. The business activity
      of
      WinSonic Digital Cable Systems Network, Ltd. shall comprise the Digital
      Distribution Group business segment. The business activity of and **** Automated
      Interiors, LLC and Tytess
      Design & Development, LLC are
      combined in the Integrated Services Group business segment. The business
      activity of WinSonic Diversity, LLC is represented by the WinSonic Diversity
      Group business segment. The business activities associated with corporate
      management, business development, administration and finance of WinSonic Digital
      Media Group, Ltd. are included in the Corporate Group business segment.





**Principles
      of Consolidation**





The
      attached condensed consolidated financial statements include the accounts of
      the
      Company and its subsidiaries. The financial statements include the accounts
      of
      the Company’s wholly-owned subsidiaries and its 49%-owned subsidiary WinSonic
      Diversity, LLC (“Diversity”). As a certified Minority Business Enterprise,
      Diversity enables the Company to qualify for and pursue opportunities with
      various entities including the Federal Communications Commission, Public
      Utilities Commission, Universal Service, National Telecommunications and
      Information Administration, National Information Infrastructure and the
      Department of Commerce that focus on providing services to people from all
      economic backgrounds. Diversity
      is focused on developing urban and rural communities by providing resources
      and
      services that improve quality of life. Diversity
      has been included in the consolidated financial statements of the Company in
      accordance with Financial Accounting Standards Board Interpretation No. 46,
      “Consolidation of Variable Interest Entities”. The Company has determined that
      Diversity meets the requirements for consolidation based on the common control
      of the Company and the fact that Diversity relies exclusively on the Company
      to
      provide financial support. All significant inter-company transactions have
      been
      eliminated in consolidation. ****





**Basis
      of Presentation**





Certain
      prior year amounts in the financial statements have been reclassified to conform
      with the current year presentation. Specifically, the Company reclassified
      customer deposits as a liability from accounts receivable and billings on
      construction in process to accounts receivable. These reclassifications had
      no
      effect on previously reported net loss. In addition, the Company has removed
      from SG&A expenses the R&D and Network operational costs to identify
      those business activities of R&D and Cost of Sales.




**Use
      of Estimates**





The
      preparation of financial statements in conformity with generally accepted
      accounting principles requires management to make estimates and assumptions
      that
      affect the reported amounts of assets and liabilities and disclosures of
      contingent assets and liabilities at the date of the financial statements and
      the reported amounts of revenue and expense during the reported period. Actual
      results could differ from these estimates.





**Fair
      Value of Financial Instruments**





SFAS
      No.
      107, “Disclosures About Fair Value of Financial Instruments,” requires the
      Company to disclose, when reasonably attainable, the fair market values of
      its
      assets and liabilities that are deemed to be financial instruments. The carrying
      amounts and estimated fair values of the Company’s financial instruments
      approximate their fair value due to their short-term nature.





**Earnings
      (Loss) Per Share Calculations**





“Basic
      earnings (loss) per share” excludes any dilutive effects of options, warrants
      and convertible securities. “Basic earnings (loss) per share” is computed using
      the weighted-average number of outstanding common shares during the applicable
      period. “Diluted earnings per share” is computed using the weighted-average
      number of common and common stock equivalent shares outstanding during the
      period. Common stock equivalent shares are excluded from the computation if
      their effect is antidilutive. For all periods presented, the Company has
      sustained losses, which would make use of equivalent shares antidilutive and,
      as
      such, the calculation has not been included.  Using
      the
      treasury stock method, excluded common stock equivalents are as
      follows:


8 OF 43





**Three Months ended June 30,**
            
            **Six Months**
              **Ended****June 30,**
            
            **June
                30,****2008**
            
            **2007**
            
            **2008**
            
            **2007**Shares
                issuable under stock options
            
            
            2,190,818
            
            
            2,680,120
            
            
            2,190,818
            
            
            2,680,120Shares
                issuable pursuant to warrants to purchase common stock
            
            
            4,118,051
            
            
            8,907,173
            
            
            4,118,051
            
            
            8,907,173Shares
                issuable pursuant to convertible debt agreements
            
            
            8,096,620
            
            
            8,394,670
            
            
            8,096,620
            
            
            8,394,67014,405,489
            
            
            19,981,963
            
            
            14,405,489
            
            
            19,981,963





**Stock
      Based Compensation: Stock Options**





The
      Company has a stock incentive plan that provides for stock-based employee
      compensation, including the granting of stock options to certain key employees
      and other individuals. For stock options and warrants issued as compensation,
      the Company applies SFAS No. 123(R), “Share-Based Payment,” (“SFAS No 123(R)”)
      which requires the recognition of compensation cost based upon the fair value
      of
      stock options at the grant date (using option pricing models), and recognizing
      the cost over the period during which the services are provided (vesting
      period).





The
      Company’s Employee Stock Option activity for the six months ended June 30, 2008
      and 2007 is presented below:




2008
            
            2007Average
            
            
            
            AverageOptions
            
            Exercise
                Price
            
            Options
            
            Exercise
                PriceOutstanding
                -Beginning
                of Period
            
            
            9,636,488
            
            $
            0.72
            
            
            9,309,304
            
            $
            0.78Granted
                or Committed
            
            
            1,926,667
            
            
            0.33
            
            
            3,325,000
            
            
            0.65Exercised
            
            
            (851,666
            )
            
            (0.01
            )
            
            -
            
            
            -Canceled
            
            
            -
            
            
            -
            
            
            (587,708
            )
            
            (0.61
            )Outstanding
                -End
                of Period
            
            
            10,711,489
            
            $
            0.71
            
            
            12,046,596
            
            $
            0.68Exercisable
                -End
                of Period
            
            
            9,646,989
            
            $
            0.75
            
            
            8,129,929
            
            $
            0.80





During
      the six months ended June 30, 2008 and 2007, the Company committed to issue
      options to employees for 1,926,667 and 3,325,000 shares of common stock,
      respectively. The fair value of the options granted during the six months ended
      June 30, 2008 and 2007 was $616,781 and $1,085,070, respectively. The Company
      recorded compensation expense of approximately $297,123 and $552,000,
      respectively, related to the vesting of the Company’s outstanding options. The
      balance of the options granted will be included in the Company’s 2008 Employee
      Option plan and will have terms and conditions determined under that plan.





On
      January 4, 2008, the Company issued new offer letters to all current employees.
      Pursuant to the offer letters, the Company accelerated the vesting on all
      remaining stock options with an exercise price of $1.00 for these employees.
      The
      Company also canceled stock options exercisable into up to 400,000 shares of
      common stock with an exercise price of $0.01 because the Company had not
      obtained the senior funding necessary for such stock options to become
      exercisable. In exchange for the canceled stock options, the Company committed
      to issue 400,000 shares of fully vested stock options pursuant to the Company’s
      2008 Employee Option plan when the plan is established and approved. As a result
      of the acceleration of the stock options with an exercise price of $1.00 and
      the
      cancellation of certain unvested stock options with an exercise price of $0.01,
      and the commitment to issue an equal number of new stock options, the Company
      recorded additional stock based compensation totaling $193,000 and was reflected
      as additional payroll expense in the fourth quarter of 2007. As of June 30,
      2008, the Company’s 2008 Employee Option Plan is not yet finalized or
      implemented.


9 OF 43





**Option
      Pricing Model**





The
      Company has elected to utilize the Black-Scholes option valuation model in
      deriving fair market values for stock based compensation and embedded
      derivatives. The Black-Scholes option valuation model was developed for use
      in
      estimating the fair value of traded options that have no vesting restrictions
      and are fully transferable. In addition, option valuation models require the
      input of highly subjective assumptions including the expected stock price
      volatility. Since the Company’s employee stock options and warrants have
      characteristics significantly different from those of traded options, and
      because changes in the subjective input assumptions can materially affect the
      fair value estimate, in management’s opinion, the existing models do not
      necessarily provide a reliable single measure of the fair value of its employee
      stock options.





In
      accordance with SFAS No. 123(R), the Company recognized the fair value of the
      options in the statement of operations over the vesting
      period.  Fair value was determined using
      the Black-Scholes option pricing model
      based on the following assumptions: risk free interest rate of
      2.75% to 4.95%; no dividend yield; volatility factors of the expected market
      price of the Company’s stock of 166% to 233%; and weighted average expected life
      of the options of three years (for options issued at market and at $1.00 per
      share strike price) and one and one-half years (for options issued at $0.01
      per
      share strike price).





**Recently
      Issued Accounting Pronouncements**





In
      March
      2008, the FASB issued SFAS No. 161, “Disclosures about Derivative
      Instruments and Hedging Activities – an amendment of FASB Statement No.
      133,” (SFAS “161”) as amended and interpreted, which requires enhanced
      disclosures about an entity’s derivative and hedging activities and thereby
      improves the transparency of financial reporting. Disclosing the fair values
      of
      derivative instruments and their gains and losses in a tabular format provides
      a
      more complete picture of the location in an entity’s financial statements of
      both the derivative positions existing at period end and the effect of using
      derivatives during the reporting period. Entities are required to provide
      enhanced disclosures about (a) how and why an entity uses derivative
      instruments, (b) how derivative instruments and related hedged items are
      accounted for under Statement 133 and its related interpretations, and (c)
      how
      derivative instruments and related hedged items affect an entity’s financial
      position, financial performance, and cash flows. SFAS No. 161 is effective
      for
      financial statements issued for fiscal years and interim periods beginning
      after
      November 15, 2008. Early adoption is permitted.




At
      June
      30, 2008, the Company did not have any derivative instruments or hedging
      activities. Management is aware of the requirements of SFAS 161 and will
      disclose when appropriate.




In
      May 2008, the FASB issued SFAS No. 163,
“Accounting for Financial Guarantee Insurance Contracts - an interpretation
      of
      FASB Statement No. 60,” SFAS 163 requires that an insurance enterprise recognize
      a claim liability prior to an event of default (insured event) when there is
      evidence that credit deterioration has occurred in an insured financial
      obligation. This Statement also clarifies how Statement 60 applies to financial
      guarantee insurance contracts, including the recognition and measurement to
      be
      used to account for premium revenue and claim liabilities. Those clarification
      will increase comparability in financial reporting of financial guarantee
      insurance contracts by insurance enterprises. This Statement requires expanded
      disclosures about financial guarantee insurance contracts. The accounting and
      disclosure requirements of the Statement will improve the quality of information
      provided to users of financial statements. SFAS 163 will be effective for
      financial statements issued for fiscal years beginning after December 15, 2008.
      The Company does not expect the adoption of SFAS 163 will have a material impact
      on its financial condition or results of operation.




**NOTE
      3 – MERGERS AND ACQUISITIONS**





The
      Company completed no acquisitions during 2007.





On
      January 22, 2008, WinSonic Digital Media Group, Ltd. (the “Company”) entered
      into a Stock Purchase Agreement (the “SPA”) with Tap It, Inc., a Delaware
      Corporation (“Tap It”) pursuant to which the Company agreed to purchase
      2,291,667 shares of Tap It’s common stock (the “Initial Shares”) for $550,000
      (the “Purchase Price”). The Purchase Price was to be paid through a combination
      of (a) cash, (b) the cancellation of promissory notes issued by Tap It to the
      Company, and (c) offsetting up to $50,000 of expenses incurred by the Company
      related to the transactions contemplated by the SPA and owed to the Company
      by
      Tap It pursuant to a certain provision of the SPA. The Company intended to
      purchase the Initial Shares on January 31, 2008. In addition to the Initial
      Shares, the SPA also gave the Company the option to purchase an additional
      6,041,667 shares of Tap It’s common stock, which option could have been
      exercised, in whole or in part, at various times until August 1, 2008. Payments
      made in connection with the exercise of this option were to be made through
      a
      combination of (a) cash or (b) the cancellation of promissory notes issued
      by
      Tap It to the Company. The SPA also contained representations and warranties
      of
      each party and certain covenants between the parties typical for a transaction
      of this nature. The initial closing of the SPA did not occur as scheduled.
      As a
      result, following discussions among the parties, the SPA was
      terminated.




On
      April
      24, 2008, WinSonic Digital Media Group, Ltd. (the “Company”) entered into an
      Asset and Goodwill Purchase Agreement (the “APA”) with Dverb Media Group, Inc.,
      a Georgia Corporation (“Dverb Media”) pursuant to which the Company agreed to
      issue 1,500,000 shares of WinSonic common stock (the “Purchase Price”) valued at
      $465,000. The Purchase Price was to be paid entirely through the issuance of
      1,000,000 shares to James E. Thomas and 500,000 shares to the nine (9) Dverb
      Media employees and/or supporters for marketing relationships and business
      development for the proprietary rights, use and ownership of the existing and
      ongoing software development for the Social Networking product “DVERB”. This
      Dverb Media Group, Inc. became a wholly owned subsidiary of WinSonic and is
      in
      the business segment Digital Media Group.


10 OF 43





**** **NOTE
      4 - PROPERTY AND EQUIPMENT, NET**





The
      major
      classifications of property and equipment consist of the following as of June
      30, 2008 and December 31, 2007:





**June
                30,**
            
            **December
                31,****2008**
            
            **2007**Computer
                equipment
            
            $
            1,130,510
            
            $
            1,130,510Infrastructure
            
            
            158,400
            
            
            158,400Software
            
            
            115,067
            
            
            109,610Furniture
                & fixtures
            
            
            93,478
            
            
            93,478Automobiles
            
            
            13,500
            
            
            13,500Leasehold
                improvements
            
            
            80,226
            
            
            6,150Equipment
                and tools
            
            
            168,380
            
            
            164,081Less:
                accumulated depreciation
            
            
            (983,482
            )
            
            (908,539
            )Net
                Fixed Assets
            
            **$**
            **776,079**
            
            **$**
            **767,190**





Depreciation
      expense for the six months ended June 30, 2008 and 2007 was $74,944 and $71,252,
      respectively.





**NOTE
      5 - LOANS PAYABLE**





The
      Company had outstanding loans payable to certain individuals who are not related
      parties of $1,254,813 and $507,518 as of June 30, 2008 and December 31, 2007,
      respectively. Proceeds from these loans were used for working capital purposes.
      The following is a summary of the loans payable:


11 OF 43





**June
                30,**
            
            **December
                31,****Interest
                Rate**
            
            **Loans
                Payable**
            
            
            **2008**
            
            **2007**Unstated
            
            The
                Company received investment commitments under the terms of warrant
                agreements from eight investors. The investors have requested that
                the
                Company return their original investment. The Company treats the
                investments as notes payable. During 2006, the Company and the investors
                agreed to convert three of the investments into 6% convertible debentures
                with an attached warrant. The exchanged debentures are convertible
                at
                $0.40 per share and the warrants are exercisable at $0.40 per share.
                (See
                Note 6 - Convertible Debentures). Currently five of the original
                Investments are outstanding. No interest has been accrued on the
                remaining
                notes.
            
            $
            111,000
            
            $
            111,0006.00%
            
            A
                loan consisting of principal of $108,000 with no repayment terms
                or
                maturity date. Accrued interest payable as of June 30, 2008 and December
                31, 2007 is $29,434 and $26,203, respectively.
            
            
            137,434
            
            
            134,2036.00%
            
            A
                loan consisting of principal of $40,000 with no repayment terms or
                maturity date. Accrued interest payable as of June 30, 2008 and December
                31, 2007 is $12,616 and $11,420, respectively.
            
            
            52,616
            
            
            51,4206.00%
            
            The
                Company issued a promissory note for $60,000 with a maturity date
                of
                October 17, 2007 to a financial consultant in connection with services
                rendered advising the Company on public market issues. Accrued interest
                payable as of June 30, 2008 and December 31, 2007 is $2,486 and $690,
                respectively. The Company is in default on this note.
            
            
            62,486
            
            
            60,69025.00%
            
            The
                Company issued six promissory notes for a total principal balance
                of
                $200,000 with a maturity date of February 15, 2008. Accrued interest
                payable as of June 30, 2008 and December 31, 2007 is $95,596 and
                $205,
                respectively. The Company is in default on these notes.
            
            
            295,596
            
            
            150,2056.00%
            
            The
                Company issued five promissory notes with a principal balance of
                $122,691
                and maturity date of November 30, 2008. Accrued interest payable
                as of
                June 30, 2008 is $2,114.
            
            
            124,805
            
            
            -6.00%
            
            The
                Company issued one promissory note for $100,000 with a maturity date
                of
                April 13, 2008. Accrued interest payable as of June 30, 2008 is $2,827.
                The Company is in default on this note.
            
            
            102,827
            
            
            -6.00%
            
            The
                Company issued six promissory notes with a principal balance of $180,000
                and maturity date of November 30, 2008. Accrued interest payable
                as of
                June 30, 2008 is $2,413.
            
            
            182,413
            
            
            -6.00%
            
            The
                Company issued two promissory notes with a principal balance of $26,059
                with a maturity date of June 30, 2008. Accrued interest payable as
                of June
                30, 2008 is $132. The Company is in default on these
                notes.
            
            
            26,190
            
            
            -6.00%
            
            The
                Company issued six promissory notes with a principal balance of $159,041
                and maturity date of December 31, 2008. Accrued interest payable
                as of
                June 30, 2008 is $405.
            
            
            159,446
            
            
            -Total
                Loans Payable
            
            
            $
            1,254,813
            
            $
            507,518  12 OF 43




During
      the second quarter of 2008, the Company borrowed a total of $400,100 and repaid
      one loan during the quarter for $40,000 including interest from unrelated
      parties. In connection with these loans, the Company issued an aggregate of
      2,833,682 shares of its common stock as security assignment and recorded
      financing costs totaling $836,308.





**NOTE
      6 - CONVERTIBLE DEBENTURES**




**2004/2005
      Agreements** :
      During
      December 2004 and January 2005, the Company received an aggregate of $1,015,000
      from the issuance of convertible notes and warrants. The offering was made
      to
      accredited investors. The convertible notes, which accrued interest of 6% per
      annum, were due in December 2005 or upon the occurrence of certain events
      relating to potential changes in the capital structure of the Company. In
      connection with the issuance of the convertible notes, warrants to purchase
      up
      to 1,450,000 shares of the Company’s common stock at an exercise price of $0.70
      per share were issued to the accredited investors.





On
      December 15, 2005, the maturity dates of these convertible notes were extended
      to June 30, 2006. Following the amendments to the convertible notes, the
      noteholders had the right to convert the face value of the notes into common
      stock of the Company at the lower of $0.40 per share or 85% of the market value
      of the common stock at the time of conversion. Additionally, the amendments
      reduced the exercise price of the warrants to $0.40 per share.





Prior
      to
      December 31, 2007, all but one of the noteholders agreed to convert their notes,
      plus accrued interest, into common stock of the Company at the rate of $0.40
      per
      share. The Company has continued to accrue interest on the one remaining note
      through June 30, 2008. In the aggregate, the Company has issued a total of
      2,680,627 shares of its restricted common stock in connection with the
      conversion of these notes.





During
      the six months ended June 30, 2008, the Company issued 500,000 shares of its
      restricted common stock related to the exercise of warrants with proceeds
      totaling $200,000. The Company has issued a total of 900,000 shares of its
      restricted common stock in connection with the exercise of warrants related
      to
      these notes.




The
      issuance of these convertible notes and warrants would normally be recorded
      as
      equity obligations. However, due to the indeterminate number of shares which
      might be issued upon conversion, the Company is required to record a liability
      relating to the outstanding warrants and the embedded derivative of the
      convertible notes (included in the current liabilities as “derivative
      liability”). As of June 30, 2008, the contingency related to the conversion
      pricing which caused the indeterminate share calculation was resolved with
      the
      conversion of all but one of the convertible notes. The following table
      summarizes the convertible notes and related warrants and embedded derivative
      liabilities at June 30, 2008 and December 31, 2007:





**June
                30,**
            
            **December
                31,****2008**
            
            **2007**Derivative
                liability
            
            $
            6,169
            
            $
            34,466Warrant
                liability
            
            
            3,881
            
            
            29,909Convertible
                debentures
            
            
            36,481
            
            
            35,514Subtotal
            
            
            46,531
            
            
            99,889Adjustment
                of derivative and warrant liability to fair value
            
            
            657,249
            
            
            602,923Accretion
                of principal and interest related to convertible
                debentures
            
            
            311,220
            
            
            312,188Total
                Proceeds from convertible debentures
            
            
            1,015,000
            
            
            1,015,000Plus:
                Accrued interest
            
            
            113,918
            
            
            112,951Less:
                Notes and interest converted
            
            
            (1,092,437
            )
            
            (1,092,437
            )Total
                Convertible debentures
            
            
            36,481
            
            
            35,514Less:
                Current portion of convertible debentures
            
            
            (36,481
            )
            
            (35,514
            )Total
                Non-Current Convertible Debentures
            
            $
            -
            
            $
            -


13 OF 43





**Post
      2004/2005 Agreements:** During
      2005, 2006 and 2007 the Company entered into a series of agreements with
      accredited investors, pursuant to which the Company issued convertible
      debentures, as further described below. The debentures, which include interest
      of 6.0% per annum, mature 12 months from the issue date, and are convertible
      into restricted shares of the Company’s common stock at conversion prices
      between $0.20 and $0.40 per share. In connection with the issuance of the
      debentures, warrants were issued to the accredited investors which are
      exercisable for a period of three years at exercise prices between $0.20 and
      $0.40 per share.





During
      the six months ended June 30, 2008, the Company issued to four accredited
      investors an aggregate of $52,000 in 6% Convertible Subordinated Promissory
      Notes and warrants to purchase up to 130,000 shares of the Company’s common
      stock. The convertible notes, which accrue interest at 6%, mature in the first
      quarter of 2009. The investors have the option, at any time prior to payment
      or
      conversion, to convert any unpaid principal and interest into shares of common
      stock at a price per share equal to $0.20. In addition, the notes are
      convertible if the Company completes an equity financing which raises proceeds
      of at least $3,000,000 or if the Company completes certain specified
      transactions. The notes include covenants and events of default which are
      customary for promissory notes of this nature. The notes also provide the
      investors certain piggy-back registration rights with respect to the shares
      of
      common stock into which the notes are convertible. The warrants, which have
      an
      exercise price of $0.40 per share, expire in the first quarter of 2009. The
      warrants may be exercised at any time prior to expiration and provide the
      investors certain piggy-back registration rights with respect to the shares
      of
      common stock into which the warrants are exercisable.





During
      the six months ended June 30, 2008, nineteen holders of convertible debentures
      converted $503,825 in principal and $31,438 of accrued interest into an
      aggregate of 2,676,633 shares of restricted common stock.





As
      a
      result of the foregoing, as of June 30, 2008, the Company had 66 convertible
      debentures outstanding. The outstanding convertible debentures represented
      a
      note balance of $1,641,892 and a potential obligation for the Company to issue
      8,209,459 shares of common stock.





In
      connection with the convertible debentures described above, as of June 30,
      2008,
      the Company has issued warrants to purchase 16,796,208 shares of common stock
      at
      exercise prices ranging from $0.20 to $0.50, equaling a potential aggregate
      funding for the Company of $4,450,307. These warrants have expiration dates
      between July 5, 2008 and July 26, 2010. During the six months ended June 30,
      2008, the Company issued 1,035,534 shares of common stock related to the
      exercise of warrants with proceeds totaling $307,106.





The
      following table summarizes the outstanding convertible debentures and related
      warrants:


**Summary of Post 2004/2005 Debentures & Warrants**
              
              **Convertible
                  Notes**
              
              **Warrants****Proceeds**
              
              **Shares**
              
              **Proceeds**
              
              **Shares**Total
                  outstanding at December 31, 2007
              
              
              2,074,528
              
              
              10,372,642
              
              
              -
              
              
              16,666,208Proceeds
                  received during 2008
              
              
              52,000
              
              
              260,000
              
              
              -
              
              
              130,000Accrued
                  Interest
              
              
              50,627
              
              
              253,133
              
              
              -
              
              
              -Conversions
                  during 2008
              
              
              (535,263
              )
              
              (2,676,631
              )
              
              -
              
              
              -Warrants
                  exercised
              
              
              -
              
              
              -
              
              
              307,106
              
              
              (1,035,534
              )Total
                  outstanding at June 30, 2008
              
              $
              1,641,892
              
              
              8,209,459
              
              $
              307,106
              
              
              15,760,674





The
      Company has determined that the convertible debentures contain a beneficial
      conversion feature and qualify for treatment under Emerging Issue Task Force
      No.
      00-27. The estimated fair value of the warrants of $7,462,588 has been
      determined using Black-Scholes option pricing model under the following
      assumptions: stock price volatility ranging from 131% to 377%; risk free
      interest rate of 3.5% to 4.5%; dividend yield of 0%; and a one to three year
      term. The face amount of the convertible debentures (i.e., 4,502,907 was
      proportionately allocated to the convertible debentures and the warrants in
      the
      amount of $1,878,719 and $2,624,188, respectively.) The convertible debentures
      proportionate allocation factor was then further allocated between the
      convertible debentures and the beneficial conversion feature and $1,661,310
      was
      allocated to the beneficial conversion feature and the balance of $217,409
      was
      allocated to the convertible debentures. The combined total value of the
      warrants and the beneficial conversion feature amounting to $4,285,498 has
      been
      accounted for as a debt discount which is being amortized and treated as
      interest expense over the term of the convertible debentures. For the six months
      ended June 30, 2008 and 2007, the Company amortized a total of $736,549 and
      $724,377, respectively. The discounts and amortization are summarized in the
      following table:


14 OF 43





**June
                30,**
            
            **December
                31,****2008**
            
            **2007**BCF
                discount to Paid in capital
            
            $
            (1,661,310
            )
            $
            (1,635,061
            )Warrant
                Discount to Paid in capital
            
            
            (2,624,188
            )
            
            (2,613,638
            )Proceeds
                from convertible debentures
            
            
            4,502,907
            
            
            4,450,907Subtotal
            
            
            217,409
            
            
            202,208Deduct
                value converted to common stock
            
            
            (2,896,835
            )
            
            (2,393,011
            )Convertible
                debt not subject to accretion converted to stock
            
            
            (2,000
            )
            
            (2,000
            )Principal
                payments made
            
            
            (57,145
            )
            
            (57,145
            )Balance
                of convertible debt not subject to accretion
            
            
            (215,409
            )
            
            (200,208
            )Total
                discount to accrete
            
            
            1,331,518
            
            
            1,798,543Interest
                expense on convertible debentures - Amortized
            
            
            (1,226,335
            )
            
            (993,611
            )Interest
                expense on convertible debentures - Accrued
            
            
            (94,964
            )
            
            (75,777
            )Convertible
                debt not subject to accretion
            
            
            (215,409
            )
            
            (200,208
            )Total
                Current Liability
            
            $
            (1,536,708
            )
            $
            (1,269,596
            )





**Defaults
      on Convertible Debentures**





As
      of
      June 30, 2008, 37 convertible debentures totaling $1,193,518 were in default.
      (See “Note 15 – Subsequent Events” for further details.)





**NOTE
      7 - RELATED PARTY TRANSACTIONS**





**Loans
      Payable - Related Party**





During
      second quarter 2008, the Company borrowed funds for operational expenses of
      $54,432 from related parties and each Promissory Note bears 6% annum interest
      rate and becomes due December 31, 2008 with the exception of one note being
      due
      November 30, 2008. In connection with the loans, the Company issued 378,843
      shares of its common stock to the related parties and recognized $95,996 in
      financing costs.





On
      April
      18, 2006, the Company acquired the outstanding membership interests of AI and
      assumed an unsecured, interest free loan payable to an officer for various
      cash
      advances, expenses paid and assets transferred to AI by the officer. The note
      totaling $80,950 was due on December 4, 2007 and bears interest at 6% per annum
      from that date. The Company is in default on this note. As of June 30, 2008,
      the
      Company has accrued a total of $2,781 related to this debt.





**Loans
      from Founder**





**2007** :
      During
      the year ended December 31, 2007, the CEO of the Company entered into certain
      loan transactions with certain third parties and in turn has loaned an aggregate
      of $428,393 to the Company. During the year ended December 31, 2007, the Company
      accrued interest on the outstanding principal balance of these loans in the
      amount of $7,494. As a condition to the loan transactions with such third
      parties, the CEO has assigned or committed to assign to such third parties
      an
      aggregate of 2,948,474 of his personal shares of the Company’s common stock.
      During the twelve months ended December 31, 2007, the Company repaid loan
      amounts of $72,086 including accrued interest, and issued 600,000 shares of
      the
      Company’s common stock to third parties on behalf of the CEO in exchange for
      debt forgiveness from the CEO in the amount of $179,971. As of June 30, 2008,
      the outstanding balance of these loans was $181,392 in principal and $5,354
      in accrued interest.


15 OF 43





During
      the fourth quarter, the Company issued to the CEO of the Company an aggregate
      of
      $45,917 in 6% Convertible Subordinated Promissory Notes and warrants to purchase
      up to 114,791 shares of the Company’s common stock. The two convertible notes
      with balances of $40,917 and $5,000, which accrue interest at 6%, mature on
      October 30, 2009 and November 11, 2009, respectively. The CEO has the option,
      at
      any time prior to payment or conversion, to convert any unpaid principal and
      interest into shares of common stock at a price per share equal to $0.20. In
      addition, the notes are convertible if the Company completes an equity financing
      which raises proceeds of at least $3,000,000 or if the Company completes certain
      specified transactions. The notes include covenants and events of default which
      are customary for promissory notes of this nature. The notes also provide the
      CEO certain piggy-back registration rights with respect to the shares of common
      stock into which the notes are convertible. The warrants, which have an exercise
      price of $0.40 per share, expire on October 30, 2009 and November 11, 2009.
      The
      warrants may be exercised at any time prior to expiration and provide the CEO
      certain piggy-back registration rights with respect to the shares of common
      stock into which the warrants are exercisable.





**2006:** During
      2006, the CEO of the Company advanced $20,000 to the Company on an interest-free
      basis. During 2006, $15,000 was repaid leaving an unpaid obligation of $5,000
      as
      of June 30, 2008.





**2005** : On
      September 15, 2005, the Company received a loan of $80,000 from the CEO. Under
      the terms of the promissory note governing the loan, interest accrues at 10%
      per
      annum, with principal and interest payable on December 1, 2005. Unpaid principal
      and interest after December 1, 2005 is subject to additional interest of 5%
      in
      excess of the rate otherwise applicable to the unpaid balance. During 2006,
      the
      Company issued 400,000 shares of restricted common stock to repay the principal
      of the loan and the balance of the accrued interest does not accrue additional
      interest. The balance of the accrued interest payable at June 30, 2008 was
      $13,074.




**Share
      issuances**


During
      the six months ended June 30, 2008, the Company cancelled 500,000 shares of
      the
      Company’s restricted common shares issued during 2007 in anticipation of closing
      a financing transaction with a related party, WinSonic Diversity, which did
      not
      materialize. The Company also cancelled 700,000 shares of the Company’s
      restricted common shares issued to the CEO in 2007 for certain financing
      transactions in excess of the correct amount of shares.





**NOTE
      8 – OTHER NOTES PAYABLES**





On
      April
      29, 2008, the Company entered into a loan agreement with Neighborhood Community
      Bank, assuming the responsibility for a loan originally entered into by Colonel
      McCrary Trucking, LLC and guaranteed by Winston Johnson. A loan in the amount
      of
      $500,000 was originally entered into by Colonel McCrary Trucking, LLC for
      working capital in preparation for the WinSonic Diversity, LLC, WinSonic Digital
      Media Group, Ltd. and Colonel McCrary Trucking, LLC transaction with WinSonic
      McCrary, LLC. Winston Johnson entered into a personal guarantee with
      Neighborhood Community Bank, pledging 2,000,000 of his personal shares. The
      Asset Purchase Agreement for the proposed transaction with WinSonic McCrary,
      LLC
      expired in accordance with its terms during first quarter 2008. Colonel McCrary
      Trucking, LLC defaulted on the original loan and Neighborhood Community Bank
      sought to collect the balance from the personal guarantee of Winston Johnson.
      Since the loan was originally related to a potential acquisition of the Company,
      Mr. Johnson transferred responsibility for the loan to the Company. As of June
      30, 2008, the balance of the loan is $455,584, bears interest at 6% and
      matures on December 31, 2008. The Company paid the initial loan
      closing fees and made the interest payments as required. The Company is in
      the
      process of filing a lien on the assets of Colonel McCrary Trucking LLC for
      recovery of the loan balance.





On
      April
      30, 2008, the Company entered into a loan agreement with a group of consultants
      and former employees for payment of services received by the Company during
      the
      first quarter of 2008. The loan agreement reclassifies previously recorded
      accrued payroll and accounts payable to a note payable in the amount of $116,897
      which bears interest at 6% per annum. The note provides for payments to the
      group as follows: $8,068 upon execution; $9,401 on May 31, 2008; $20,134 on
      June
      30, 2008; $47,003 on July 31, 2008 and $9,401 on August 15, 2008. The balance
      of
      the note ($22,890) relates to the payroll taxes to be withheld for the employees
      and is payable to the Internal Revenue Service and state taxing authorities
      on a
      pro-rata basis on the same dates as the payments to the group. The Company
      met
      the first three obligations per the terms of the Note. As of June 30, 2008,
      the
      balance of the loan is $76,636.


16 OF 43





**NOTE
      9 – MATERIAL AGREEMENTS**





On
      April
      2, 2008, WinSonic Digital Media Group, Ltd. and WinSonic Digital Cable Systems
      Network (a subsidiary) entered into a Memorandum of Understanding (“MOU”) with
      Sosiate, Inc. to set forth guidelines and basis for a relationship among the
      companies. The companies believe that this relationship may lead to a variety
      of
      revenue opportunities; whereby, WinSonic can provide global facilities-based
      digital distribution co-location and network services for the Jamroom, an
      internet-based social network owned by Sosiate. There is no assigned value
      to
      this agreement at this time.





On
      March
      20, 2008, WinSonic Digital Media Group, Ltd. entered into a rights agreement
      with Blue Pie Productions Pty Ltd (“BPP”) pursuant to which BPP granted the
      Company an exclusive license to reproduce, commercialize, maintain and market
      select BPP products, goods and services such as: Distribution model, Blue Pie
      Sonic branding product, Blue Pie Music license product, Blue Pie and Magic
      Blue
      Creative Social networking product, Blue Pie Banner Ad and Graphic product,
      Magic Blue Creative web development, eCommerce and information systems, and
      Blue
      Pie Vault Digital Music Store within the United States and Canada (North America
      territory).  In consideration for the license, the Company agreed to
      pay a total of $200,000, due and payable approximately forty-five days after
      the
      Company files its Annual Report on Form 10-KSB for the year ended December
      31,
      2007. As of June 30, 2008 the Company has not paid the amount.  The
      license is granted for a period of 36 months and can be extended at any
      time.  BPP may terminate the Agreement upon the occurrence of certain
      events, including the Company’s failure to meet specified sales targets. This
      Blue Pie Productions agreement is currently being extended and revised for
      overall license terms and conditions, payment terms, and changes to the
      deliverable components for the BPP products, goods and services under the rights
      agreement for the North America territory.





**NOTE
      10 - STOCKHOLDERS’ EQUITY**





Effective
      June 22, 2007, the Company increased the number of shares of common stock the
      Company is authorized to issue from 50,000,000 to 200,000,000 and increased
      the
      number of shares of preferred stock the Company is authorized to issue from
      5,000,000 to 20,000,000.





During
      the six months ended June 30, 2008, the Company issued 7,834,445 restricted
      shares of the Company’s common stock valued at $2,559,312 in connection with
      certain financing transactions (the costs of 1,800,000 of these shares were
      accrued as financing costs at December 31, 2007). In addition, approximately
      19
      holders of the Company’s convertible debentures were contacted and agreed in
      writing to convert their debentures into restricted shares of the Company’s
      common stock at $0.20 per share (See “Note 6 – Convertible Debentures” for
      further details regarding these conversions.). Based on these agreements, the
      Company converted $503,825 of principal and $31,438 of accrued interest on
      these
      debentures in exchange for the issuance of 2,676,633 restricted shares of the
      Company’s common stock.





During
      the six months ended June 30, 2008, the Company issued an aggregate of 1,050,000
      restricted shares valued at $411,500 of its common stock as payment for
      consulting services.





During
      the six months ended June 30, 2008, the Company issued an aggregate of 1,500,000
      restricted shares valued at $465,000 of its common stock in connection with
      the
      DVerb acquisition (See “Note 3 - Mergers and Acquisitions”).





During
      the six months ended June 30, 2008, the Company issued 851,666 and 1,035,534
      restricted shares of the Company’s common stock in connection with the exercise
      of stock options and warrants. The proceeds from the exercise of these options
      and warrants totaled $315,623.





During
      the six months ended June 30, 2008, the Company issued an aggregate of 1,537,962
      restricted shares valued at $538,287 of its common stock as payment for employee
      salaries.





During
      the year ended December 31, 2007, the Company issued 500,000 shares of the
      Company’s restricted common shares in anticipation of closing a financing
      transaction which did not materialize. The shares were canceled in January
      2008.
      During the year ended December 31, 2007, the Company also issued 700,000 shares
      of the Company’s restricted common shares to reimburse the CEO for certain
      financing transactions in excess of the correct amount of shares. The shares
      were canceled in March 2008. The Company also canceled 1,146,593 shares of
      its
      restricted common stock previously issued in connection with the Tytess
      acquisition. The Company recorded the transaction at par value and no gain
      or
      loss was recognized by the Company.


17 OF 43





The
      Company also issued 2,076,521 to Rosemary Nguyen pursuant to a settlement
      agreement (See “Note 11- Summary of Legal Proceedings”).





The
      following table summarizes, by date, the stock transactions for the six months
      ended June 30, 2008:





**Price
                per**
            
            **Cost
                of****Date
                of Share Issuance**
            
            **Shares**
            
            **Share**
            
            **Shares****Shares
                issued in connection with certain financing
                transactions:**01/02/2008
            
            
            25,000
            
            
            0.61
            
            $
            15,25001/02/2008
            
            
            175,000
            
            
            0.51
            
            
            89,25001/09/2008
            
            
            500,000
            
            
            0.60
            
            
            300,00001/15/2008
            
            
            375,000
            
            
            0.46
            
            
            172,50001/15/2008
            
            
            725,000
            
            
            0.51
            
            
            369,75001/15/2008
            
            
            500,000
            
            
            0.19
            
            
            95,00004/02/2008
            
            
            40,000
            
            
            0.30
            
            
            12,00004/07/2008
            
            
            1,831,860
            
            
            0.25
            
            
            457,96504/07/2008
            
            
            88,589
            
            
            0.39
            
            
            34,55004/08/2008
            
            
            175,000
            
            
            0.34
            
            
            59,50004/08/2008
            
            
            1,236,243
            
            
            0.38
            
            
            469,77204/09/2008
            
            
            44,471
            
            
            0.39
            
            
            17,34305/14/2008
            
            
            225,000
            
            
            0.38
            
            
            84,00006/02/2008
            
            
            207,600
            
            
            0.24
            
            
            49,82406/10/2008
            
            
            66,353
            
            
            0.29
            
            
            19,24206/10/2008
            
            
            869,329
            
            
            0.20
            
            
            173,86606/17/2008
            
            
            300,000
            
            
            0.20
            
            
            60,00006/23/2008
            
            
            150,000
            
            
            0.19
            
            
            28,50006/26/2008
            
            
            300,000
            
            
            0.17
            
            
            51,0007,834,445
            
            
            
            
            $
            2,559,312**Shares
                issued for payment of loan interest:**
              01/15/2008
            
            
            3,994
            
            
            0.48
            
            
            1,917**Shares
                issued for conversion of convertible debentures:**
              01/02/2008
            
            
            60,038
            
            
            0.20
            
            $
            11,94501/15/2008
            
            
            105,507
            
            
            0.20
            
            
            21,10103/11/2008
            
            
            2,064,332
            
            
            0.20
            
            
            412,86604/02/2008
            
            
            388,483
            
            
            0.20
            
            
            77,69604/10/2008
            
            
            58,273
            
            
            0.20
            
            
            11,6552,676,633
            
            
            
            
            $
            535,263**Shares
                issued for payment of consulting services:**01/02/2008
            
            
            250,000
            
            
            0.46
            
            $
            115,00001/02/2008
            
            
            100,000
            
            
            0.50
            
            
            50,00002/14/2008
            
            
            100,000
            
            
            0.38
            
            
            38,00004/02/2008
            
            
            150,000
            
            
            0.64
            
            
            96,00005/15/2008
            
            
            150,000
            
            
            0.35
            
            
            52,50006/10/2008
            
            
            300,000
            
            
            0.20
            
            
            60,0001,050,000
            
            
            
            
            $
            411,500**Shares
                canceled that were previously issued for 2006
                acquisitions:**03/28/2008
            
            
            (1,146,593
            )
            
            0.001
            
            $
            (1,147
            )**Shares
                issued in connection with DVerb acquisition:**04/24/2008
            
            
            1,500,000
            
            
            0.31
            
            $
            465,000**Shares
                issued in connection with exercise of warrants:**01/10/2008
            
            
            500,000
            
            
            0.40
            
            $
            200,00003/11/2008
            
            
            420,534
            
            
            0.20
            
            
            84,10604/11/2008
            
            
            115,000
            
            
            0.20
            
            
            23,0001,035,534
            
            
            
            
            $
            307,106**Shares
                issued in connection with exercise of stock
                options:**01/23/2008
            
            
            150,000
            
            
            0.01
            
            $
            1,50003/28/2008
            
            
            500,000
            
            
            0.01
            
            
            5,00004/11/2008
            
            
            100,000
            
            
            0.01
            
            
            1,00004/16/2008
            
            
            35,000
            
            
            0.01
            
            
            35004/23/2008
            
            
            33,333
            
            
            0.01
            
            
            33306/30/2008
            
            
            33,333
            
            
            0.01
            
            
            334851,666
            
            
            
            
            $
            8,517**Shares
                issued for employee compensation:**03/28/2008
            
            
            575,000
            
            
            0.15
            
            $
            86,25005/20/2008
            
            
            1,113,633
            
            
            0.35
            
            
            389,77206/04/2008
            
            
            424,329
            
            
            0.35
            
            
            148,5152,112,962
            
            
            
            
            $
            624,537**Shares
                issued in error:**02/01/2008
            
            
            (500,000
            )
            
            0.001
            
            $
            (500
            )03/28/2008
            
            
            (700,000
            )
            
            0.001
            
            
            (700
            )(1,200,000
            )
            
            
            
            $
            (1,200
            )**Shares
                issued for legal settlement:**01/23/2008
            
            
            2,076,521
            
            
            0.45
            
            $
            934,435


18 OF 43





The
      Company neither received nor paid any commissions in connection with the
      issuances of securities described above. The Company believes that the issuance
      of such securities was exempt from the registration requirements of the
      Securities Act of 1933, as amended, pursuant to the provisions of Section 4(2)
      of the Securities Act.





**Convertible
      Notes and Warrants:**





Since
      inception, the Company has issued convertible notes together with warrants
      to
      fund current operations and other transactions. The notes accrue interest at
      6%
      per annum and mature on various dates or upon the occurrence of certain events
      relating to the capital structure of the Company.


19 OF 43




The
      following table summarizes the Company’s warrant activities for the period from
      January 1, 2008 to June 30, 2008:





**Number of**
              **Warrants**
            
            **Weighted Average**
              **Exercise Price**Balance
                as of December 31, 2007
            
            
            18,803,708
            
            
            0.28Warrants
                issued
            
            
            130,000
            
            
            0.40Warrants
                exercised
            
            
            (1,035,534
            )
            
            (0.30
            )Warrants
                expired on June 30, 2008
            
            
            (866,250
            )
            
            (0.30
            )Balance
                as of June 30, 2008
            
            
            17,031,924
            
            $
            0.28





These
      warrants have expiration dates between September 9, 2008 and July 26,
      2010.





In
      addition, the Company has issued warrants in connection with certain consulting
      agreements. The following table summarizes the Company’s warrant activities
      related to consulting agreements from January 1, 2008 to June 30,
      2008:





**Number of**
              **Warrants**
            
            **Weighted Average**
              **Exercise Price**Balance
                as of December 31, 2007
            
            
            1,052,354
            
            $
            0.32Warrants
                issued
            
            
            -
            
            
            -Warrants
                exercised
            
            
            -
            
            
            -Warrants
                expired
            
            
            (350,000
            )
            
            (0.70
            )Balance
                as of June 30, 2008
            
            
            702,354
            
            $
            0.14





These
      warrants have expiration dates between December 29, 2008 and September 10,
      2009.





**NOTE
      11 - SUMMARY OF LEGAL PROCEEDINGS**




From
      time
      to time, the Company is involved in litigation with customers, vendors,
      suppliers and others in the ordinary course of business, and a number of such
      claims may exist at any given time. All such existing proceedings are not
      expected to have a material adverse impact on the Company’s results of
      operations or financial condition.





An
      estimated liability of $268,870 and $1,213,225 for legal settlements was
      recorded as of June 30, 2008 and December 31, 2007, respectively. Included
      in
      the estimated liability for legal settlements as of June 30, 2008 is a general
      accrual of $148,870 for claims threatened and not yet filed. Other than as
      described below and in “Note 15 - Subsequent Events”, the Company is not
      currently involved in any legal proceedings that may be deemed to be material
      to
      our financial condition.





**Collazo
      vs. Media and Entertainment.com** (Superior
      Court of CA, Los Angeles County - complaint filed March 22, 2004)





This
      is
      an action brought by the Company seeking a constructive trust and injunctive
      relief against Caesar Collazo, a former officer of the Company, who allegedly
      stole proprietary property and solicited the Company’s clients. In his response
      to the complaint, Mr. Collazo counter-sued for breach of employment agreement.
      The parties reached a settlement on April 11, 2005, wherein, the Company agreed
      to issue 900,000 shares of common stock to Mr. Collazo as of September 20,
      2002
      and to pay his attorney fees of $120,000. The shares of common stock were valued
      as of the settlement date, and accordingly, 900,000 shares of common stock,
      as
      well as, $120,000 of attorney fees, were charged as expenses in 2004.





On
      March
      16, 2006, the Company issued 900,000 restricted shares of common stock to Mr.
      Collazo in settlement of this matter; however, pursuant to a motion filed by
      Mr.
      Collazo, the Court entered a judgment in July 2006 ordering the Company to
      reissue the 900,000 shares of common stock to Mr. Collazo as of
      September 20, 2002 without the restrictions.  The Company did not reissue
      the stock to Mr. Collazo due to the existence of an attorney’s lien on Mr.
      Collazo’s judgment in this matter and because the Company believed that Collazo
      had not returned the initial shares of stock. On May 16, 2008, the Superior
      Court of Fulton County, Georgia (Collazo v. WDMG, No. 2008-CV-147069)
      domesticated the California judgment. On or about May 17, 2008, Collazo filed
      a
      motion for contempt because the Company had not issued the unrestricted shares.
      On June 13, 2008, the Fulton County Superior Court entered an Order requiring
      the Company to pay Collazo $702,000 plus interest pursuant to the relief
      requested in Collazo’s motion for contempt. On July 11, 2008, the Company filed
      its notice of intent to appeal the June 13th Order to the Georgia Court of
      Appeals. As of the date of this Report, no other significant action has been
      taken in this matter.





20 OF 43




**Yellowbrix,
      Inc. vs. Media and Entertainment.com** (Superior
      Court of CA, Los Angeles County - complaint filed September 16,
      2004)





This
      is a
      collection suit for $19,800. The disputed amount was expensed in general and
      administrative expense in 2004 and accrued within accounts payable of the
      Company as of June 30, 2008.





On
      July
      25, 2006, the Company learned that a judgment had been entered against it in
      this matter on February 15, 2006. The judgment amount included the $19,800
      in
      controversy, plus $3,000 in attorney fees. As of the date of this report,
      Yellowbrix has not sought to enforce the judgment.





**Dell
      Marketing, LP vs. WinSonic Holdings, Ltd.** (District Court of Travis County, Texas - complaint filed December 13,
      2004)





On
      or
      about April 17, 2006, the Company was notified of a default judgment rendered
      against it in a collection suit in Travis County, Texas in the amount of
      $474,285 plus $90,000 in attorney fees. The entire amount of the judgment and
      attorney’s fees have been expensed as a general and administrative expense and
      accrued within accounts payable as of June 30, 2008.





On
      July
      27, 2006, the Company received notice that the judgment had been domesticated
      in
      the state of Georgia as of July 21, 2006. As of the date of this report, no
      other significant action has been taken in this matter.





**Netscaler
      Inc. vs. WinSonic Holdings, Ltd.** (Superior
      Court of CA, Los Angeles County - complaint filed May 16, 2005)





The
      disputed amount of $75,000 in this collection lawsuit was expensed as a general
      and administrative expense in 2004 and accrued within accounts payable at March
      31, 2008. The parties reached a settlement in March of 2006, pursuant to which
      the Company agreed to pay the sum of $75,000 in three (3) installment payments
      of $25,000, commencing in June 2006, in exchange for the dismissal of the
      action. On August 15, 2006, Netscaler filed a declaration to set aside the
      dismissal and to enter judgment in the amount of $100,769 against the Company.
      As of the date of this report, no further action has been taken in this
      matter.





**Attorney
      Collection Services vs. WinSonic Holdings, Ltd.** (Superior
      Court of CA, Los Angeles County - complaint filed June 30, 2004)





The
      disputed amount of $25,000 in this collection lawsuit was expensed as a general
      and administrative expense in 2005 and accrued within accounts payable as of
      March 31, 2008. On September 15, 2006, this matter was dismissed by the court;
      however, the plaintiff has indicated that it will either file a motion to set
      aside the dismissal or bring a new action. As of the date of this report, no
      further action has been taken in this matter.





**Eric
      Young vs. WinSonic Digital Media Group, Ltd.** (State
      Court of Fulton County, Georgia - complaint filed January 11, 2007)





This
      was
      an action for breach of contract brought by Eric Young, a former chief financial
      officer and member of the Board of Directors of the Company. Mr. Young sought
      damages totaling $354,784, which included $103,934 in unpaid wages, $50,850
      in
      unpaid consulting fees and an additional $200,000 in severance payments. The
      Company filed its response to the complaint on February 12, 2007, in which
      the
      Company asserted a counterclaim for breach of fiduciary duty and unjust
      enrichment.





The
      parties entered into a settlement and release agreement on November 5, 2007,
      pursuant to which the Company issued to plaintiff a warrant to purchase up
      to
      380,000 shares of restricted shares of the Company’s common stock with an
      exercise price of $1.00 per share and an expiration date of December 9, 2010
      and
      to remove the restrictive legend for the previously issued 500,000 shares.
      In
      addition, the Company is required to pay:




21 OF 43




(a)  on
      or
      before November 7, 2007, (i) $15,000 to Mr. Young and (ii) $1,000 to Mr. Young’s
      counsel, Beverly Adams;


(b)  on
      or
      before November 27, 2007, (i) $15,000 to Mr. Young and (ii) $1,000 to Mr.
      Young’s counsel;


(c)  on
      or
      before December 27, 2007, (i) $15,000 to Mr. Young and (ii) $1,000 to Mr.
      Young’s counsel;


(d)  on
      or
      before January 27, 2008, (i) $25,000.to Mr. Young and (ii) $1,000 to Mr.
      Young’s counsel; and


(e)  on
      or
      before February 27, 2008, (i) $180,000 to Mr. Young and (ii) $1,000 to Mr.
      Young’s counsel.




As
      of the
      date of this report, the Company has paid $30,000 to Mr. Young and $2,000 to
      his
      counsel. The Company is currently in default on this settlement agreement and
      as
      a result the Company believes this matter remains open.





**McKenney’s,
      Inc. vs. WinSonic Digital Media Group, Ltd.** (State
      Court of Fulton County, Georgia - complaint filed March 21, 2007)





This
      is
      an action for breach of contract against the Company. The disputed amount of
      $56,527 was capitalized as computer equipment in 2006 and accrued within
      accounts payable of the Company as of March 31, 2008. The Company was served
      with the summons and complaint on April 4, 2007 and filed its answer and
      defenses on May 15, 2007. Plaintiff subsequently filed a motion to strike the
      Company’s answer and moved for summary judgment. During the third quarter of
      2007, the Company responded to the motions to strike the Company’s answer and
      for summary judgment and has requested oral arguments on the summary judgment
      motion. As of the date of this filing no other significant action has been
      taken
      in this matter.





**Phillip
      Ghee v. WinSonic Digital Media Group, Ltd. and WinSonic Diversity,
      LLC** (Superior Court of Ga., Fulton County – complaint filed October 19,
      2007).





This
      is
      an action for breach of contract by Phillip Ghee, a former employee of the
      Company. Mr. Ghee seeks damages of $236,000, which includes amounts for alleged
      salary, alleged deferred earnings, and an alleged severance package as set
      forth
      in Mr. Ghee’s written employment agreement with the Company dated March 25,
      2006. The complaint also seeks damages for the undetermined value of alleged
      unused vacation time and vested stock options. The complaint further alleges
      that on or about October 2, 2006, Mr. Ghee entered into new employment
      agreements with defendants that split the responsibilities outlined in the
      March
      2006 employment agreement between the two defendants. On December 3, 2007,
      the
      Company filed its answer which disputed the amount allegedly owed to Mr. Ghee.
      The Company responded to Mr. Ghee’s initial discovery requests on June 16, 2008.
      On July 30, 2008, Mr. Ghee filed an Amended Complaint in which he added a claim
      for fraud and now seeks punitive damages. On August 13, 2008, the Company filed
      its Answer to the Amended Complaint which denied the fraud claim and disputed
      the amount alleged owed to Mr. Ghee. As of the date of this filing, no other
      significant action has been taken in this matter.





**Context
      Ventures, Inc. v. WinSonic Digital Media Group, Ltd.** (State
      Court of Fulton County, State of Georgia)





This
      is
      an action for garnishment against the Company based on an alleged debt of
      $336,547 owed by the Company’s CEO, Winston Johnson. The Company defaulted on
      responding to the garnishment action, which opened the Company to liability
      for
      payment of Mr. Johnson’s alleged debt. On October 3, 2007, the Company moved to
      open the default. Context Ventures, Inc. opposed the opening of the default
      on
      January 11, 2008. The Company files amended answers every 45 days to the
      garnishment action to update the Court regarding the status of Mr. Johnson’s
      employment compensation. As of the date of this filing, no other significant
      action has been taken in this matter.





**Cheryl
      Lee and Bruce Lee v. Winsonic Digital Media Group, Ltd., et
      al.** (Superior Court of Fulton County, Georgia, 2008-CV-147282 – Complaint filed
      February 29, 2008)





This
      is
      an action for breach of contract and constructive fraud against the Company
      based on actions by the Company’s
      subsidiary, Defendant Tytess Design and Development, Inc. Plaintiffs seek
      compensatory damages of $691,707, as well as punitive damages and attorney’s
      fees. The dispute involves a contract between Tytess and Plaintiffs regarding
      the construction of a home for Plaintiffs. The Company did not answer
      Plaintiffs’ Complaint. As of the date of this filing, no other significant
      action has been taken in this matter.





22 OF 43





**NOTE
      12 - GOING CONCERN**





These
      financial statements have been prepared in accordance with generally accepted
      accounting principles applicable to a going concern, which contemplates the
      realization of assets and the satisfaction of liabilities and commitments in
      the
      normal course of business. As of June 30, 2008, the Company has had accumulated
      losses of $46,471,821 from operations since inception. The Company’s ability to
      continue as a going concern is contingent upon the successful completion of
      additional financing arrangements and its ability to achieve and maintain
      profitable operations. Management plans to raise equity capital to finance
      the
      operating and capital requirements of the Company. Amounts raised will be used
      for further development of the Company’s products, to provide financing for
      marketing and promotion, to secure additional property and equipment, and for
      other working capital purposes. While the Company is expending its best efforts
      to achieve the above plans, there is no assurance that any such activity will
      generate funds that will be available for operations. The Company’s financial
      statements do not include any adjustments that might result from the outcome
      of
      this uncertainty.





**NOTE
      13 - COMMITMENTS AND CONTINGENCIES**





**Employment
      Agreements**





On
      October 8, 2004, the Company entered into a binding offer letter with Winston
      Johnson, as Chairman and CEO. Under the terms of employment, Mr. Johnson was
      to
      receive a base salary of $290,000 per annum, with $7,000 per month deferred
      until the next funding occurs or January 1, 2005, whichever occurred first.
      Mr.
      Johnson was eligible for an annual incentive bonus based on performance. The
      agreement was terminable at will with or without cause (as defined in the offer
      letter). As of March 30, 2007, Mr. Johnson’s salary was reduced to zero until
      the Company’s common stock began trading on the OTCBB. Mr. Johnson’s salary was
      restored as of October 1, 2007.  The employment agreement of October 8,
      2004 also provided for the grant of incentive or non-statutory stock options
      to
      purchase 1,000,000 shares of common stock for $1.00 per share. These options
      are
      fully vested.




On
      November 5, 2005, the Company entered into a binding offer letter with Eric
      Young, as Chief Operating Officer and Chief Financial Officer. Under the terms
      of his employment, Mr. Young was to receive a base salary and certain stock
      options, in each case, as set forth in the offer letter. As was disclosed on
      the
      Company’s Form 8-K filed on August 24, 2006, Mr. Young resigned on August 1,
      2006 to pursue other opportunities. Thereafter, Mr. Young filed suit against
      the
      Company concerning the number of options that vested upon his resignation and
      the expiration of the exercise period of said options. See “Note 9 – Summary of
      Legal Proceedings”





Effective
      June 6, 2006, Joseph Morris succeeded Eric Young as Chief Operating Officer
      of the Company. Previously, Mr. Morris served as Chief Operating
      Officer of AI, which was acquired on April 18, 2006.  Mr. Morris'
      initial base salary was $150,000 per annum. As an employment incentive, Mr.
      Morris was granted stock options to purchase 50,000 shares of the Company’s
      Common Stock at an exercise price of $0.01, of which 1/3 vested immediately,
      1/3
      at the closing of the next round of funding, and the remaining 1/3 when the
      Company’s common stock resumed trading on the OTCBB. Additionally, Mr. Morris
      was granted stock options to purchase 100,000 of the Company's common stock
      at
      an average price of $1.00 per share, of which 10% vested immediately and the
      remaining 90% vested at the rate of 1/12 th per
      month for twelve months. The fair value of the options granted totaled $53,329.
      On March 12, 2007, Mr. Morris’ base salary was increased to $200,000 per annum
      and he was granted additional stock options to purchase 200,000 shares of the
      Company’s common stock at an exercise price of $0.01, of which 1/3 vested
      immediately, 1/3 at the closing of the next round of funding, and the remaining
      1/3 when the Company’s common stock resumed trading on the OTCBB. Additionally,
      on March 12, 2007, Mr. Morris was granted additional stock options to purchase
      400,000 shares of the Company's common stock at an average price of $1.00 per
      share, of which 10% vested immediately and the remaining 90% will vest at the
      rate of 1/12 th per
      month for twelve months. The fair value of the additional options granted
      totaled $232,441. Effective December 7, 2007, Joseph Morris resigned from the
      Company as Chief Operating Officer.





The
      Company has negotiated a separation agreement with Mr. Morris. The separation
      agreement provided for the Company to pay Mr. Morris $3,000 upon execution
      (and
      has been paid), $100,000 on December 31, 2008 and $150,000 on December 31,
      2009.
      In addition, the severance agreement provides Mr. Morris the opportunity to
      exercise 250,000 of his $0.01 options and 462,500 of his $1.00 options that
      were
      previously granted to him.




23 OF 43





Effective
      August 8, 2006, Jeffrey L. Burke was hired as Executive Vice President of the
      Company. Mr. Burke's base salary was $270,000 per annum. As an employment
      incentive, Mr. Burke was granted stock options to purchase 750,000 shares of
      the
      Company’s common stock at an exercise price of $0.01, of which 1/3 vested
      immediately, 1/3 at the closing of the next round of funding, and the remaining
      1/3 when the Company’s common stock resumed trading on the OTCBB. Additionally,
      Mr. Burke was granted options to purchase 500,000 of the Company's Common Stock
      at an average price of $1.00 per share, of which 10% vested immediately and
      the
      remaining 90% vested at the rate of 1/12 th per
      month for twelve months and subject to the implementation of the Company’s 2008
      Employee Option Plan. The fair value of the options granted totaled $481,492.
      Effective December 13, 2007, Jeffrey Burke resigned from the Company as
      Executive Vice President.





The
      Company is still in the process of negotiating the final separation agreement
      with Mr. Burke.





Following
      Mr. Morris’ resignation, effective December 16, 2007, the Company appointed
      Bobby Reed to the position of Vice President of Operations. Mr. Reed’s base
      salary was $180,000 per annum. As an employment incentive, Mr. Reed was granted
      stock options to purchase 400,000 shares of the Company’s common stock at fair
      value in the Company’s 2008 option plan when the plan is created and approved.
      For accounting purposes, management has treated the options similar to the
      $1.00
      options previously issued to employees. The options granted vested 10%
      immediately and the remaining 90% vested at the rate of 1/12 th per
      month for twelve months. The fair value of the options granted totaled $184,400.
      Effective April 21, 2008, Mr. Reed’s position was eliminated.





The
      Company has negotiated a separation agreement with Mr. Reed. The separation
      agreement provided for the Company to pay Mr. Reed $13,457 in the form of stock
      on May 1, 2008 (certificate was issued), $13,457 in equal monthly installments
      beginning January 2009, $12,753 on June 30, 2008, $12,423 on July 31, 2008
      and
      $12,423 on August 31, 2008. In addition the severance agreement provides Mr.
      Reed the opportunity to exercise $400,000 of his options that were previously
      granted to him. As of June 30, 2008, the Company has not made an installment
      payment.





During
      the year ended December 31, 2007, the Company suspended the accrual of certain
      salary deferrals, which were provided for in employment agreements, from March
      30, 2007 until the Company began trading on the OTCBB. In addition, all employee
      vacation grants were reduced from four weeks to two weeks. In accordance with
      this policy, deferred salary amounts were not accrued from March 30, 2007 to
      September 1, 2007 and were considered to be forfeited. This action taken by
      the
      Company resulted in a savings of approximately $487,000.





On
      January 4, 2008, the Company issued new employment agreements to all current
      employees. In the employment agreements, the Company accelerated the vesting
      on
      all remaining $1.00 options for these employees. The Company also canceled
      options totaling 400,000 shares equal to the remaining one third of the $0.01
      options held by current employees, related to obtaining senior funding that
      has
      not occurred. In exchange for the canceled options, the Company committed to
      issue 400,000 shares of fully vested replacement options at fair value in the
      Company’s 2008 option plan when the plan is created and approved. As a result of
      the acceleration of the $1.00 options and the cancellation of certain unvested
      $0.01 options and commitment to re-issue an equal number of market value
      options, the Company recorded additional stock based compensation totaling
      $193,000. In addition, during the year ended December 31, 2007, the Company
      achieved a milestone by trading its stock on the OTCBB. This milestone triggered
      the vesting of an additional one third of all outstanding $0.01 options and
      the
      Company recorded additional stock based compensation expense totaling $375,000
      related to this vesting the third quarter of 2007.





During
      the year ended December 31, 2007, and as a result of the issuance of the new
      employment agreements, the Company terminated 17 employees, adjusted the
      salaries of 12 employees, accepted the resignation of six employees whose
      positions were not replaced and cancelled the contract of a consultant. These
      actions are expected to result in additional savings of approximately $3,430,000
      per year. In connection with the above actions, the Company recorded severance
      costs of $1,714,000 during the fourth quarter of 2007. On May 1, 2008, the
      Company issued 1,537,962 shares of restricted stock to ten current and
      ex-employees to further reduce prior liabilities for deferred and unpaid
      salaries.





During
      May 2008, three accounting personnel resigned and in June 2008, the Company
      entered into three Accounting contract agreements for services of a Chief
      Accounting Officer, Senior Accounting Manager, and for Payroll and Sales Tax
      accounting support.




24 OF 43





**Payroll
      and Sales Tax Liabilities**





Automated
      Interiors has not remitted its sales taxes for 2006, 2007 and 2008. In addition,
      the Company and its subsidiaries have not remitted payroll taxes withheld from
      their employees’ checks and the companies’ matching portion to the Internal
      Revenue Service and various state taxing authorities. The Company has accrued
      interest and penalties up to and including June 30, 2008. Sales tax payable
      as
      of June 30, 2008 total $142,254 (including penalties and interest) is included
      in the accompanying balance sheet in the line item “Accounts payable and accrued
      expenses”. Total payroll taxes withheld and Company matching amounts as of June
      30, 2008 totaled $1,704,000 (including penalties and interest of $360,000).
      This
      amount is included in the accompanying balance sheet in the line item “Accrued
      payroll and related taxes”.





These
      liabilities, until paid, will continue to increase by additional penalties
      and
      interest accruals. The Company is currently in negotiations with the taxing
      authorities to establish payment plans. Effective July 1, 2008, all payroll
      taxes are being appropriately withheld per payperiod and the tax deposits are
      being held in a designated payroll account for timely remittance.





**Lease
      Agreements**





***Centennial
      Tower Office Lease Agreement***





On
      October 12, 2005, the Company entered into a 132 month commercial lease
      agreement effective as of November 1, 2005 with Atlanta Centennial, LLC for
      approximately 9,415 square feet of rentable space. The space is located in
      Suite
      2600 on the 26 th floor of
      the Centennial Tower, located at 101 Marietta Street in Atlanta, Georgia and
      is
      used as the Company’s corporate headquarters to house its executives and
      general, clerical and administrative personnel.





Concurrently
      with the execution of the Lease, the Company issued a Fixed Price Secured
      Convertible Note in the principal sum of $250,000 representing an increased
      security deposit requirement bearing simple interest at 9% per annum, payable
      monthly in arrears in cash or registered stock at the Company’s option, from
      December 1, 2005 through the earlier of (a) the maturity date, i.e., June 1,
      2006, (b) the prepayment date, i.e., the date on which the outstanding principal
      amount of the Note is repaid in full prior to the maturity date, or (c) the
      date
      on which the outstanding principal amount of the Note is automatically
      converted.





On
      October 12, 2005, the Company paid $16,476 as deposit on the office space.
      On
      December 14, 2005, the note was converted into 925,927 shares of the Company’s
      common stock valued at $250,000 or $0.27 per share.





The
      lease
      agreement was amended on February 23, 2006, to include expanded rental space
      of
      9,415 square feet, bringing the total rental square feet to 18,800.





***55
      Marietta Street Office Lease Agreements***





On
      February 8, 2007, the Company entered into a Telecom/Office Lease Agreement
      and
      First Amendment to Lease agreement with Bank Building Limited Partnership for
      approximately 12,080 square feet of rentable space located at 55 Marietta Street
      in Atlanta, Georgia.





The
      term
      of the lease commenced on May 1, 2007 and expires on April 30, 2017. An
      improvement allowance of $123,000 has been provided to the Company, of which
      the
      unused portion after May 1, 2008 may be applied to base monthly rental at the
      Company’s sole option.





Under
      this lease, the Company was required to remit to the landlord, upon execution
      of
      the lease, a security deposit in the amount of $17,566 and first month’s rental
      payment in the amount of $8,778. Thereafter, the Company is obligated to make
      monthly rental payments in the amount of $8,778 from May 1, 2007 to February
      28,
      2008; $17,566 from March 1, 2008 to April 30, 2012; and $19,127 from May 1,
      2012
      through termination. In addition to the monthly rent, the Company is responsible
      for its share of the operating expenses, utilities, taxes and other costs and
      expenses associated with the leased premises.




25 OF 43





The
      Company will use this space to operate WDCSN’s network operations, data center,
      broadcast controls, switch site and application development lab. In addition,
      the space shall be utilized by the Company to house its network services billing
      and provisioning departments and for training its current and future
      staff.





Additionally,
      on June 22, 2006, the Company entered into a two-year lease agreement with
      JT
      Communications, LLC for the exclusive right to use a cabinet and the
      non-exclusive right to use the office space located on JT Communications’
premises on the 5 th floor of
      55 Marietta Street in Atlanta, Georgia. The term of the lease commenced on
      July
      1, 2006 and expires on June 30, 2008; however, it is subject to automatic
      renewals for a one-year periods on the same terms and conditions, unless the
      Company notifies JT Communications that it does not want to renew. The Company
      abandoned the office space in May of 2007 and will be responsible for the lease
      through June 30, 2008. As of June 30, 2008, $16,689 is due and payable. The
      Company is currently negotiating a buy-out rate to terminate the lease in its
      entirety.





***ProLogis-Macquarie
      U.S. LLC Office Lease Agreement***





On
      May
      23, 2007, AI entered into a Lease Agreement with ProLogis-Macquarie U.S. LLC
      for
      approximately 11,006 square feet of rentable space located at 5290 Westgate
      Drive Suite B, Atlanta, Georgia 30336. The lease commenced on June 1, 2007
      and
      continues through May 31, 2012. AI planned to use the space to house its
      Logistics Management Center and for training purposes. Under the lease, AI
      is
      obligated to pay base monthly rents of $2,430 per month in the first year,
      $2,503 per month in the second year, $2,579 per month in the third year, $2,656
      per month in the fourth year and $2,736 per month in the fifth year. During
      the
      third quarter of 2007, AI abandoned the space and will be responsible for the
      lease until the space is leased to another party. As of June 30, 2008, the
      amount due and payable is $18,903.




***Landquest
      IV, LLC Office Lease Agreement***





In
      June
      2007, the Company entered into a Lease Agreement with Landquest IV, LLC for
      approximately 2,490 square feet of rentable space located at 3560 Camp Creek
      Parkway, Suite 130, East Point, Georgia 30344. The lease commences in October
      2007 and continues through September of 2012. The Company will use the space
      for
      retail sale of electronic equipment. Under the lease, the Company is obligated
      to pay base monthly rents of $5,810 per month and as of June 30, 2008, there
      is
      no outstanding due and payable amount.




As
      of
      June 30, 2008, approximate future commitments under the Company’s leases are as
      follows:





**Year**
            
            **Amount**2008
            
            $
            414,6382009
            
            
            778,5492010
            
            
            791,3772011
            
            
            804,5952012
            
            
            794,8602013
                through 2017
            
            
            2,789,053Total
            
            $
            6,373,072





Rent
      expense totaled $430,491 and $258,903 for the six months ended June 30, 2008
      and
      2007, respectively.





26 OF 43





**NOTE
      14 – SEGMENT INFORMATION**





In
      accordance with the provisions of SFAS No. 131, “Disclosures about Segments of
      an Enterprise and Related Information”, the Company has elected to report in
      five reportable operating segments, including: (i) Digital Media Group (ii)
      Digital Distribution Group, (iii) Integrated Services Group, (iv) WinSonic
      Diversity Group, and (v) Corporate Group.





As
      further described herein, the Company now combines business and financial
      activity of its various subsidiary companies and operating divisions within
      business segments. The business activity associated with the development,
      marketing and sale of digital media & entertainment products and services of
      WinSonic Digital Media Group, Ltd., and the Store **** are
      combined in the Digital Media Group business segment. The business activity
      of
      WinSonic Digital Cable Systems Network, Ltd. shall comprise the Digital
      Distribution Group business segment. The business activity of Tytess
      Design & Development, LLC and **** Automated
      Interiors, LLC are combined in the Integrated Services Group business segment.
      The business activity of WinSonic Diversity, LLC is represented by the WinSonic
      Diversity Group business segment. The business activities associated with
      corporate management, administration and finance of WinSonic Digital Media
      Group, Ltd are included in the Corporate Group business segment.




The
      following tables summarize segment information for the periods ended June 30,
      2008 and 2007:







**Three Months Ended June 30, 2008****Digital**
            
            **Digital**
            
            **Integrated**
            
            **WinSonic****Media**
            
            **Distribution**
            
            **Services**
            
            **Diversity**
            
            **Corporate****Group**
            
            **Group**
            
            **Group**
            
            **Group**
            
            **Group**
            
            **Total**Revenue
            
            $
            510
            
            $
            -
            
            $
            209,712
            
            $
            -
            
            $
            -
            
            $
            210,222Gross
                profit
            
            
            510
            
            
            (30,057
            )
            
            52,852
            
            
            -
            
            
            -
            
            
            23,305Operating
                expenses
            
            
            113,038
            
            
            2,708
            
            
            130,645
            
            
            481,207
            
            
            879,753
            
            
            1,607,351Loss
                from operations
            
            
            (112,528
            )
            
            (32,765
            )
            
            (77,793
            )
            
            (481,207
            )
            
            (879,753
            )
            
            (1,584,046
            )Net
                loss
            
            
            (112,529
            )
            
            (32,765
            )
            
            (86,836
            )
            
            (492,764
            )
            
            (2,343,943
            )
            
            (3,068,837
            )Total
                assets
            
            
            (592,501
            )
            
            (1,898,199
            )
            
            (65,601
            )
            
            (113,841
            )
            
            5,034,132
            
            
            2,363,990




**Three Months Ended June 30, 2007****Digital**
              
              **Digital**
              
              **Integrated**
              
              **WinSonic****Media**
              
              **Distribution**
              
              **Services**
              
              **Diversity**
              
              **Corporate****Group**
              
              **Group**
              
              **Group**
              
              **Group**
              
              **Group**
              
              **Total**Revenue
              
              $
              4,403
              
              $
              4,000
              
              $
              472,774
              
              $
              -
              
              $
              -
              
              $
              481,177Gross
                  profit
              
              
              1,523
              
              
              (378,874
              )
              
              42,490
              
              
              -
              
              
              -
              
              
              (334,861
              )Operating
                  expenses
              
              
              102,078
              
              
              47,917
              
              
              529,107
              
              
              -
              
              
              1,154,573
              
              
              1,833,675Loss from
                  operations
              
              
              (100,555
              )
              
              (426,791
              )
              
              (486,617
              )
              
              -
              
              
              (1,154,573
              )
              
              (2,168,536
              )Net
                  income (loss)
              
              
              (100,554
              )
              
              (426,792
              )
              
              (488,825
              )
              
              -
              
              
              (2,399,274
              )
              
              (3,415,445
              )Total
                  assets
              
              
              (3,219
              )
              
              (840,884
              )
              
              1,541,725
              
              
              -
              
              
              1,868,568
              
              
              2,566,190


**Six Months Ended June 30, 2008****Digital**
            
            **Digital**
            
            **Integrated**
            
            **WinSonic****Media**
            
            **Distribution**
            
            **Services**
            
            **Diversity**
            
            **Corporate****Group**
            
            **Group**
            
            **Group**
            
            **Group**
            
            **Group**
            
            **Total**Revenue
            
            $
            2,569
            
            $
            -
            
            $
            416,326
            
            $
            -
            
            $
            -
            
            $
            418,895Gross
                profit
            
            
            1,783
            
            
            (197,126
            )
            
            23,306
            
            
            -
            
            
            (1,650
            )
            
            (173,687
            )Operating
                expenses
            
            
            197,343
            
            
            6,664
            
            
            285,948
            
            
            521,767
            
            
            1,934,901
            
            
            2,946,623Loss
                from operations
            
            
            (195,560
            )
            
            (203,790
            )
            
            (262,642
            )
            
            (521,767
            )
            
            (1,936,551
            )
            
            (3,120,310
            )Net
                loss
            
            
            (195,563
            )
            
            (203,790
            )
            
            (281,229
            )
            
            (533,324
            )
            
            (4,429,364
            )
            
            (5,643,270
            )Total
                assets
            
            
            (592,501
            )
            
            (1,898,199
            )
            
            (65,601
            )
            
            (113,841
            )
            
            5,034,132
            
            
            2,363,990





27 OF 43





**Six Months Ended June 30, 2007****Digital**
            
            **Digital**
            
            **Integrated**
            
            **WinSonic****Media**
            
            **Distribution**
            
            **Services**
            
            **Diversity**
            
            **Corporate****Group**
            
            **Group**
            
            **Group**
            
            **Group**
            
            **Group**
            
            **Total**Revenue
            
            $
            7,503
            
            $
            4,000
            
            $
            1,124,181
            
            $
            -
            
            $
            -
            
            $
            1,135,684Gross
                profit
            
            
            3,070
            
            
            (841,096
            )
            
            193,159
            
            
            -
            
            
            -
            
            
            (644,867
            )Operating
                expenses
            
            
            198,594
            
            
            53,292
            
            
            884,888
            
            
            -
            
            
            2,640,897
            
            
            3,777,651Income
                (loss) from operations
            
            
            (195,504
            )
            
            (894,388
            )
            
            (691,729
            )
            
            -
            
            
            (2,640,897
            )
            
            (4,422,518
            )Net
                income (loss)
            
            
            (195,503
            )
            
            (894,388
            )
            
            (695,990
            )
            
            -
            
            
            (4,943,868
            )
            
            (6,729,749
            )Total
                assets
            
            
            (3,219
            )
            
            (840,884
            )
            
            1,541,725
            
            
            -
            
            
            1,868,568
            
            
            2,566,190





**NOTE
      15 - SUBSEQUENT EVENTS**




**Defaults
      on Convertible Debentures**





As
      of
      June 30, 2008, 37 of the Company’s convertible debentures had matured without
      conversion or repayment and were in default totaling $1,193,518 (with no change
      as of August 1, 2008)





**Defaults
      on Note Payable**





As
      of
      July 1, 2008, the Company is in default on the First Philadelphia Group
      (“Group’) loan
      agreement with a group of consultants and former employees for payment of
      services received by the Company during the first quarter of 2008. The amounts
      in default are for the payments (and interest) due for the principal sums of
      $20,134 on June 30, 2008 and $47,003 on July 31, 2008. The Company has been
      in
      discussion with the “Group” stating its intentions to make final payments upon
      funding.





**Stock
      Activity**





During
      July 2008, the Company issued 700,000 shares of its restricted common stock.
      The
      Company issued 100,000 shares on July 23, 2008 for $10,000; 100,000 shares
      on
      July 25, 2008 for $10,000; and then 500,000 shares on July 30, 2008 for $50,000
      all for working capital needs with no associated financing costs as noted above. On
      August
      1, 2008 the Company issued 150,000 shares under a Contract for Software
      Programming Services with JECR, Inc. (see Exhibit 10.14).




**Material
      Agreements**





During
      July 2008, the Company has entered into numerous Memorandum of Understanding
      Agreements (“MOU”) in connection with securing revenue contracts ( hosting
      digital ready service) ,
      developing company business plans, and other business development
      activities.





On
      July
      26, 2008, the Company signed an MOU with Swagg Media Group, Inc. (“Swagg Media”)
      that outlines a “partnership” between the Company and Swagg Media. This MOU
      expresses the parties intentions regarding the establishment of a joint
      marketing program, a technology deployment program, equity investments by the
      parties, and defines the technology and services provided by each party, the
      operational roles and responsibilities, and the first phase
      implementation.





On
      July
      29, 2008, the Company signed an MOU with RainySongs Group, Inc. (“RainySongs”)
      that outlines a potential “partnership” between the Company and RainySongs. This
      MOU expresses the parties intentions to develop, provide and deploy transport,
      applications services, and regulated and unregulated distribution services
      to
      the entertainment industry, and to such other industries or governmental
      agencies mutually agreed to by the parties.




28 OF 43





As
      of
      July 10, 2008, the Company entered into a Consulting Agreement with Burton
      Goldstein & CO., LLC for media and entertainment label and artist business
      development services.





As
      of
      July 30, 2008, the Company entered into a Consulting Agreement with Troy Mathews
      for marketing product evaluation and positioning, SWOT analysis, customer
      analysis by product category, channel/distribution strategy, and other
      go-to-market strategy development.





As
      of
      August 1, 2008, the Company entered into a Software Programming services
      contract with JECR, Inc. (“JECR”); whereby, JECR will provide 3D Social
      Networking Application services preparing for the First User Trial. As part
      of
      the compensation arrangements, the Company is committed to issuing 150,000
      shares of restricted common stock.





On
      August
      6, 2008, the Company entered into a Consulting agreement with IT/ISIS. Under
      Mr.
      Hebert‘s executive leadership, the IT/IS team will provide: (1) additional
      perspectives and insight into the overall goals and objectives driving the
      WDMG
      business plan and how the company might deal with its various corporate
      objectives, and (2) Subject Matter Experts (SMEs) to assist in the overall
      development effort. These SMEs will be available to assist in the
      following:


·
            the
                overall business planning effort


·
            the
                development of the WDMG enterprise and operations
                plan


·
            the
                development of descriptions of the functions and cost factors for
                the
                enterprise


·
            the
                development of a comprehensive financial planning
                model


·
            the
                coordination and integration of the various Component Company
                sub-enterprises


·
            the
                ongoing management consulting
                services





On
      July
      14, 2008, the Company and Hallmark Investments, Inc. terminated the Investment
      Placement Agent agreement;
      whereby, Hallmark would no longer have the exclusivity on securing financing
      for
      the Company. The agreement was deemed null and void as of the signing date
      of
      July 14, 2008.





**Item
      2. Management’s Discussion and Analysis of Financial Condition and Results of
      Operations**





**Forward-Looking
      Statements**





This
      report contains forward-looking statements about our business, financial
      condition and prospects that reflect management’s assumptions and beliefs based
      on information currently available. We can give no assurance that the
      expectations indicated by such forward-looking statements will be realized.
      If
      any of our management’s assumptions should prove incorrect, or if any of the
      risks and uncertainties underlying such expectations should materialize, our
      actual results may differ materially from those indicated by the forward-looking
      statements.





The
      key
      factors that are not within our control and that may have a direct bearing
      on
      operating results include, but are not limited to, acceptance of our services,
      our ability to attract customers, our ability to raise capital, the retention
      of
      key employees and changes in the regulation of our industry.





There
      may
      be other risks and circumstances that management may be unable to predict.
      When
      used in this Interim Report, words such as, “believe,” “expect,” “intend,”
“plan,” “anticipate,” “foresee,” “likely,” “will,” “goal,” “target,” “estimate”
and similar expressions are intended to identify forward-looking statements,
      as
      defined in Section 21E of the Securities Exchange Act of 1934, although there
      may be certain forward-looking statements not accompanied by such expressions.





**Segment
      Reporting Disclosures**





In
      accordance with the provisions of SFAS No. 131, “Disclosures about Segments of
      an Enterprise and Related Information”, the Company has elected to report in
      five reportable operating segments, including: (i) Digital Media Group (ii)
      Digital Distribution Group, (iii) Integrated Services Group, (iv) WinSonic
      Diversity Group, and (v) Corporate Group.




29 OF 43





As
      further described herein, the Company now combines business and financial
      activity of its various subsidiary companies and operating divisions within
      business segments. The business activity associated with the development,
      marketing and sale of digital media & entertainment products and services of
      WinSonic Digital Media Group, Ltd., and the Digital Store are combined in the
      Digital Media Group business segment. The business activity of WinSonic Digital
      Cable Systems Network, Ltd. shall comprise the Digital Distribution Group
      business segment. The business activity of Automated
      Interiors, LLC and Tytess
      Design & Development, LLC are
      combined in the Integrated Services Group business segment. The business
      activity of WinSonic Diversity, LLC is represented by the WinSonic Diversity
      Group business segment. The business activities associated with corporate
      management, administration and finance of WinSonic Digital Media Group, Ltd.
      are
      included in the Corporate Group business segment.





The
      diagram below depicts the Company’s segment structure.





**Business Segment Group**
            
            **Business Unit**Digital
                Media Group
            
            ·WinSonic
                Digital Media Group, Ltd.
              ·WinSonic
                Digital Store, LLCDigital
                Distribution Group
            
            ·WinSonic
                Digital Cable Systems Network, Ltd.Integrated
                Services Group
            
            ·Automated
                Interiors, LLC
              ·Tytess
                Design & Development, LLCWinSonic
                Diversity Group
            
            ·WinSonic
                Diversity, LLCCorporate
                Group
            
            ·WinSonic
                Digital Media Group, Ltd.
              ·Intercompany
                Eliminations





As
      a
“development stage company” the Company has not commenced material commercial
      operations. As of June 30, 2008, the Company has recorded $2,761,196 of revenue
      since inception. During the three and six month periods ended June 30, 2008,
      the
      consolidated operations of the Company combined with WDCSN, Automated Interiors,
      Tytess and the Digital Store yielded revenue of $210,222 and $418,895,
      respectively.





**General**





The
      2007
      fiscal year was a year of transition for us as we integrated the various
      companies we acquired and/or merged with during prior periods, continued the
      development of our Digital Media Group product offerings, restructured certain
      of our senior management team and raised additional working capital to continue
      to fund our operations for the period.





Based
      on
      the actions taken in 2007, we believe we are now positioned in 2008 to
      capitalize on our relationships in the entertainment and communication
      industries to own and control the digital rights and distribution of as much
      music and video content as possible. In addition, we plan to leverage our
      preferential communication licenses, interconnection, co-location, and wholesale
      pricing agreements with global service providers to reliably and cost
      effectively distribute its digitally formatted voice, video and data products
      and services. We also plan to fully protect our developing intellectual property
      and Internet–based browser applications and once ready for market, allow us to
      capitalize on the rapidly expanding social networking, virtual reality and
      e-commerce markets.





**Consolidated
      Results of Operations**





The
      following table includes the consolidated information for the operations of
      the
      Company for the three and six month periods ended June 30, 2008 and 2007:




30 OF 43





**Three Months Ended June 30,**
            
            **Six Months Ended June 30,****2008**
            
            **2007**
            
            **2008**
            
            **2007**(Unaudited)
            
            (Unaudited)
            
            (Unaudited)
            
            (Unaudited)Revenue
            
            $
            210,222
            
            $
            481,177
            
            $
            418,895
            
            $
            1,135,684Gross
                profit
            
            
            23,305
            
            
            (334,861
            )
            
            (173,687
            )
            
            (644,867
            )Expenses
            
            
            1,607,351
            
            
            1,833,675
            
            
            2,946,623
            
            
            3,777,651Operating
                loss
            
            
            (1,584,046
            )
            
            (2,168,536
            )
            
            (3,120,310
            )
            
            (4,422,518
            )Other
                income/(expense), net
            
            
            (1,484,791
            )
            
            (1,246,909
            )
            
            (2,522,960
            )
            
            (2,307,231
            )Net
                loss
            
            
            (3,068,837
            )
            
            (3,415,445
            )
            
            (5,643,270
            )
            
            (6,729,749
            )Loss
                per basic and diluted common share
            
            $
            (0.04
            )
            $
            (0.07
            )
            $
            (0.07
            )
            $
            (0.14
            )





Consolidated
      results of operations for the three months ended June 30, 2008 generated
      $210,222 in revenues, representing a 56% decrease from the reported $481,177
      in
      revenues for the same period in 2007. Of the 2008 amount, $207,000, or 99%
      of
      total revenues, was derived from our Integrated Services Group activities
      consisting of and Automated Interiors and Tytess which was comparable to the
      same period in 2007. The decrease in revenues for the three months ended June
      30, 2008 as compared to the same period in 2007 is related to suspending all
      work on construction projects for Tytess and a decrease in revenues for
      Automated Interiors. For the three months ended June 30, 2007, Tytess generated
      $243,919 in revenue and none for the same period in 2008. Automated Interiors
      revenues primarily remained the same quarter over quarter and year over year
      for
      the same time, but AI still faces the cash flow and staffing challenges that
      have prevented it from being able to complete jobs to allow for greater revenue
      recognition in 2008.





The
      aggregate net loss for the six months ended June 30, 2008 was $5,643,270
      compared to a loss of $6,729,749 for the same period in 2007. Of this 2008
      amount, $281,229, or 5% of the total, was derived from our Integrated Services
      Group. The balance was generated through our (1) Digital Media Group which
      generated a loss of $195,563 of the total (2) our Digital Distribution Network
      Group, which generated a loss of $203,790, of the total, (3) our WinSonic
      Diversity Group, which generated a loss of $533,324 and (4) our Corporate Group
      which generated a loss of $4,429,364.





***Operating
      Expenses***





As
      further detailed below, $2,946,623 in the operating expenses for the six months
      ended June 30, 2008, includes $1,108,915 in non-cash accruals and one-time
      items
      (bad debt expense, stock-based compensation, consulting and depreciation).
      With
      the termination of certain personnel during the fourth quarter of 2007 and
      first
      quarter of 2008, adjustment of salaries on a going-forward basis and the
      elimination of certain non-essential expenses, the current plan for monthly
      average operating expense is estimated to be $240,000, prior to legal expenses
      and audit retainers, which would be a decrease from the 2007 monthly average
      of
      $915,000. Operating expenses slightly increased from first quarter 2008 by
      $268,079 to $1,607,351 for the three months ended June 30, 2008, but compared
      to
      $1,833,675 for the same period in the prior year, representing a decrease of
      12%. The decrease was comprised of a decrease in payroll expense related to
      SG&A, offset by research and development expenses, depreciation and
      amortization expense, as further discussed below.




31 OF 43





A
      breakdown of consolidated operating expenses for the three and six month periods
      ended June 30, 2008 and 2007 is set forth below.





**Three Months Ended June 30,**
            
            **Six Months Ended June 30,****2008**
            
            **2007**
            
            **2008**
            
            **2007**(Unaudited)
            
            (Unaudited)
            
            (Unaudited)
            
            (Unaudited)Operating
                ExpensesSelling,
                general and administrative
            
            $
            1,008,158
            
            $
            1,068,151
            
            $
            2,054,156
            
            $
            2,146,345Research
                and development
            
            
            116,197
            
            
            19,406
            
            
            77,174
            
            
            19,406Payroll
                expense - SG&A
            
            
            428,070
            
            
            679,219
            
            
            704,862
            
            
            1,472,329Payroll
                expense - R&D
            
            
            39,023
            
            
            54,957
            
            
            78,046
            
            
            115,410Depreciation
                and amortization expense
            
            
            15,903
            
            
            11,942
            
            
            32,385
            
            
            24,161Total
                Operating Expenses
            
            $
            1,607,351
            
            $
            1,833,675
            
            $
            2,946,623
            
            $
            3,777,651





*Selling,
      general and administrative expense*





SG&A
      expense decreased by $92,189 for the six months ended June 30, 2008 compared
      to
      the same period in 2007, primarily related to non-cash items for decreases
      in
      deferred compensation and general office expenses.




Included
      in SG&A expense for the six months ended June 30, 2008 is bad debt expense
      of $509,431. Bad debt expense is a non-cash expense item, related to the
      recognition of uncollectible accounts receivable for Automated Interiors.





*Research
      and development expense*





R&D
      expenses for the six months ended June 30, 2008 were related to the Digital
      Media Group activities, including consulting costs, in preparation of the
      planned commercial launch of our social networking web environment.





*Payroll
      expense – SG&A and R&D*





Payroll
      expense decreased $2,739,835 during the six months ended June 30, 2008 compared
      to the same period in 2007. The decrease is related to a decrease in stock
      based
      compensation and an overall decrease in employees due to initiatives begun
      in
      the last half of 2007 and up through second quarter 2008.





Monthly
      payroll expense averaged $328,000 for the year-ended December 31, 2007 and
      for
      the last two quarters of 2007 the average was approximately $264,000 per month.
      The average was lower towards the end of the year due to the elimination of
      certain personnel and the elimination of the deferred payroll accrual. Payroll
      and payroll related expenses are $783,000 for the first two quarters of 2008
      (trending toward a monthly average of $135,000), due to the personnel changes
      and the adjustment of salaries that was implemented on January 4, 2008.





SFAS
      123(R) requires the Company to recognize expense for the fair value of the
      options granted over the vesting period as additional payroll expense. Pursuant
      to SFAS 123(R), the Company recognizes the expense of employee incentive options
      that vest during the reporting period.  Stock based compensation, a
      non-cash expense, incurred during the six months ended June 30 , 2008 was
      $374,040 compared with $1,085,070 for the same period in the prior year. On
      January 4, 2008, the Company issued new offer letters to all current employees.
      Pursuant to the offer letters, the Company accelerated the vesting on all
      remaining stock options with an exercise price of $1.00 for these employees.
      The
      Company also canceled stock options exercisable into up to 400,000 shares of
      common stock with an exercise price of $0.01 because the Company had not
      obtained the senior funding necessary for such stock options to become
      exercisable. In exchange for the canceled stock options, the Company committed
      to issue 400,000 shares of fully vested stock options pursuant to the Company’s
      2008 option plan when the plan is established and approved. All options granted
      prior to that date were fully vested and expensed as of December 31, 2007.
      The
      expense for options that have vested during the six months ended June 30, 2008
      relate only to the options that have been granted subsequent to December 31,
      2007.





32 OF 43





*Depreciation
      and amortization*





Depreciation
      and amortization expense for the three months ended June 30, 2008 totaled
      $15,903 compared to $35,217 for the same period in 2007 and is a non-cash
      expense related to historical capital asset purchases. The increase relates
      to
      additional capital asset purchases in 2007 and during the first quarter of
      2008 ***.*** Depreciation associated with WDCSN has been reclassified and in the Cost of
      Operations of $42,558 for the six months ending June 2008.





***Other
      Income/(Expense)***





Other
      income/(expense) totaled $1,484,791 for the three months ended June 30, 2008
      compared to $1,246,909 during the same period in 2007. Other income/(expense)
      was comprised of primarily non-cash items. The consolidated breakdown of other
      income/(expense) for the three months ended June 30, 2008 and 2007 is provided
      for below.





**Three Months Ended June 30,**
            
            **Six Months Ended June 30,****2008**
            
            **2007**
            
            **2008**
            
            **2007**(Unaudited)
            
            (Unaudited)
            
            (Unaudited)
            
            (Unaudited)Other
                income/(expense):Interest
                expense
            
            $
            (1,496,467
            )
            $
            (1,000,705
            )
            $
            (2,569,924
            )
            $
            (2,396,768
            )Interest
                expense - related party
            
            
            (3,640
            )
            
            (38,991
            )
            
            (7,356
            )
            
            (84,346
            )Legal
                settlement clost
            
            
            -
            
            
            (60,000
            )
            
            -
            
            
            (60,000
            )Unrealized
                gain on adjustment of derivative and warrant liability to fair value
                of
                underlying securities
            
            
            15,320
            
            
            (147,213
            )
            
            54,325
            
            
            233,883Other
                Expense
            
            
            (4
            )
            
            -
            
            
            (5
            )
            
            -Total
                other income/(expense)
            
            $
            (1,484,791
            )
            $
            (1,246,909
            )
            $
            (2,522,960
            )
            $
            (2,307,231
            )





Interest
      expense and related-party interest expense totaled $1,500,107 during the three
      months ended June 30, 2008 compared to $1,039,696 during the same period in
      2007
      and is comprised of non-cash items. The interest expense relates to the required
      accounting treatment for discounted convertible debt with detachable warrants
      and shares or additional warrants issued in connection with financing
      transactions. The increase is related to higher finance costs related to shares
      issued in financing transactions offset by lower accretion of the discount
      on
      convertible debt with detachable warrants.





Under
      GAAP, the Company is required to record the warrants and the embedded derivative
      of the related convertible debentures as liabilities. Changes in the value
      of
      these liabilities are reflected on the Company’s income statement as
“ *Unrealized
      gain (loss) on adjustment of derivative and warrant liability to fair value
      of
      underlying securities.* ”
For
      the
      three months ended June 30, 2008 the Company recorded an unrealized gain of
      $15,320 compared to an unrealized gain of $(147,213) for the same period in
      2007
      from the adjustment of these liabilities. The increase in gain for the three
      months ended June 30, 2008 compared to the same period in 2007 is related to
      the
      prior year had liability adjustments during that period.





Management
      of the Company expects that, due to the volatile nature of the price of the
      Company’s common stock price, the Company’s derivative and warrant liabilities
      will be correspondingly volatile and, as a result, will cause the reported
      net
      income (loss) of the Company to fluctuate in such a manner as to make direct
      comparisons, between reporting periods, difficult. Therefore as long as the
      derivative and warrant liabilities exist, the reported operating income (loss)
      should be a more accurate reference for the true performance of the Company.




33 OF 43





The
      table
      below identifies the consolidated total expenses and totals other
      income/(expense) by cash and non-cash expenses.





**Three Months Ended June 30, 2008**
            
            **Three Months Ended June 30, 2007****Unaudited**
            
            **Cash**
            
            **Non-Cash**
            
            **Total**
            
            **Cash**
            
            **Non-Cash**
            
            **Total**Total
                expenses
            
            $
            845,702
            
            $
            761,649
            
            $
            1,607,351
            
            $
            1,305,945
            
            $
            527,730
            
            $
            1,883,675Total
                other income/(expense)
            
            
            (4
            )
            
            (1,484,787
            )
            
            (1,484,791
            )
            
            -
            
            
            (1,246,909
            )
            
            (1,246,909
            )Total
            
            $
            845,706
            
            $
            2,246,436
            
            $
            3,092,142
            
            $
            1,305,945
            
            $
            1,774,639
            
            $
            3,080,584





**Six Months Ended June 30, 2008**
            
            **Six Months Ended June 30, 2007****Unaudited**
            
            **Cash**
            
            **Non-Cash**
            
            **Total**
            
            **Cash**
            
            **Non-Cash**
            
            **Total**Total
                expenses
            
            $
            1,837,708
            
            $
            1,108,915
            
            $
            2,946,623
            
            $
            2,579,279
            
            $
            1,198,372
            
            $
            3,777,651Total
                other income/(expense)
            
            
            (5
            )
            
            (2,522,955
            )
            
            (2,522,960
            )
            
            -
            
            
            (2,307,231
            )
            
            (2,307,231
            )Total
            
            $
            1,837,713
            
            $
            3,631,870
            
            $
            5,469,583
            
            $
            2,579,279
            
            $
            3,505,603
            
            $
            6,084,882





**Business
      Segment Results of Operations**





The
      following tables include the separate and consolidated business segment
      information for the operations of the Company for the three and six month
      periods ended June 30, 2008 and 2007:





**Three
                Months Ended June 30, 2008****Digital**
            
            **Digital**
            
            **Integrated**
            
            **WinSonic**(Unaudited)
            
            **Media**
            
            **Distribution**
            
            **Services**
            
            **Diversity**
            
            **Corporate****Group**
            
            **Group**
            
            **Group**
            
            **Group**
            
            **Group**
            
            **Total**Revenue
            
            $
            510
            
            $
            -
            
            $
            209,712
            
            $
            -
            
            $
            -
            
            $
            210,222Gross
                profit
            
            
            510
            
            
            (30,057
            )
            
            52,853
            
            
            -
            
            
            -
            
            
            23,305Operating
                expenses
            
            
            113,038
            
            
            2,708
            
            
            130,645
            
            
            481,207
            
            
            879,753
            
            
            1,607,351Loss
                from operations
            
            
            (112,528
            )
            
            (32,765
            )
            
            (77,793
            )
            
            (481,207
            )
            
            (879,753
            )
            
            (1,584,046
            )Net
                loss
            
            
            (112,529
            )
            
            (32,765
            )
            
            (86,836
            )
            
            (492,764
            )
            
            (2,343,943
            )
            
            (3,068,837
            )





**Three Months Ended June 30, 2007****Digital**
            
            **Digital**
            
            **Integrated**
            
            **WinSonic****Media**
            
            **Distribution**
            
            **Services**
            
            **Diversity**
            
            **Corporate****Group**
            
            **Group**
            
            **Group**
            
            **Group**
            
            **Group**
            
            **Total**Revenue
            
            $
            4,403
            
            $
            4,000
            
            $
            472,774
            
            $
            -
            
            $
            -
            
            $
            481,177Gross
                profit
            
            
            1,523
            
            
            (378,874
            )
            
            42,490
            
            
            -
            
            
            -
            
            
            (334,861
            )Operating
                expenses
            
            
            102,078
            
            
            47,917
            
            
            529,107
            
            
            -
            
            
            1,154,573
            
            
            1,833,675Loss from
                operations
            
            
            (100,555
            )
            
            (426,791
            )
            
            (486,617
            )
            
            -
            
            
            (1,154,573
            )
            
            (2,168,536
            )Net
                income (loss)
            
            
            (100,554
            )
            
            (426,792
            )
            
            (488,825
            )
            
            -
            
            
            (2,399,274
            )
            
            (3,415,445
            )




**Six
                  Months Ended June 30, 2008****Digital**
              
              **Digital**
              
              **Integrated**
              
              **WinSonic****Media**
              
              **Distribution**
              
              **Services**
              
              **Diversity**
              
              **Corporate****Group**
              
              **Group**
              
              **Group**
              
              **Group**
              
              **Group**
              
              **Total**Revenue
              
              $
              2,569
              
              $
              -
              
              $
              416,326
              
              $
              -
              
              $
              -
              
              $
              418,895Gross
                  profit
              
              
              1,783
              
              
              (197,126
              )
              
              23,306
              
              
              -
              
              
              (1,650
              )
              
              (173,687
              )Operating
                  expenses
              
              
              197,343
              
              
              6,664
              
              
              285,948
              
              
              521,767
              
              
              1,934,901
              
              
              2,946,623Loss from
                  operations
              
              
              (195,560
              )
              
              (203,790
              )
              
              (262,642
              )
              
              (521,767
              )
              
              (1,936,551
              )
              
              (3,120,310
              )Net
                  income (loss)
              
              
              (195,563
              )
              
              (203,790
              )
              
              (281,229
              )
              
              (533,324
              )
              
              (4,429,364
              )
              
              (5,643,270
              )
  
 **Six
                  Months Ended June 30, 2007****Digital**
              
              **Digital**
              
              **Integrated**
              
              **WinSonic****Media**
              
              **Distribution**
              
              **Services**
              
              **Diversity**
              
              **Corporate****Group**
              
              **Group**
              
              **Group**
              
              **Group**
              
              **Group**
              
              **Total**Revenue
              
              $
              7,053
              
              $
              4,000
              
              $
              1,124,181
              
              $
              -
              
              $
              -
              
              $
              1,135,684Gross
                  profit
              
              
              3,070
              
              
              (841,096
              )
              
              193,159
              
              
              -
              
              
              -
              
              
              (644,867
              )Operating
                  expenses
              
              
              198,574
              
              
              53,292
              
              
              884,888
              
              
              -
              
              
              2,640,897
              
              
              3,777,651Loss from
                  operations
              
              
              (195,504
              )
              
              (894,388
              )
              
              (691,729
              )
              
              -
              
              
              (2,640,897
              )
              
              (4,422,518
              )Net
                  income (loss)
              
              
              (195,503
              )
              
              (894,388
              )
              
              (695,990
              )
              
              -
              
              
              (4,943,868
              )
              
              (6,729,749
              )


34 OF 43





**Digital
      Media Group**





For
      the
      three months ended June 30, 2008, Digital Media Group included the operations
      of
      the Digital Store and the R&D
      activities related to the Digital Media Group’s preparation of the planned
      commercial launch of its social networking web environment. The increase in
      operating expenses for the Digital Media Group is primarily related to the
      increase in R&D activities.





**Digital
      Distribution Group**





During
      late 2006, the Company accelerated its preparation to begin full operation
      of
      its Network. The costs incurred during the three months ended June 30, 2008
      represent the personnel and facilities costs associated with those efforts.
      Since the Network did not achieve full operations in 2007, the Company
      eliminated certain non-essential personnel during 2007. In addition, on January
      4, 2008, the Company implemented further personnel changes and made certain
      salary adjustments to further cut the costs associated with the Digital
      Distribution Group. These cost reductions are reflected in the operating
      expenses for the three months ended June 30, 2008 .
      The
      Company will increase personnel, as needed, when the Digital Distribution Group
      becomes fully operational.





**Integrated
      Services Group**




The
      decrease in revenues for the three months ended June 30, 2008 as compared to
      the
      same period in 2007 is related to suspending all work on construction projects
      for Tytess and a decrease in revenues for Automated Interiors. For the three
      months ended June 30, 2007, Tytess generated $243,919 in revenue and none for
      the same period in 2008. Automated Interiors revenues primarily remained the
      same quarter over quarter and year over year for the same time, but AI still
      faces the cash flow and staffing challenges that have prevented it from being
      able to complete jobs to allow for greater revenue recognition in 2008.


The
      decrease in revenues for Tytess has been a result of construction being halted
      due to projected cost over-runs and the expanded completion time frames
      estimated to perform the contracts. Since Tytess uses the percentage of
      completion method for revenue recognition, no further revenue could be
      recognized until construction resumes, which has not happened. In addition,
      Automated Interiors encountered a slow-down during the last half of 2007 in
      its
      revenue due to cash flow and staffing challenges and has been unable to complete
      jobs to allow for revenue recognition. The situation has continued in 2008.
      Since Automated Interiors recognizes revenue on the completed contract method,
      it is necessary to complete the project to recognize any revenue associated
      with
      the project, regardless of how close to completion the project actually is
      or
      how much cash has actually been received on the project.





The
      gross
      margin for Automated Interiors for the three months ended June 30, 2008 was
      $52,853 and significantly improved over first quarter 2008 negative gross margin
      of $29,547. Although Automated Interiors continues to have cash flow and
      staffing challenges which have not allowed it to timely complete jobs to allow
      for revenue recognition, the margin is improving along with the accounting
      procedures and controls..





Total
      operating costs have decreased for the three months ended June 30, 2008 compared
      to the same period in 2007. The decrease is primarily comprised of $66,000
      for
      Tytess and the balance is related to Automated Interiors. Since Tytess has
      suspended all work on its construction projects, the Company has terminated
      all
      general and administrative employees and eliminated all related costs. The
      decrease for Automated Interiors is mainly comprised by a decrease in payroll
      and related employee expenses. Payroll and related expenses have decreased
      due
      to certain personnel changes and the adjustment of salaries that was implemented
      on January 4, 2008.





**WinSonic
      Diversity Group**





WinSonic
      Diversity Group began operations in the second quarter of 2007. Its operating
      expenses for the three months ended June 30, 2008 consisted of occupancy costs
      under a sublease with the Corporate Group totaling $20,000 and certain
      consulting costs totaling $20,000.





35 OF 43





**Corporate
      Group**





The
      Corporate business segment includes all indirect costs of our operations,
      including costs associated with executive management, business development,
      administration, finance, insurance, office facilities and human
      resources. ****





Operating
      expenses for the Corporate Group decreased by $288,000 during the three months
      ended June 30, 2008 compared to the same period in 2007. The decrease was
      primarily related to a decrease in reduction in payroll and various minor
      decreases in office related supplies and services in other expense
      items.





On
      January 4, 2008, the Company issued new offer letters to all current employees.
      Pursuant to the offer letters, the Company accelerated the vesting on all
      remaining stock options with an exercise price of $1.00 for these employees.
      The
      Company also canceled stock options exercisable into up to 400,000 shares of
      common stock with an exercise price of $0.01 because the Company had not
      obtained the senior funding necessary for such stock options to become
      exercisable. In exchange for the canceled stock options, the Company committed
      to issue 400,000 shares of fully vested stock options pursuant to the Company’s
      2008 option plan when the plan is established and approved. All options granted
      prior to that date were fully vested and expensed as of December 31, 2007.
      The
      expense for options that have vested during the three months ended June 30,
      2008
      relate only to the options that have been granted subsequent to December 31,
      2007.





**Liquidity
      and Capital Resources**





The
      Company had a working capital deficit of $15,748,801 as of June 30, 2008,
      compared to a deficit of $15,754,643 as of December 31, 2007.





If
      the
      Company is unable to generate sufficient sustainable revenues or obtain
      additional financing to meet its financial obligations, it will have to further
      reduce its operations, and the Company will not be able to continue as a going
      concern. The Company’s independent accountants have indicated in their report
      for the year ended December 31, 2007 that there is substantial doubt about
      the
      Company’s ability to continue as a going concern without increased revenues and
      additional financing.





During
      the six months ended June 30, 2008, the Company used $1,082,547 in its
      operating activities, compared with $898,952 for the same period in 2007.





During
      the six months ended June 30, 2008 the Company’s investing activities used
      $83,833 for the purchase of fixed assets, compared to $33,247 for the same
      period in 2007.





During
      the six months ended June 30, 2008 the Company’s financing activities
      generated $1,110,939 compared to $937,008 for the same period in 2007. The
      funds
      generated from the Company’s financing activities during the six months
      ended June 30, 2008 consists primarily of proceeds from loans payable of
      $692,792, proceeds from Company’s
      common stock of $307,106, and an increase in the bank overdraft in the amount
      of
      $72,602. For the same period in 2007, the Company raised $40,000 from loans
      payable, $300,333 from loans payable – related party (net of repayments),
      proceeds from share notes of $553,000, and an increase in the bank overdraft
      in
      the amount of $62.023.





From
      inception, the Company has raised $10,078,640 to fund operations.  Of the
      total funds raised, $8,357,954 was used to provide the necessary resources
      for
      the development stage operations of the Company and $1,701,723 was used to
      purchase fixed assets. The funds include $5,445,7721 which was raised through
      convertible debentures and warrants, $2,252,881 which was raised through loans
      (net of repayments), and $72,602 from an increase in the bank overdraft. 
The Company also raised $2,307,206 from the issuance of common stock.





During
      the six months ended June 30, 2008 the Company’s net cash position
      decreased by $55,441.





During
      the remainder of 2008, the Company anticipates the monthly cash requirements
      will be at least $240,000, excluding legal and auditing fees. The Company
      is in the process of negotiating funding to meet these requirements. There
      can
      be no assurance; however, that the Company will be able to obtain this funding
      or as to the terms of any such funding.




36 OF 43




**Continuing
      Operations**




The
      markets in which the Company operates include a large number of companies
      competing for customers and market share both domestically and internationally.
      The Company’s competitors include other digital service providers, home
      automation companies, and architectural and design firms. Some of the Company’s
      competitors may develop competing products and services that offer better
      pricing or that reach the market in advance of the Company’s offerings. Some
      competitors also have or may develop greater financial and other resources
      than
      the Company, with enhanced ability to compete for market share, in some
      instances through significant economic incentives to secure contracts. Some
      also
      may be better able to compete for skilled professionals. Any of these factors
      could have an adverse effect on the Company’s business. Future results will
      depend on the Company’s ability to mitigate the effects of aggressive
      competition on revenues, pricing and margins and on the Company’s ability to
      attract and retain talented people.





The
      Company’s future results will depend in part on the success of its ability to
      profitably grow revenues under existing contracts and to control costs through
      the development and use of low-cost subcontractors, partnering and sourcing
      models. The Company’s current contracts are multiyear engagements under which
      the Company will provide project management, site construction, architectural
      and engineering services, and installation services for larger digital service
      providers. The planned expansion includes, among other things, commercial
      operations where the Company will deliver digital services across several
      platforms, the integration and continued growth of Automated Interiors, Tytess,
      WinSonic Diversity and the Digital Store. With potential joint ventures, such
      as
      NATVN, the Company’s facilities-based network and current service contracts are
      expected to provide a base of recurring revenue. The Company will need to have
      available sufficient financial resources in order to take on these obligations
      and make these investments.





The
      Company has, to date, focused almost exclusively upon the startup phase of
      its
      operations. To that end, management has focused on identifying and retaining
      key
      employees to provide the support necessary as operations move to revenue
      generation and expansion. The Company’s priorities for the next year of
      operations are to expand our human resources to adequately service our existing
      contracts and to reach a sustainable profitability level. As we expand our
      operations with the expectation of growing revenue from our activities, we
      may
      elect to hire additional salaried or hourly employees to operate certain aspects
      of our business.





While
      management expects revenue generation to increase, the Company expects to
      operate with a deficit in cash flows for the next few months. The deficit,
      which
      arises primarily from payroll obligations, may be satisfied through a
      combination of employee salary deferrals and through cash raised primarily
      from
      the placement of the Company’s securities (either directly or through
      convertible debt offerings).





Management
      intends to focus substantial efforts on the funding of the current projects
      and
      operational deficit during the next few months. The funding effort will proceed
      at the same time as commercial operations continue. The Company believes that
      the current management team has the applicable skills to handle the challenge
      of
      covering the cash deficit and developing profitable operations. There is no
      guarantee that any such financings can be obtained or, if obtained, that such
      financings will be on adequate or reasonable terms.





**Critical
      Accounting Policies**





Basis
      of Accounting





The
      Company's policy is to prepare its financial statements pursuant to the accrual
      basis of accounting. The Company’s year end is December 31.





Use
      of
      Estimates





The
      preparation of financial statements in conformity with generally accepted
      accounting principles requires management to make estimates and assumptions
      that
      affect the reported amounts of assets and liabilities and disclosures of
      contingent assets and liabilities at the date of the financial statements and
      the reported amounts of revenue and expense during the reported period. Actual
      results could differ from those estimates.




37 OF 43




Stock
      Based Compensation





In
      December 2004, the FASB issued SFAS No. 123(R), “Share-Based Payment,” which
      establishes standards for transactions in which an entity exchanges its equity
      instruments for goods or services. This standard replaces SFAS No. 123 and
      supersedes APB Opinion No. 25, “Accounting for Stock-based compensation.” This
      standard requires a public entity to measure the cost of employee services
      received in exchange for an award of equity instruments based on the grant-date
      fair value of the award. This eliminates the exception to account for such
      awards using the intrinsic method previously allowable under APB Opinion No.
      25.
      SFAS No. 123(R) will be effective for interim or annual reporting periods
      beginning on or after June 15, 2005.





For
      stock
      options and warrants issued as compensation and reported in periods beginning
      after December 15, 2005, the Company applies SFAS No. 123(R), “Share-Based
      Payment,” which requires the recognition of compensation cost based upon the
      fair value of stock options at the grant date (using option pricing models),
      and
      recognizing the cost over the period during which the services are provided
      (vesting period).





During
      the three months ended June 30, 2008 and 2007, the Company committed to issue
      options to employees for 0 and 635,108 shares of common stock, respectively.
      The
      fair value of the options granted during the three months ended June 30, 2008
      and 2007 was $0 and 2,833, respectively. The Company recorded compensation
      expense of $151,077 for June 30, 2008 related to the vesting of the Company’s
      outstanding options. The balance of the options granted will be included in
      the
      Company’s 2008 Employee option plan and will have terms and conditions
      determined under that plan.





On
      January 4, 2008, the Company issued new offer letters to all current employees.
      Pursuant to the offer letters, the Company accelerated the vesting on all
      remaining stock options with an exercise price of $1.00 for these employees.
      The
      Company also canceled stock options exercisable into up to 400,000 shares of
      common stock with an exercise price of $0.01 because the Company had not
      obtained the senior funding necessary for such stock options to become
      exercisable. In exchange for the canceled stock options, the Company committed
      to issue 400,000 shares of fully vested stock options pursuant to the Company’s
      2008 option plan when the plan is established and approved. As a result of
      the
      acceleration of the stock options with an exercise price of $1.00 and the
      cancellation of certain unvested stock options with an exercise price of $0.01,
      and the commitment to issue an equal number of new stock options, the Company
      recorded additional stock based compensation totaling $193,000 and was reflected
      as additional payroll expense in the fourth quarter of 2007.





Revenues
      and Expenses Recognition





The
      Company is a development stage company and has not had significant revenues
      to
      date. Revenues for the Company are recognized upon rendering services to
      customers. Costs and expenses are recognized during the period in which they
      are
      incurred





Within
      the Company’s Integrated Services business segment, Tytess has elected to
      recognize revenue on a percentage of contract completion method. This method
      requires Tytess to do progress billings based upon completion of preset
      milestones. Revenues and expenses for each milestone are recognized as each
      milestone has been completed.





In
      addition, within the Company’s Integrated Services business segment, Automated
      Interiors has elected to recognize revenue on a completed contract method.
      The
      completed contract **** method
      requires Automated Interiors to defer revenue and expense recognition until
      the
      contract has been substantially completed. Management has determined that the
      completed contract method of accounting more accurately reflects the nature
      of
      Automated Interiors’ business. Due to the volatile nature of electronic
      components, significant uncertainty may exist with respect to the total cost
      of
      performing a contract and the ultimate amount of profit to be recognized
      thereon. Automated Interiors has developed criteria for determining whether
      a
      project should be recorded as a sale. The criteria for recording a sale are
      that
      the installation has been completed, all costs of design and installation have
      been accrued or paid and there are no material contingent obligations
      outstanding.





In
      connection with the utilization of the completed contract method of revenue
      recognition for the consolidated financial statements, Automated Interiors
      maintains a work in progress account for costs of jobs in progress. All costs
      directly associated with the completion of a contract are accumulated as charges
      to construction in progress prior to completion of the jobs. Upon completion
      of
      a contract, all related costs charged to construction in progress are
      transferred to cost of goods sold.




38 OF 43





Within
      the Company’s Digital Media business segment, revenues for the Digital Store are
      recognized upon rendering services to customers. Costs and expenses are
      recognized during the period in which they are incurred.





Recently
      Issued Accounting Pronouncements





In
      March
      2008, the FASB issued SFAS No. 161, “Disclosures about Derivative
      Instruments and Hedging Activities – an amendment of FASB Statement No. 133,”
(SFAS “161”) as amended and interpreted, which requires enhanced disclosures
      about an entity’s derivative and hedging activities and thereby improves the
      transparency of financial reporting. Disclosing the fair values of derivative
      instruments and their gains and losses in a tabular format provides a more
      complete picture of the location in an entity’s financial statements of both the
      derivative positions existing at period end and the effect of using derivatives
      during the reporting period. Entities are required to provide enhanced
      disclosures about (a) how and why an entity uses derivative instruments, (b)
      how
      derivative instruments and related hedged items are accounted for under
      Statement 133 and its related interpretations, and (c) how derivative
      instruments and related hedged items affect an entity’s financial position,
      financial performance, and cash flows. SFAS No. 161 is effective for financial
      statements issued for fiscal years and interim periods beginning after November
      15, 2008. Early adoption is permitted.




At
      June
      30, 2008, the Company did not have any derivative instruments or hedging
      activities .




**Off-Balance
      Sheet Arrangements**





As
      of
      June 30, 2008, the Company has not engaged in any off-balance sheet
      arrangements. Currently, management does not anticipate that the Company will
      be
      engaging in off-balance sheet arrangements in the foreseeable future.





**Item
      3. Quantitative and Qualitative Disclosures About Market
      Risk**





The
      Company is subject to certain market risks, including changes in interest rates
      and currency exchange rates.  The Company does not undertake any specific
      actions to limit those exposures.


**Item
        4T. Controls and Procedures.**
 
 Our
        management team, under the leadership and with the participation of our Chief
        Executive Officer (who is also our Chief Financial Officer), evaluated the
        effectiveness of our disclosure controls and procedures (as defined in Rules
        13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934), as of
        December 31, 2007. The evaluation was performed based on criteria established
        by
        the Committee of Sponsoring Organizations of the Treadway Commission (the
        COSO
        criteria). Based on this evaluation, our management concluded that our
        disclosure controls and procedures were not effective, we found one area
        of
        potential deficiency or material weakness to be addressed in the Company's
        internal controls, as of December 31, 2007, continuing into 2008, to ensure
        that
        information required to be disclosed by us in the reports that we file or
        submit
        to the SEC is recorded, processed, summarized and reported within the time
        periods specified in the SEC’s rules and forms. This material weakness was
        identified previously and again during the second quarter as a shortcoming
        in
        communication from the Chief Executive Officer (who is also our Chief Financial
        Officer). Specifically, the second quarter ledger entry was regarding one
        Board
        Consent Shares for a Shareholder agreement from first quarter that was not
        submitted to the accounting staff timely for the first quarter recording
        of such
        transactions. These findings to date have generally been considered to be
        immaterial in value, but the discovery of these items would indicate internal
        controls were not strong enough in those prior periods to prevent these errors
        from occurring. Since December 2007 and during the six months of 2008, numerous
        procedures and controls have been implemented by management including enhanced
        employee file management, formation of an audit committee, and improved
        communication between the CEO/CFO and the accounting staff on all financial
        and
        operational transactions.
 
 Our
        management team is diligently developing and implementing additional controls
        and procedures to ensure that such information required for disclosure is
        recorded, processed, summarized and reported timely and accurately. With
        the
        addition of the Vice President of Finance, Chief Accounting Officer, and
        other
        accounting staff added since 2007, the Company has greatly improved its internal
        control over financial reporting during the six months ended June 30,
        2008.


39 OF 43





Our
      management team is diligently developing and implementing additional controls
      and procedures to ensure that such information required for disclosure is
      recorded, processed, summarized and reported timely and accurately. To date,
      our
      efforts have focused upon replacing our Chief Financial Officer, who resigned
      in
      2006. The resignation of our CFO has exacerbated an existing problem of
      sufficiency of accounting personnel. In addition to the Vice President of
      Finance/CFO employee, we are currently using consultants for key accounting
      positions while awaiting for significant funding to have them enter into
      permanent employment agreements with the Company.





In
      connection with the growth of the Company, we have instituted a policy of early
      review of accounting systems and personnel of all potential acquisitions to
      discern their reporting systems and the effect such reporting will have on
      the
      consolidation of operations. The companies that we have considered for
      acquisitions have been private companies and have not typically maintained
      the
      types of control and reporting procedures that are required of public companies.
      As such, depending upon the materiality of the operations of the acquisition,
      compared to our total assets and revenues, it is possible that the acquisition
      of private subsidiaries may lead to errors in reporting.




With
      the
      addition of a Vice President of Finance, Chief Accounting Officer (consultant)
      and other consulting accounting staff during 2008, the Company has greatly
      improved its internal control over financial reporting during the six months
      ended June 30, 2008.





Our
      management, including our Chief Executive Officer, does not expect that our
      disclosure controls and procedures or our internal controls over financial
      reporting are or will be capable of preventing or detecting all errors and
      all
      fraud. Any control system, no matter how well designed and operated, can provide
      only reasonable, not absolute, assurance that the control system’s objectives
      will be met. The design of a control system must reflect the fact that there
      are
      resource constraints, and the benefits of controls must be considered relative
      to their costs. Further, because of the inherent limitations in all control
      systems, no evaluation of controls can provide absolute assurance that
      misstatements due to error or fraud will not occur or that all control issues
      and instances of fraud, if any, have been detected. These inherent limitations
      include the realities that judgments in decision-making can be faulty and that
      breakdowns can occur because of simple error or mistake. Controls can also
      be
      circumvented by the individual acts of some persons, by collusion of two or
      more
      people, or by management’s override of the controls. The design of any system of
      controls is based in part on certain assumptions about the likelihood of future
      events, and there can be no assurance that any design will succeed in achieving
      our stated goals under all potential future conditions. Projections of any
      evaluation of controls effectiveness to future periods are subject to risks.





**Part
      II - Other Information**





**Item
      1. Legal Proceedings**





See
“Note
      11 - Summary of Legal Proceedings” and “Note 15 - Subsequent Events” for a
      description of the Company’s legal proceedings. Other than as described in such
      notes, the Company is not currently involved in any legal proceedings that
      may
      be deemed to be material to our financial condition.





**Item
      1A Risk Factors**





**Not
      applicable**





**Item
      2. Unregistered Sales of Equity Securities and Use of Proceeds**





During
      the six months ended June 30, 2008, the Company received proceeds of $52,000
      from the issuance of convertible debentures to four accredited investors. In
      connection with the issuance of such convertible debentures, the Company also
      issued warrants to purchase an aggregate of up to 130,000 shares of common
      stock
      of the Company. We neither received nor paid any commissions in connection
      with
      the issuance of these securities. We believe that the issuance of such
      securities was exempt from the registration requirements of the Securities
      Act
      of 1933, as amended, pursuant to the provisions of Section 4(2) of the
      Securities Act.




40 OF 43





During
      the six months ended June 30, 2008, the Company issued an aggregate of
      16,795,162 restricted shares of common stock as further described below. The
      Company issued 7,834,445 restricted shares of common stock in connection with
      certain financing transactions. The Company issued an aggregate of 2,676,633
      restricted shares of common stock to nineteen holders of the Company’s
      convertible debentures who converted such debentures. The Company issued
      1,050,000 restricted shares of common stock as payment for consulting services.
      The Company issued 1,035,534 and 851,666 in connection with the exercise of
      warrants and options, respectively. The Company issued 575,000 shares as
      employee compensation. In addition the Company received back into the treasury
      1,146,593 shares previously issued for the acquisition of Tytess and 1,200,000
      shares which were issued in error in 2007. We neither received nor paid any
      commissions in connection with the issuance of these securities. We believe
      that
      the issuance of such securities was exempt from the registration requirements
      of
      the Securities Act of 1933, as amended, pursuant to the provisions of Section
      4(2) of the Securities Act.





**Item
      3. Defaults Upon Senior Securities**





As
      of
      June 30, 2008, 37 convertible debentures totaling $1,193,518 are in default,
      11
      of the Company’s share notes payable totaling $471,909 are in default, the
      Company’s Short-Term Promissory Note for $76,636 is in default, and one of the
      Company’s loans payable – related party in the amount of $82,520 is in
      default.





**Item
      4. Submission of Matters to a Vote of Security Holders**





None





**Item
      5. Other Information**





None


41 OF 43





**Item
      6. Exhibits.**





10.1
            Form
                of Loan Agreement and Security Assignment and Form of Promissory
                Note
                dated April 8, 2008.10.2
            Form
                of Loan Agreement and Security Assignment and Form of Promissory
                Note
                dated April 17, 2008.10.3
            Assets
                and Goodwill Purchase Agreement by and between WinSonic Digital Media
                Group, Ltd. and Dverb Media Group dated April 24, 2008.10.4
            Loan
                Bank Agreement dated April 29, 2008 by and between WinSonic Digital
                Media
                Group, Ltd. and Neighborhood Community Bank for original loan entered
                into
                by Colonel McCrary Trucking, LLC.10.5
            Form
                of Loan Agreement and Security Assignment and Form of Promissory
                Note
                dated April 30, 2008 by and between WinSonic Digital Media Group,
                Ltd. and
                First Philadelphia, LLC.*10.6
            Form
                of Loan Agreement and Security Assignment and Form of Promissory
                Note
                dated June 2-10, 2008 (due June 30, 2008).*10.7
            Form
                of Loan Agreement and Security Assignment and Form of Promissory
                Note
                dated June 2-10, 2008 (due December 31, 2008).*10.8
            Form
                of Loan Agreement and Security Assignment and Form of Promissory
                Note
                Senior Debt dated June 16-23, 2008 (due December 31,
                2008).


*10.9
            Form
                of Consulting Accounting Svcs- COA June 17, 2008.*10.10
            Form
                of Equity Agreement and Security Assignment dated July 23-30,
                2008.*10.11
            Form
                of Memorandum (MOU) Agreement Swagg Media dated July 26,
                2008.*10.12
            Form
                of Memorandum (MOU) Agreement RainySongs dated July 29,
                2008.*10.13
            Form
                of Consulting Business Development Svcs- B Goldstein July 10,
                2008.*10.14
            Form
                of Contract Software Programming Svcs- JECR, Inc. August 1,
                2008.*10.15
            Form
                of Consulting Executive Business Planning & Business Development Svcs-
                IT/IS August 6, 2008.*10.16
            Form
                of Consulting Placement Agent Terminate Svcs- Hallmark Investments,
                Inc.
                July 14, 2008.*31.1
            Certification
                pursuant to 17 CFR 240.13a-14 promulgated under Section 302 of the
                Sarbanes-Oxley Act of 2002.*32.1
            Certification
                pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
                906 of
                the Sarbanes- Oxley Act of 2002.*99.1
            Form of Letter
              Board
              Member Resignation Effective April 17,
              2008.





*
        Filed
        herewith
 (10.1-10.5 Previously filed with 10-Q First
        Quarter)




42 OF 43


**Signatures**





Pursuant
      to the requirements 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.




WINSONIC
                DIGITAL MEDIA GROUP, LTD.
              (Registrant)August
                14, 2008
            
            /s/
                Winston JohnsonWinston
                Johnson
              Chairman
                & CEO
              (Principal
                Executive Officer and Principal Financial
                Officer)




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