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 March 31, 2008





OR




o 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, 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
o





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 o
              Accelerated
                  Filer oNon-Accelerated
                  Filer o
              Smaller
                  Reporting Company x


(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
o  No
x





Indicate
      the number of shares outstanding of each of the issuer’s classes of common
      stock, as of the latest practical date. The
      issuer had 83,975,233 shares of common stock outstanding as of April 30,
      2008.









**Quarterly
      Report on Form 10-QSB**


**Quarter
      Ended March 31, 2008**





**Table
      of Contents**




PagePART
                I FINANCIAL INFORMATIONItem
                1. Condensed Financial Statements:Condensed
                Consolidated Balance Sheets, March 31, 2008 (Unaudited) and December
                31,
                2007 (Audited)
            3Condensed
                Consolidated Statements of Operations, for the three months ended
                March
                31, 2008 and 2007 and from inception (September 10, 2002) to March
                31,
                2008 (Unaudited)
            4Condensed
                Consolidated Statements of Cash Flows, for the three months ended
                March
                31, 2008 and 2007 and from inception (September 10, 2002) to March
                31,
                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
            28Item
                3. Quantitative and Qualitative Disclosures About Market
                Risk
            38Item
                4T. Controls and Procedures
            38PART
                II OTHER INFORMATIONItem
                1. Legal Proceedings
            39Item
                1A. Risk Factors
            39Item
                2. Unregistered Sales of Equity Securities and Use of Proceeds
            39Item
                3. Defaults Upon Senior Securities
            39Item
                4. Submission of Matters to a Vote of Security Holders
            40Item
                5. Other Information
            40Item
                6. Exhibits
            40SIGNATURES
            41EXHIBIT
                INDEX




2


**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****Mar 31, 2008**
              
              **Dec 31, 2007****(Unaudited)**
              
              **(Audited)****ASSETS**ASSETS:Cash
              
              $
              -
              
              $
              90,893Accounts
                  receivable, net of allowance for doubtful accounts of $201,000
                  and
                  $155,000, respectively
              
              
              74,233
              
              
              103,501Prepaid
                  expense
              
              
              26,711
              
              
              38,373Inventory
              
              
              5,883
              
              
              5,994Construction
                  in process
              
              
              200,957
              
              
              305,648**Total
                  current assets**
              
              
              **307,784**
              
              
              **544,409**Fixed
                  assets, net of accumulated depreciation of $949,862 and $908,539,
                  respectively:
              
              
              804,243
              
              
              767,190Goodwill
              
              
              263,524
              
              
              263,524Other
                  assets
              
              
              550,254
              
              
              494,486**TOTAL
                  ASSETS**
              
              **$**
              **1,925,805**
              
              **$**
              **2,069,609**LIABILITIES:Current
                  liabilities:Accounts
                  payable and accrued expenses
              
              $
              5,140,666
              
              $
              5,588,287Bank
                  overdraft
              
              
              11,869
              
              
              -Customer
                  deposits
              
              
              228,834
              
              
              333,336Accrued
                  payroll and related taxes
              
              
              7,437,112
              
              
              7,011,351Legal
                  settlement liabilities
              
              
              268,870
              
              
              1,213,225Due
                  to other related parties
              
              
              -
              
              
              1,091Loans
                  payable
              
              
              865,326
              
              
              507,518Loans
                  payable -related party
              
              
              285,882
              
              
              282,853Derivative
                  liability related to convertible debentures
              
              
              13,580
              
              
              34,466Warrant
                  liability related to convertible debentures
              
              
              11,790
              
              
              29,909Convertible
                  debentures
              
              
              35,997
              
              
              35,514Convertible
                  debentures, net of debt discount totaling $368,604 and $804,932,
                  respectively
              
              
              1,339,444
              
              
              1,269,596**Total
                  current liabilities**
              
              
              **15,639,370**
              
              
              **16,307,146****TOTAL
                  LIABILITIES**
              
              
              **15,639,370**
              
              
              **16,307,146**Stockholders'
                  deficit:Preferred
                  stock, $0.001 par value, 20,000,000 shares authorized, no shares
                  issued
                  and outstanding at March 31, 2008 and December 31, 2007,
                  respectively.
              
              
              -
              
              
              -Common
                  stock, $0.001 par value, 200,000,000 shares authorized, 77,678,981
                  and
                  71,319,648 shares issued and outstanding at March 31, 2008 and
                  December
                  31, 2007, respectively.
              
              
              77,678
              
              
              71,319Additional
                  paid-in capital
              
              
              29,611,741
              
              
              26,520,895Common
                  stock receivable
              
              
              -
              
              
              (1,200
              )Accumulated
                  deficit during development stage
              
              
              (43,402,984
              )
              
              (40,828,551
              )**Total
                  stockholders' deficit**
              
              
              **(13,713,565**
              **)**
              
              **(14,237,537**
              **)****TOTAL
                  LIABILITIES AND STOCKHOLDERS' DEFICIT**
              
              **$**
              **1,925,805**
              
              **$**
              **2,069,609**




*The
      accompanying notes to the financial statements should be*


*read
      in conjunction with these Balance Sheets.*




3


WINSONIC
      DIGITAL MEDIA GROUP, LTD.


(A
      DEVELOPMENT STAGE COMPANY)


**CONDENSED
      CONSOLIDATED STATEMENTS OF OPERATIONS**


(UNAUDITED)





**For the three months ended**
              **March 31,**
            
            **Inception**
              **(September**
              **10, 2002) to**
              **March 31,****2008**
            
            **2007**
            
            **2008**REVENUE
            
            $
            208,671
            
            $
            654,514
            
            $
            2,550,972COST
                OF GOODS SOLD
            
            
            236,947
            
            
            499,657
            
            
            3,993,294GROSS
                PROFIT
            
            
            (28,276
            )
            
            154,857
            
            
            (1,442,322
            )EXPENSES:Selling,
                general and administrative
            
            
            564,378
            
            
            497,206
            
            
            8,866,676Research
                and development
            
            
            37,642
            
            
            -
            
            
            126,971Payroll
                expense – selling, general and administrative
            
            
            787,623
            
            
            1,813,144
            
            
            14,257,929Payroll
                expense – research and development
            
            
            39,023
            
            
            60,453
            
            
            435,077Consulting
                services - related party
            
            
            38,000
            
            
            2,000
            
            
            2,936,002Depreciation
                expense
            
            
            41,324
            
            
            36,036
            
            
            1,223,842Total
                expenses
            
            
            1,507,990
            
            
            2,408,839
            
            
            27,846,497OPERATING
                LOSS
            
            
            (1,536,266
            )
            
            (2,253,982
            )
            
            (29,288,819
            )OTHER
                INCOME/(EXPENSES):Interest
                expense
            
            
            (1,072,210
            )
            
            (1,396,063
            )
            
            (11,428,913
            )Interest
                expense – related party
            
            
            (4,962
            )
            
            (45,355
            )
            
            (344,511
            )Impairment
                of goodwill
            
            
            -
            
            
            -
            
            
            (720,767
            )Gain
                on legal settlement
            
            
            -
            
            
            -
            
            
            942,636Legal
                settlement costs
            
            
            -
            
            
            -
            
            
            (3,325,213
            )Unrealized
                gain (loss) on adjustment of derivative and warrantliability
                to fair value of underlying securities
            
            
            39,005
            
            
            381,096
            
            
            641,928Interest
                income
            
            
            -
            
            
            -
            
            
            730Other
                income
            
            
            -
            
            
            -
            
            
            119,945Total
                other income/(expenses)
            
            
            (1,038,167
            )
            
            (1,060,322
            )
            
            (14,114,165
            )NET
                LOSS BEFORE PROVISION FOR INCOME TAXES
            
            
            (2,574,433
            )
            
            (3,314,304
            )
            
            (43,402,984
            )PROVISION
                FOR INCOME TAXES
            
            
            -
            
            
            -
            
            
            -NET
                LOSS
            ****
            **$**
            **(2,574,433**
            **)**
            **$**
            **(3,314,304**
            **)**
            **$**
            **(43,402,984**
            **)**Basic
                weighted average number of common shares outstanding
            
            
            75,802,382
            
            
            49,578,057Net
                loss per basic common share
            
            $
            (0.03
            )
            $
            (0.07
            )




*The
      accompanying notes to the financial statements should be*


*read
      in conjunction with these Statements of Operations.*





4


WINSONIC
      DIGITAL MEDIA GROUP, LTD.


(A
      DEVELOPMENT STAGE COMPANY)


**CONDENSED
      CONSOLIDATED STATEMENTS OF CASH FLOWS**


(UNAUDITED)





**For the three months**
              **ended March 31,**
            
            **Inception**
              **(September**
              **10, 2002) to**
              **March 31,****2008**
            
            **2007**
            
            **2008****CASH
                FLOWS FROM OPERATING ACTIVITIES:**Net
                loss
            
            $
            (2,574,433
            )
            $
            (3,314,304
            )
            $
            (43,402,984
            )Adjustments
                to reconcile net lossto
                net cash used in operating activities:Depreciation
            
            
            41,324
            
            
            36,036
            
            
            1,223,842Accretion
                of principal and interest relatedto
                convertible debentures
            
            
            473,127
            
            
            308,148
            
            
            4,699,918Unrealized
                (gain) loss on adjustment of derivative and
              Warrant
                liability to fair value of underlying securities
            
            
            (39,005
            )
            
            (381,096
            )
            
            (641,928
            )Stock
                based compensation
            
            
            152,735
            
            
            610,931
            
            
            6,582,187Provision
                for doubtful accounts
            
            
            38,291
            
            
            -
            
            
            193,291Impairment
                of goodwill
            
            
            -
            
            
            -
            
            
            720,767Gain
                on legal settlement
            
            
            -
            
            
            -
            
            
            (942,636
            )Employee
                bonus paid with stock
            
            
            86,250
            
            
            -
            
            
            86,250Operating
                expenses paid with stock, options and warrants
            
            
            -
            
            
            -
            
            
            1,036,822Operating
                expenses paid by loans payable
            
            
            -
            
            
            -
            
            
            60,000Interest
                expense paid with stock
            
            
            -
            
            
            -
            
            
            185,621Financing
                costs paid with stock
            
            
            476,481
            
            
            1,109,383
            
            
            3,877,033Financing
                costs related to conversion of loans payable and loans payable – related
                party to stock
            
            
            -
            
            
            -
            
            
            285,424Consulting
                services paid with stock
            
            
            38,000
            
            
            -
            
            
            475,650Amortization
                of common stock advances for future services
            
            
            -
            
            
            23,675
            
            
            48,175Interest
                accrued and added to notes
            
            
            127,564
            
            
            23,937
            
            
            443,140Forgiveness
                of accrued interest - Digital Services International, Inc.
            
            
            -
            
            
            -
            
            
            152,592Other
                non-cash financing costs
            
            
            -
            
            
            -
            
            
            29,032Change
                in operating assets and liabilities:Increase
                in accounts receivable
            
            
            (9,023
            )
            
            (41,701
            )
            
            (292,920
            )Decrease
                (increase) in prepaid expenses
            
            
            11,662
            
            
            (49,012
            )
            
            (24,391
            )Decrease
                (increase) in inventory
            
            
            111
            
            
            1,151
            
            
            (496
            )Decrease
                (increase) in construction in process
            
            
            104,691
            
            
            25,683
            
            
            (170,993
            )Increase
                in other assets
            
            
            (55,768
            )
            
            (2,500
            )
            
            (300,254
            )(Decrease)
                increase in advances to related companies
            
            
            (1,091
            )
            
            -
            
            
            -Increase
                in accounts payable and accrued expenses
            
            
            189,565
            
            
            205,940
            
            
            5,658,817(Decrease)
                increase in customer deposits
            
            
            (104,502
            )
            
            (64,528
            )
            
            302,692Increase
                in accrued payroll and related taxes
            
            
            400,759
            
            
            900,836
            
            
            8,464,466(Decrease)
                increase in legal settlement liabilities
            
            
            (9,921
            )
            
            -
            
            
            3,322,292**Net
                cash used in operating activities**
            
            
            (653,183
            )
            
            (607,421
            )
            
            (7,928,591
            )**CASH
                FLOWS FROM INVESTING ACTIVITIES:**Cash
                acquired through business acquisition
            
            
            -
            
            
            -
            
            
            16,670Purchase
                of fixed assets
            
            
            (78,377
            )
            
            (13,088
            )
            
            (1,696,267
            )**Net
                cash used in investing activities**
            
            
            (78,377
            )
            
            (13,088
            )
            
            (1,679,597
            )**CASH
                FLOWS FROM FINANCING ACTIVITIES:**Increase
                in bank overdraft
            
            
            11,869
            
            
            160,251
            
            
            11,869Proceeds
                from loans payable
            
            
            292,691
            
            
            40,000
            
            
            917,942Payment
                on loans payable
            
            
            -
            
            
            (5,278
            )
            
            (23,335
            )Proceeds
                from loan payable - related party
            
            
            -
            
            
            242,530
            
            
            1,334,604Payment
                on loan payable - related party
            
            
            -
            
            
            -
            
            
            (350,056
            )Payment
                on convertible debentures
            
            
            -
            
            
            -
            
            
            (64,813
            )Proceeds
                from convertible debentures
            
            
            52,000
            
            
            179,500
            
            
            5,335,270Proceeds
                from common stock issued in connection with exercise of
                warrants
            
            
            284,107
            
            
            -
            
            
            446,607Proceeds
                from common stock issued
            
            
            -
            
            
            -
            
            
            2,000,100**Net
                cash provided by financing activities**
            
            
            **640,667**
            
            
            **617,003**
            
            
            **9,608,188****NET
                (DECREASE) INCREASE IN CASH**
            
            **$**
            **(90,893**
            **)**
            **$**
            **(3,
                506**
            **)**
            **$**
            **-****CASH,
                BEGINNING OF PERIOD**
            
            
            **90,893**
            
            
            **3,506**
            
            
            -**CASH,
                END OF PERIOD**
            
            **$**
            **-**
            
            **$**
            -
            
            **$**
            **-****SUPPLEMENTARY
                INFORMATION:**Interest
                paid
            
            $
            -
            
            $
            2,104
            
            $
            54,792Income
                taxes paid
            
            $
            -
            
            $
            -
            
            $
            -**NON-CASH
                ACTIVITIES:**Issuance
                of common stock for common stock payable
            
            **$**
            -
            
            $
            -
            
            $
            820,000Forgiveness
                of salary payable to officer
            
            **$**
            -
            
            $
            -
            
            $
            702,644Forgiveness
                of payroll tax for officer
            
            **$**
            -
            
            $
            -
            
            $
            20,655Issuance
              of common
              stock as payment for accrued consulting service expense
            
            **$**
            165,000
            
            
            -
            
            **$**
            165,000Issuance
              of common
              stock as payment for accrued financing cost
            
            **$**
            472,186
            
            
            
            
            **$**
            472,186Issuance
                of common stock as deposit on lease obligation
            
            **$**
            -
            
            $
            -
            
            $
            250,000Issuance
                of common stock as payment for subsidiaries acquired
            
            **$**
            -
            
            $
            -
            
            $
            939,528Issuance
                of common stock as payment on loans payable and loans payable - related
                party
            
            **$**
            -
            
            $
            -
            
            $
            896,984Issuance
                of common stock and warrants for salary payable
            
            **$**
            -
            
            $
            -
            
            $
            515,679Issuance
                of common stock upon conversion of debentures
            
            **$**
            445,912
            
            $
            -
            
            $
            4,015,130Adjustment
                to paid in capital for accumulated depreciation
            
            **$**
            -
            
            $
            -
            
            $
            281,481Issuance
                of common stock for legal settlement
            
            **$**
            934,434
            
            $
            -
            
            $
            2,353,320Issuance
                of common stock for exercise of stock options byreducing
                salary payable
            
            **$**
            6,500
            
            $
            -
            
            $
            6,500




*The
      accompanying notes to financial statements should be*


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




5


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 option for employees
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              152,735
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              152,735Issuance
                  of stock for financing costs
              
              
              -
              
              
              -
              
              
              1,803,994
              
              
              1,804
              
              
              946,863
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              948,667Issuance
                  of common stock as employee bonus
              
              
              -
              
              
              -
              
              
              575,000
              
              
              575
              
              
              85,675
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              86,250Issuance
                  of stock in satisfaction of convertible debentures
              
              
              -
              
              
              -
              
              
              2,229,877
              
              
              2,230
              
              
              443,682
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              445,912Issuance
                  of stock for consulting services
              
              
              -
              
              
              -
              
              
              450,000
              
              
              450
              
              
              202,550
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              203,000Issuance
                  of stock for exercise of stock options
              
              
              -
              
              
              -
              
              
              650,000
              
              
              650
              
              
              5,850
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              6,500Issuance
                  of stock for exercise of warrants
              
              
              -
              
              
              -
              
              
              920,534
              
              
              921
              
              
              283,186
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              284,107Discount
                  allocated to warrant on convertible debt
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              10,550
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              10,550Initial
                  fair value of embedded derivative related to convertible
                  debt
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              26,250
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              26,250Shares
                  returned to Company
              
              
              -
              
              
              -
              
              
              (2,346,593
              )
              
              (2,347
              )
              
              1,147
              
              
              -
              
              
              1,200
              
              
              -
              
              
              -
              
              
              -Issuance
                  of common stock for legal settlement liability
              
              
              -
              
              
              -
              
              
              2,076,521
              
              
              2,076
              
              
              932,358
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              934,434Net
                  loss
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (2,574,433
              )
              
              (2,574,433
              )**Balance,
                  March 31, 2008
                  (Unaudited)******
              ****
              ****
              **-**
              ****
              **$**
              **-**
              ****
              ****
              **77,678,981**
              ****
              **$**
              **77,678**
              ****
              **$**
              **29,611,741**
              ****
              **$**
              **-**
              ****
              **$**
              **-**
              ****
              **$**
              **-**
              ****
              **$**
              **(43,402,984**
              **)**
              **$**
              **(13,713,565**
              **)**




*The
      accompanying notes to the financial statements should be*


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




6




**WINSONIC
      DIGITAL MEDIA GROUP, LTD**




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


**March
      31, 2008 and 2007**




**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 there
      from. As of March 31, 2008, the Company has not fully commenced 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 three months
      ended March 31, 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 three months ended March
      31, 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.





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.




7




**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 Diversity 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.





**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.




8




**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 stocks 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:





March
                31,
            
            December
                31,2008
            
            2007Shares
                issuable under stock options
            
            
            2,062,549
            
            
            2,680,120Shares
                issuable pursuant to warrants to purchase common stock
            
            
            4,713,193
            
            
            8,907,173Shares
                issuable pursuant to convertible debt agreements
            
            
            4,934,521
            
            
            8,394,67011,710,263
            
            
            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 three months ended March 31,
      2008 and 2007 is presented below:




**March 31, 2008**
            
            **March 31, 2007**Weighted
            
            
            
            WeightedAverage
            
            
            
            AverageOptions
            
            Exercise Price
            
            Options
            
            Exercise PriceOutstanding
                -Beginning
                of Period
            
            
            9,636,488
            
            $
            0.72
            
            
            9,309,304
            
            $
            0.78Granted
                or Committed
            
            
            1,900,000
            
            
            0.33
            
            
            2,475,000
            
            
            0.69Exercised
            
            
            (650,000
            )
            
            (0.01
            )
            
            -
            
            
            -Canceled
            
            
            -
            
            
            -
            
            
            (296,458
            )
            
            (0.55
            )Outstanding
                -End
                of Period
            
            
            10,886,488
            
            $
            0.69
            
            
            11,487,846
            
            $
            0.69Exercisable
                -End
                of Period
            
            
            9,389,738
            
            $
            0.75
            
            
            7,009,033
            
            $
            0.79




During
      the three months ended March 31, 2008 and 2007, the Company committed to issue
      options to employees for 1,900,000 and 2,475,000 shares of common stock,
      respectively. The fair value of the options granted during the three months
      ended March 31, 2008 and 2007 was $594,000 and $1,143,000, respectively. The
      Company recorded compensation expense of approximately $153,000 and $611,000,
      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 option
      plan and will have terms and conditions determined under that plan.




9




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.





**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
      March
      31, 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.




10




**NOTE
      3 – MERGERS AND ACQUISITIONS**





The
      Company completed no acquisitions during 2007 and through the three months
      ended
      March 31, 2008.





On
      November 20, 2007, WinSonic McCrary, LLC (“WinSonic McCrary”), a newly-created
      Georgia limited liability company and wholly owned subsidiary of Diversity,
      entered into an Asset Purchase Agreement with Colonel McCrary Trucking, LLC
      (“Colonel McCrary”), a Georgia limited liability company, and all of the members
      of Colonel McCrary. Pursuant to the Asset Purchase Agreement, Colonel McCrary
      was to sell substantially all of its assets to WinSonic McCrary. The aggregate
      purchase price for the assets was to be 4,287,490 restricted shares of the
      Company’s common stock. In addition, as further consideration for the
      transaction, WinSonic McCrary was to assume and discharge certain liabilities
      and indebtedness, as specified in the Asset Purchase Agreement. The Asset
      Purchase Agreement included representations, covenants and indemnification
      obligations customary for transactions of this nature. The Asset Purchase
      Agreement may be terminated upon the occurrence of certain events, including
      the
      failure to consummate the transaction on or prior to March 31, 2008, subject
      to
      certain conditions. In connection with the closing, the members of Diversity
      were to make capital contributions to Diversity of a sufficient number of shares
      of the Company’s common stock to enable WinSonic McCrary to pay the purchase
      price at closing. The closing of the transaction did not take place in
      accordance with the Asset Purchase Agreement. As a result, following discussions
      among the parties, the Asset Purchase Agreement expired in accordance with
      its
      terms.





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
      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.  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.  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.




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





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





**March 31,**
            
            **December 31,****2008**
            
            **2007**Computer
                equipment
            
            $
            1,130,510
            
            $
            1,130,510Infrastructure
            
            
            158,400
            
            
            158,400Software
            
            
            109,610
            
            
            109,610Furniture
                & fixtures
            
            
            93,478
            
            
            93,478Automobiles
            
            
            13,500
            
            
            13,500Leasehold
                improvements
            
            
            80,226
            
            
            6,150Equipment
                and tools
            
            
            168,381
            
            
            164,081Less:
                accumulated depreciation
            
            
            (949,862
            )
            
            (908,539
            )Net
                Fixed Assets
            
            **$**
            **804,243**
            
            **$**
            **767,190**




11




Depreciation
      expense for the three months ended March 31, 2008 and 2007 was $41,324 and
      $36,036, respectively.





**NOTE
      5 - LOANS PAYABLE**





The
      Company had outstanding loans payable to certain individuals who are not related
      parties of $865,326 and $507,518 as of March 31, 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:




6.00%
            
            A
              loan consisting of principal of $108,000 with no repayment terms or
              maturity date. Accrued interest payable as of March 31, 2008 and December
              31, 2006 is $27,818 and $26,203, respectively.
            
            
            135,818
            
            
            134,2036.00%
            
            A
              loan consisting of principal of $40,000 with no repayment terms or
              maturity date. Accrued interest payable as of March 31, 2008 and December
              31, 2007 is $12,018 and $11,420, respectively.
            
            
            52,018
            
            
            51,4206.00%
            
            The
              Company issued a promissory note 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
              March
              31, 2008 and December 31, 2007 is $1,598 and $690, respectively. The
              Company is in default on this note.
            
            
            61,588
            
            
            60,69025.00%
            
            The
              Company issued six promissory notes with a maturity date of February
              18,
              2008. Accrued interest payable as of March 31, 2008 and December 31,
              2007
              is $61,884 and $205, respectively. The Company is in default on these
              notes.
            
            
            281,884
            
            
            150,2056.00%
            
            The
              Company issued five promissory notes with a principle balance of $122,691
              and maturity date of November 30, 2008. Accrued interest payable as
              of
              March 31, 2008 is $278.
            
            
            122,969
            
            
            -6.00%
            
            The
              Company issued one promissory note for $100,000 with a maturity date
              of
              April 13, 2008. Accrued interest payable as of March 31, 2008 is
              $49.
            
            
            100,049Total
                Loans Payable
            
            $
            865,326
            
            $
            507,518





During
      the first quarter of 2008, the Company borrowed $292,691 from unrelated parties.
      Three promissory notes totaling $70,000 were issued during the fourth quarter
      of
      2007; however, the funds were not received until the first quarter of 2008.
      As a
      result, the Company recorded 350,000 shares of its common stock to be issued
      as
      financing costs totaling $178,500 and as accrued expense during the fourth
      quarter of 2007. The shares were issued in the first quarter of 2008. In
      connection with the remaining loans, the Company is committed to issue an
      aggregate of 1,964,920 shares of its common stock and recorded financing costs
      totaling $474,564 during the quarter ended March 31, 2008.





**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.




12




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 March 31, 2008. In the aggregate, the Company has issued a total of
      2,653,010 shares of its restricted common stock in connection with the
      conversion of these notes.





During
      the three months ended March 31, 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 March 31, 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 March 31, 2008 and December 31, 2007:





**March 31,**
            
            **December 31,****2008**
            
            **2007**Derivative
                liability
            
            $
            13,580
            
            $
            34,466Warrant
                liability
            
            
            11,790
            
            
            29,909Convertible
                debentures
            
            
            35,997
            
            
            35,514Subtotal
            
            
            61,367
            
            
            99,889Adjustment
                of derivative and warrant liability to fair value
            
            
            641,929
            
            
            602,923Accretion
                of principal and interest related to convertible
                debentures
            
            
            311,704
            
            
            312,188Total
                Proceeds from convertible debentures
            
            
            1,015,000
            
            
            1,015,000Plus:
                Accrued interest
            
            
            113,434
            
            
            112,951Less:
                Notes and interest converted
            
            
            (1,092,437
            )
            
            (1,092,437
            )Total
                Convertible debentures
            
            
            35,997
            
            
            35,514Less:
                Current portion of convertible debentures
            
            
            (35,997
            )
            
            (35,514
            )Total
                Non-Current Convertible Debentures
            
            $
            -
            
            $
            -




**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.




13




During
      the three months ended March 31, 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 on February 9, 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 three months ended March 31, 2008, sixteen holders of convertible debentures
      converted $422,825 in principal and $23,087 of accrued interest into an
      aggregate of 2,229,877 shares of restricted common stock.





As
      a
      result of the foregoing, as of March 31, 2008, the Company had 68 convertible
      debentures outstanding. The outstanding convertible debentures represented
      a
      note balance of $1,708,048 and a potential obligation for the Company to issue
      6,555,355 shares of common stock.





In
      connection with the convertible debentures described above, as of March 31,
      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 $4,366,200. These warrants have expiration
      dates between July 5, 2008 and July 26, 2010. During the three months ended
      March 31, 2008, the Company issued 420,534 shares of common stock related to
      the
      exercise of warrants with proceeds totaling $84,107.





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




****
            
            **Convertible Notes**
            
            **Warrants****Summary of Post 2004/2005 Debentures & Warrants**
            
            **Proceeds**
            
            **Shares**
            
            **Proceeds**
            
            **Shares**Total
                outstanding at December 31, 2007
            
            
            2,074,528
            
            
            8,416,220
            
            
            -
            
            
            16,666,208Proceeds
                received during 2008
            
            
            52,000
            
            
            260,000
            
            
            -
            
            
            130,000Accrued
                Interest
            
            
            27,432
            
            
            109,012
            
            
            -
            
            
            -Conversions
                during 2008
            
            
            (445,912
            )
            
            (2,229,877
            )
            
            -
            
            
            -Warrants
                exercised
            
            
            -
            
            
            -
            
            
            84,107
            
            
            (420,534
            )Total
                outstanding at March 31, 2008
            
            $
            1,708,048
            
            
            6,555,355
            
            $
            84,107
            
            
            16,375,674





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 $7,462,586 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 three
      months ended March 31, 2008 and 2007, the Company amortized a total of $473,127
      and $308,148, respectively. The discounts and amortization are summarized in
      the
      following table:




14




**March
                31,**
            
            **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
            
            
            (2,815,835
            )
            
            (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
            
            
            1,412,518
            
            
            1,798,543Interest
                expense on convertible debentures - Amortized
            
            
            (1,043,914
            )
            
            (993,611
            )Interest
                expense on convertible debentures - Accrued
            
            
            (80,121
            )
            
            (75,777
            )Convertible
                debt not subject to accretion
            
            
            (215,409
            )
            
            (200,208
            )Total
                Current Liability
            
            $
            (1,339,444
            )
            $
            (1,269,596
            )




**Defaults
      on Convertible Debentures**





As
      of
      March 31, 2008, 34 convertible debentures totaling $577,926 were in default.
      (See “Note 13 – Subsequent Events” for further details.)





**NOTE
      7 - RELATED PARTY TRANSACTIONS**





**Loans
      Payable - Related Party**





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 March 31, 2008
      the
      Company has accrued a total of $1,570 related to this debt.




**Loans
      from Founder**





**2007** :
      During
      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 March 31, 2008,
      the outstanding balance of these loans was $181,392 in principal and $3,895
      in
      accrued interest.





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.




15




**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 March 31, 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 March 31, 2008 was
      $13,074.




**2004:** As
      of
      December 31, 2006, the Company had a loan payable totaling $316,496 to the
      CEO
      and Rosemary Nguyen which included principal of $209,000. Under the terms of
      the
      loan, interest accrued at the rate of 10% per annum. During the year ended
      December 31, 2007, the Company paid $32,500 to the CEO as partial repayment
      of
      this loan. On January 17, 2008, the Company entered into an agreement with
      the
      CEO, and Rosemary Nguyen related to a settlement in the Rosemary Nguyen vs.
      Winsonic Digital Media Group, Ltd. and Winston Johnson matter. Pursuant to
      this
      agreement, the Company issued 80,000 shares of its common stock to Ms. Nguyen,
      which shares shall be deemed to have been fully paid for on November 20, 2004.
      In addition, the Company issued 1,996,521 restricted shares of its common stock
      to Ms. Nguyen as full settlement of this matter. The balance of this loan from
      the CEO related to this matter was repaid at that time by issuance of the shares
      of the Company’s common stock to Ms. Nguyen.





**Consulting
      Agreements**





During
      the three months ended March 31, 2008 ,
      the
      Company entered into one consulting agreement with an existing  shareholder
      to assist the Company in the development of capitalization plans which will
      provide the capital resources necessary to accomplish the operating and
      strategic plans of the Company. As compensation for the services provided,
      the
      Company issued 100,000 shares of the Company’s restricted common stock which
      were valued at $38,000. The cost of this consulting agreement is included in
      the
      accompanying statement of operations as consulting services – related
      party.





**Share
      issuances**





During
      the three months ended March 31, 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 700,00 0
      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 - 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 three months ended March 31, 2008, the Company issued 1,803,994 restricted
      shares of the Company’s common stock 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, 16 holders of the Company’s
      convertible debentures 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 $422,825 of principal and
      $23,087 of accrued interest on these debentures in exchange for the issuance
      of
      2,229,877 restricted shares of the Company’s common stock.




16




During
      the three months ended March 31, 2008, the Company issued 575,000 restricted
      shares valued at $86,250 to employees as additional compensation. The Company
      also issued 2,076,521 to Rosemary Nguyen pursuant to a settlement agreement
      (See
“Note 9- Summary of Legal Proceedings”).





During
      the three months ended March 31, 2008, the Company issued an aggregate of
      450,000 restricted shares valued at $ 203,000 of its common stock as payment
      for
      consulting services.





During
      the three months ended March 31, 2008, the Company issued 650,000 and 920,534
      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 $284,107.





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.





The
      following table summarizes, by date, the stock transactions for the three months
      ended March 31, 2008:





**Price
                per**
            
            **Cost
                of****Date
                of Share Issuance**
            
            **Shares**
            
            **Share**
            
            **Shares****Shares
                issued in connection with certain financing
                transactions:**1/2/08
            
            
            25,000
            
            0.61
            
            $
            15,2501/2/08
            
            
            175,000
            
            0.51
            
            
            89,2501/9/08
            
            
            500,000
            
            0.60
            
            
            300,0001/15/08
            
            
            725,000
            
            0.51
            
            
            369,7501/15/08
            
            
            375,000
            
            0.46
            
            
            172,5001/23/08
            
            
            3,994
            
            0.48
            
            
            1,9171,803,994
            
            
            
            $
            948,667**Shares
                issued for convertible debentures:**1/2/08
            
            
            60,038
            
            0.20
            
            $
            11,9451/15/08
            
            
            105,507
            
            0.20
            
            
            21,1013/11/08
            
            
            2,064,332
            
            0.20
            
            
            412,8662,229,877
            
            
            
            $
            445,912**Shares
                issued for consulting services:**1/2/08
            
            
            250,000
            
            0.46
            
            $
            115,0001/2/08
            
            
            100,000
            
            0.50
            
            
            50,0002/14/08
            
            
            100,000
            
            0.38
            
            
            38,000450,000
            
            
            
            $
            203,000**Shares
                canceled that were previously issued for 2006
                acquisitions:**3/28/08
            
            
            (1,146,593
            )
            0.001
            
            $
            (1,147
            )**Shares
                issued in connection with exercise of warrants:**1/10/08
            
            
            500,000
            
            0.40
            
            $
            200,0003/11/08
            
            
            420,534
            
            0.20
            
            
            84,107920,534
            
            
            
            $
            284,107**Shares
                issued in connection with exercise of stock
                options:**1/23/08
            
            
            150,000
            
            0.01
            
            $
            1,5003/28/08
            
            
            500,000
            
            0.01
            
            
            5,000650,000
            
            
            
            
            6,500**Shares
                issued for employee compensation:**3/28/08
            
            
            575,000
            
            0.15
            
            $
            86,250**Shares
                issued in error:**2/1/08
            
            
            (500,000
            )
            0.001
            
            $
            (500
            )3/28/08
            
            
            (700,000
            )
            0.001
            
            
            (700
            )(1,200,000
            )
            
            
            $
            (1,200
            )**Shares
                issued for legal settlement:**1/23/08
            
            
            2,076,521
            
            0.45
            
            $
            934,434





17





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.





The
      following table summarizes the Company’s warrant activities for the period from
      January 1, 2008 to March 31, 2008:


**Number of**
              
              **Weighted Average****Warrants**
              
              **Exercise Price**Balance
                  as of December 31, 2007
              
              
              18,803,708
              
              
              0.28Warrants
                  issued
              
              
              130,000
              
              
              0.40Warrants
                  exercised
              
              
              (920,534
              )
              
              (0.31
              )Balance
                  as of March 31, 2008
              
              
              18,013,174
              
              $
              0.28




These
      warrants have expiration dates between July 5, 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 March 31,
      2008:





**Number of**
            
            **Weighted Average****Warrants**
            
            **Exercise Price**Balance
                as of December 31, 2007
            
            
            1,052,354
            
            $
            0.32Warrants
                issued
            
            
            -
            
            
            -Warrants
                exercised
            
            
            -
            
            
            -Balance
                as of March 31, 2008
            
            
            1,052,354
            
            $
            0.32





These
      warrants have expiration dates between June 3, 2008 and September 10,
      2009.




18




**NOTE
      9 - 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 March 31, 2008 and December
      31, 2007, respectively. Included in the estimated liability for legal
      settlements as of March 31, 2008 is a general accrual of $148,870 for claims
      threatened and not yet filed. Other than as described below and in “Note 13 -
      Subsequent Events”, the Company is not currently involved in any legal
      proceedings that may be deemed to be material to our financial condition.





**Colla** **zo
      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
      ordered the Company to reissue the 900,000 shares of common stock to
      Mr. Collazo as of September 20, 2002 without the restrictions. As
      of the date of this report, the Company has not reissued the stock to Mr.
      Collazo due to the existence of an attorney’s lien on Mr. Collazo’s judgment in
      this matter.





**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 March
      31,
      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 March 31, 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.




19




**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:


(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.





**Rosemary
      Nguyen v. WinSonic Digital Media Group, Ltd. and Winston
      Johnson** (Superior Court of Ca., Orange County – complaint filed August 1,
      2007)





This
      is a
      collection action for $432,897. The disputed amount originates from a loan
      agreement entered into between plaintiff and defendants on or about November
      30,
      2004. The complaint alleges that plaintiff is due 80,000 shares of the Company’s
      common stock pursuant to the loan. On January 17, 2008, the Company entered
      into
      a Settlement Agreement and General Release (the “Nguyen Settlement Agreement”)
      with Winston Johnson, the Company’s Chairman and CEO, and Rosemary Nguyen, which
      resolved the Rosemary Nguyen vs. Winsonic Digital Media Group, Ltd. and Winston
      Johnson legal proceeding described in the Company’s prior filings with the
      Securities and Exchange Commission.




20


Pursuant
      to the Nguyen Settlement Agreement, the Company is required to issue 80,000
      shares of its common stock to Ms. Nguyen, which shares shall be deemed to have
      been fully paid for on November 20, 2004. In addition, the Company is required
      to issue 1,996,521 restricted shares of its common stock to Ms. Nguyen (the
      “Restricted Shares”). The securities issued pursuant to the Nguyen Settlement
      Agreement will be issued in reliance on the registration exemption provided
      by
      Section 4(2) of the Securities Act of 1933, as amended. The Nguyen Settlement
      Agreement also provides for the discharge of all of the ongoing legal
      proceedings between the parties and each agreed to release the other from any
      and all claims related thereto.





In
      connection with the Nguyen Settlement Agreement, Ms. Nguyen and the Company
      entered into a Repurchase Rights Agreement (the “Repurchase Agreement”) on
      January 17, 2008. The Repurchase Agreement gives the Company the right to
      repurchase a specified amount of the Restricted Shares from Ms. Nguyen at a
      price of $0.291 per share during the time periods and in the amounts set forth
      below:





·
            Until
                March 15, 2008, the Company may repurchase 51,547
                shares;


·
            Between
                February 16, 2008 and March 15, 2008, the Company may repurchase
                51,547
                shares;


·
            Between
                March 16, 2008 and April 15, 2008, the Company may repurchase 85,911
                shares; and


·
            Between
                April 16, 2008 and May 30, 2008 (subject to extension for 30 days
                for a
                cash payment of $15,000), the Company may repurchase 1,807,516
                shares.





The
      Company’s repurchase rights described above are subject to extension in certain
      circumstances for up to fifteen days. The Repurchase Agreement also restricts
      Ms. Nguyen from selling the Restricted Shares during the time when the Company
      has a repurchase right with respect to those shares. The company has not
      repurchased any of these shares as of March 31, 2008.





**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 the
      plaintiff. 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
      answering the garnishment amount, 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. As of the date of this filing, no other significant action
      has
      been taken in this matter.





**NOTE
      10 - 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 March 31, 2008, the Company has recognized
      $2,551,000 of revenues, and has had accumulated losses of approximately
      $43,403,000 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.




21




**NOTE
      11 - 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 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,
      $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.





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. 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 in the process of negotiating a separation agreement with Mr.
      Burke.




22




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, $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.




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.





**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 March 31, 2008. Sales tax payable
      as
      of March 31, 2008 totaled $136,400 (including penalties of $25,200 and interest
      of $11,300) 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 March 31, 2008 totaled $1,608,000 (including
      penalties of $236,200 and interest of $122,000). 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.




23




**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.





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 relocated the office space in May of 2007 to the 16th
      floor but will be responsible for the lease through June 30, 2008 and as of
      March 31, 2008, $1,485 is due and payable.




***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 March 31, 2008, the amount due and payable is $9,451.41.





24




***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, th e
      Company
      is obligated to pay base monthly rents of $5,810 per month and as of March
      31,
      2008, there is no outstanding due and payable amount.




As
      of
      March 31, 2008, approximate future commitments under the Company’s leases are as
      follows:





**Year**
            
            **Amount**2008
            
            $
            605,3322009
            
            
            778,5492010
            
            
            791,3772011
            
            
            804,5952012
            
            
            794,8602013
                through 2017
            
            
            2,789,053Total
            
            $
            6,563,766




Rent
      expense totaled $219,508 and $170,379 for the three months ended March 31,
      2008
      and 2007, respectively.





**NOTE
      12 – 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 years ended March 31,
      2008 and 2007:




25




**March 31, 2008****Digital**
            
            **Digital**
            
            **Integrated**
            
            **WinSonic****Media**
            
            **Distribution**
            
            **Services**
            
            **Diversity**
            
            **Corporate****Group**
            
            **Group**
            
            **Group**
            
            **Group**
            
            **Group**
            
            **Total**Revenue
            
            $
            2,057
            
            $
            -
            
            $
            206,614
            
            $
            -
            
            $
            -
            
            $
            208,671Gross
                profit
            
            
            1,271
            
            
            -
            
            
            (29,547
            )
            
            -
            
            
            -
            
            
            (28,276
            )Operating
                expenses
            
            
            114,184
            
            
            133,382
            
            
            155,303
            
            
            40,560
            
            
            1,064,561
            
            
            1,507,990Loss
                from operations
            
            
            (112,913
            )
            
            (133,382
            )
            
            (184,850
            )
            
            (40,560
            )
            
            (1,064,561
            )
            
            (1,536,266
            )Net
                loss
            
            
            (112,913
            )
            
            (133,382
            )
            
            (184,850
            )
            
            (40,560
            )
            
            (2,102,728
            )
            
            (2,574,433
            )Total
                assets
            
            
            255,303
            
            
            535,545
            
            
            478,128
            
            
            (3,408
            )
            
            660,237
            
            
            1,925,805




**March 31, 2007****Digital**
            
            **Digital**
            
            **Integrated**
            
            **WinSonic****Media**
            
            **Distribution**
            
            **Services**
            
            **Diversity**
            
            **Corporate****Group**
            
            **Group**
            
            **Group**
            
            **Group**
            
            **Group**
            
            **Total**Revenue
            
            $
            3,100
            
            $
            -
            
            $
            651,414
            
            $
            -
            
            $
            -
            
            $
            654,514Gross
                profit
            
            
            1,547
            
            
            -
            
            
            153,310
            
            
            -
            
            
            -
            
            
            154,857Operating
                expenses
            
            
            96,495
            
            
            467,597
            
            
            355,781
            
            
            -
            
            
            1,488,966
            
            
            2,408,839Income
                (loss) from operations
            
            
            (94,948
            )
            
            (467,597
            )
            
            (202,471
            )
            
            -
            
            
            (1,488,966
            )
            
            (2,253,982
            )Net
                income (loss)
            
            
            (94,948
            )
            
            (467,597
            )
            
            (202,471
            )
            
            -
            
            
            (2,549,288
            )
            
            (3,314,304
            )Total
                assets
            
            
            163,285
            
            
            555,813
            
            
            1,629,566
            
            
            -
            
            
            269,513
            
            
            2,618,177





26




**NOTE
      13 - SUBSEQUENT EVENTS**





**Financing
      Agreements**





Subsequent
      to March 31, 2008, the Company borrowed funds for operational expenses of
      $14,832 from a related party and $215,000 from unrelated parties and each
      Promissory Note bears 6% annum interest rate and becomes due June 30, 2008
      with
      the exception of one note being due April 25, 2008. In connection with the
      loans, the Company issued 111,243 shares of its common stock to the related
      party and an aggregate of 1,300,000 shares of its common stock to the unrelated
      parties. The Company is committed to issue an additional 225,000 shares of
      its
      common stock to the unrelated parties. In addition, 540,000 shares were issued
      as additional consideration for previous financing arrangements. The Company
      will recognize financing costs totaling $728,772 related to the issuance of
      the
      shares of its common stock.




**Defaults
      on Convertible Debentures**





As
      of
      March 31, 2008, 34 of the Company’s convertible debentures had matured without
      conversion or repayment and were in default. Subsequent to March 31, 2008,
      one
      of the convertible debenture holders agreed in writing to exercise its
      conversion option and 33 convertible debentures totaling $521,745 were still
      in
      default.





**Stock
      Activity**





Subsequent
      to March 31, 2008, the Company issued 6,296,252 shares of its restricted common
      stock.





The
      Company issued 168,333 and 115,000 shares related to the exercise of stock
      options and financing warrants, respectively. These options and warrants were
      exercised by reducing accrued payroll by $24,683. The Company issued 4,066,163
      shares in connection with certain financing agreements (the costs of 2,114,920
      of these shares were accrued as financing costs at March 31, 2008). In addition,
      three of the 68 holders of the Company’s convertible debentures agreed in
      writing to exercise their conversion option at $0.20 per share. Based on these
      agreements, the Company converted $81,479 of principal and $7,892 of accrued
      interest in exchange for 446,756 shares of its restricted common stock. 
The Company also issued 1,500,000 shares in connection with an Assets and
      Goodwill Purchase Agreement with DVerb Media Group, Inc.





**Material
      Agreements**





On
      April
      2, 2008, WinSonic Digital Media Group, Ltd. and WinSonic Digital Cable Systems
      Network 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-lo 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
      April
      24, 2008, WinSonic entered in an Assets and Goodwill Purchase Agreement with
      DVerb Media Group, Inc.; issued 1,000,000 shares to James E. Thomas, President
      of DVerb Media Group, and shares to 9 DVerb employees and/or supporters totaling
      500,000 shares.




27




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. As
      referenced in Note 3 – Mergers and Acquisitions the Asset Purchase Agreement for
      the proposed transaction with WinSonic McCrary, LLC expired in accordance with
      its terms. 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. The Company is in the process of filing a lien on
      the
      assets of Colonel McCrary Trucking LLC for recovery of the loan balance. The
      balance of the loan is $450,000 and bears interest at 6% and matures at December
      31, 2008.





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.




**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.





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 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
      diagram below depicts the Company’s segment structure.




28




**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
            
            ·Tytess
                Design & Development, LLC
              ·Automated
                Interiors, LLCWinSonic
                Diversity Group
            
            ·WinSonic
                Diversity, LLCCorporate
                Group
            
            ·WinSonic
                Digital Media Group, Ltd.





As
      a
“development stage company” the Company has not commenced material commercial
      operations. As of March 31, 2008, the Company has recorded
      $2,550,972  of
      revenue since inception. During the three months ended March 31, 2008, the
      consolidated operations of the Company combined with WDCSN, Automated Interiors,
      Tytess and the Digital Store yielded revenue of $208,671.





**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 positioned 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 months ended March 31, 2008 and 2007:




**03/31/08**
            
            **03/31/07****Unaudited**
            
            **Unaudited**Revenue
            
            $
            208,671
            
            $
            654,514Gross
                profit
            
            
            (28,276
            )
            
            154,857Expenses
            
            
            1,507,990
            
            
            2,408,839Operating
                loss
            
            
            (1,536,266
            )
            
            (2,253,982
            )Other
                income/(expense), net
            
            
            (1,038,167
            )
            
            (1,060,322
            )Net
                loss
            
            
            (2,574,433
            )
            
            (3,314,304
            )Loss
                per basic and diluted common share
            
            $
            (0.03
            )
            $
            (0.07
            )




29




Consolidated
      results of operations for the three months ended March 31, 2008 generated
      $209,000 in revenues, representing a 68% decrease from the reported $655,000
      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 Tytess and Automated Interiors which was comparable to the same
      period in 2007. The decrease in revenues for the three months ended March 31,
      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 totaling $106,000. For the three months ended March 31, 2007, Tytess
      generated $338,000 in revenue and none for the same period in 2008. Automated
      Interiors revenues decreased by $106,000 due to cash flow and staffing
      challenges that have prevented it from being able to complete jobs to allow
      for
      revenue recognition in 2008.





The
      aggregate net loss for the three months ended March 31, 2008 was $2,574,000
      compared to a loss of $3,314,000 for the same period in 2007. Of this 2008
      amount, $185,000, or 7% 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 $113,000, or 6% of the total, of which $83,000 related
      to
      our Digital Store, (2) our Digital Distribution Network Group, which generated
      a
      loss of $133,000, or 5% of the total, (3) our WinSonic Diversity Group, which
      generated a loss of $41,000 and (4) our Corporate Group which generated a loss
      of $2,103,000.





***Operating
      Expenses***





As
      further detailed below, the $1,508,000 in operating expenses for the three
      months ended March 31, 2008, includes $357,000 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
      operating expense is estimated to be $362,000, prior to legal expenses and
      audit
      retainers, which would be a decrease from the 2007 monthly average of $915,000.
      Operating expenses decreased by $901,000 to $1,508,000 for the three months
      ended March 31, 2007 compared to $2,409,000 for the same period in the prior
      year, representing a decrease of 37%. The decrease was comprised of a decrease
      in payroll expense related to SG&A and R&D totaling $1,047,000 offset by
      research and development expenses totaling $38,000 and modest increases in
      selling, general and administrative expense and depreciation and amortization
      expense, as further discussed below.





A
      breakdown of consolidated operating expenses for the three months ended March
      31, 2008 and 2007 is set forth below.





**2008**
            
            **2007****Unaudited**
            
            **Unaudited**Operating
                ExpensesSelling,
                general and administrative
            
            $
            564,378
            
            $
            497,206Research
                and development
            
            
            37,642
            
            
            -Payroll
                expense - SG&A
            
            
            787,623
            
            
            1,813,144Payroll
                expense - R&D
            
            
            39,023
            
            
            60,453Consulting
                services - related party
            
            
            38,000
            
            
            2,000Depreciation
                and amortization expense
            
            
            41,324
            
            
            36,036Total
                Operating Expenses
            
            $
            1,507,990
            
            $
            2,408,839




*Selling,
      general and administrative expense*





SG&A
      expense increased by $67,000 for the three months ended March 31, 2008 compared
      to the same period in 2007, primarily related to an increase in bad debt
      expense, legal fees and facilities charges, offset by decreases in audit fees
      and temporary accounting staff charges.




30




Included
      in SG&A expense for the three months ended March 31, 2008 is bad debt
      expense of $38,000. 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 three months ended March 31, 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 $1,047,000 during the three months ended March 31, 2008
      compared to the same period in 2007. The decrease is related to a decrease
      in
      stock based compensation of $458,000 and an overall decrease in employees due
      to
      initiatives begun in the last half of 2007.





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 will be approximately $260,000 for the first two
      quarters of 2008, 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 three months ended March 31, 2008 was
      $153,000 compared with $611,000 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 three months ended March 31,
      2008 relate only to the options that have been granted subsequent to December
      31, 2007.





*Consulting
      services –related party*





Consulting
      services - related party is a non-cash expense which relates to the fair value
      of shares of common stock issued to a shareholder for consulting services
      related to assistance in developing strategies to raise capital for the Company.




*Depreciation
      and amortization*





Depreciation
      and amortization expense for the three months ended March 31, 2008 totaled
      $41,000 compared to $36,000 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 ***.***





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





Other
      income/(expense) totaled $1,038,000 for the three months ended March 31, 2008
      compared to $1,060,000 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 March 31, 2008 and 2007 is provided
      for below.




31




**2008**
            
            **2007****Unaudited**
            
            **Unaudited**Other
                income/(expense):Interest
                expense
            
            $
            (1,072,210
            )
            $
            (1,396,063
            )Interest
                expense - related party
            
            
            (4,962
            )
            
            (45,355
            )Unrealized
                gain on adjustment of derivative and warrant liability to fair value
                of
                underlying securities
            
            
            39,005
            
            
            381,096Total
                other income/(expense)
            
            $
            (1,038,167
            )
            $
            (1,060,322
            )




Interest
      expense and related-party interest expense totaled $1,077,000 during the three
      months ended March 31, 2008 compared to $1,441,000 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 decrease is related to lower finance costs related to shares
      issued in financing transactions, which had a lower stock price than in the
      prior year, offset by higher accretion of the discount on convertible debt
      with
      detachable warrants related to the early conversion of debentures to stock,
      which was delayed in the prior year due to the unavailability of Company stock
      for the conversions.





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 March 31,2008 the Company recorded an unrealized gain of
      $39,000 compared to an unrealized gain of $381,000 for the same period in 2007
      from the adjustment of these liabilities. The decrease in gain for the
      three months
      ended March 31, 2008 compared to the same period in 2007 is related to the
      decrease in the current stock price, the decrease in the time until the maturity
      date of the warrants and the lower balance of convertible debentures
      outstanding.





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.





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





**Three
                Months Ended March 31, 2008****Unaudited**
            
            **Cash**
            
            **Non-Cash**
            
            **Total**Total
                expenses
            
            $
            1,151,390
            
            $
            356,600
            
            $
            1,507,990Total
                other income/(expense)
            
            
            -
            
            
            (1,038,167
            )
            
            (1,038,167
            )Total
            
            $
            1,151,390
            
            $
            1,394,767
            
            $
            2,546,157




**Three
                Months Ended March 31, 2007****Unaudited**
            
            **Cash**
            
            **Non-Cash**
            
            **Total**Total
                expenses
            
            $
            1,738,197
            
            $
            670,642
            
            $
            2,408,839Total
                other income/(expense)
            
            
            (2,104
            )
            
            (1,058,218
            )
            
            (1,060,322
            )Total
            
            $
            1,740,301
            
            $
            1,728,860
            
            $
            3,469,161





32





**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 months ended March
      31, 2008 and 2007:





**March 31, 2008****Digital**
            
            **Digital**
            
            **Integrated**
            
            **WinSonic****Media**
            
            **Distribution**
            
            **Services**
            
            **Diversity**
            
            **Corporate****Group**
            
            **Group**
            
            **Group**
            
            **Group**
            
            **Group**
            
            **Total**Revenue
            
            $
            2,057
            
            $
            -
            
            $
            206,614
            
            $
            -
            
            $
            -
            
            $
            208,671Gross
                profit
            
            
            1,271
            
            
            -
            
            
            (29,547
            )
            
            -
            
            
            -
            
            
            (28,276
            )Operating
                expenses
            
            
            114,184
            
            
            133,382
            
            
            155,303
            
            
            40,560
            
            
            1,064,561
            
            
            1,507,990Loss
                from operations
            
            
            (112,913
            )
            
            (133,382
            )
            
            (184,850
            )
            
            (40,560
            )
            
            (1,064,561
            )
            
            (1,536,266
            )Net
                loss
            
            
            (112,913
            )
            
            (133,382
            )
            
            (184,850
            )
            
            (40,560
            )
            
            (2,102,728
            )
            
            (2,574,433
            )




**March 31, 2007****Digital**
            
            **Digital**
            
            **Integrated**
            
            **WinSonic****Media**
            
            **Distribution**
            
            **Services**
            
            **Diversity**
            
            **Corporate****Group**
            
            **Group**
            
            **Group**
            
            **Group**
            
            **Group**
            
            **Total**Revenue
            
            $
            3,100
            
            $
            -
            
            $
            651,414
            
            $
            -
            
            $
            -
            
            $
            654,514Gross
                profit
            
            
            1,547
            
            
            -
            
            
            153,310
            
            
            -
            
            
            -
            
            
            154,857Operating
                expenses
            
            
            96,495
            
            
            467,597
            
            
            355,781
            
            
            -
            
            
            1,488,966
            
            
            2,408,839Income
                (loss) from operations
            
            
            (94,948
            )
            
            (467,597
            )
            
            (202,471
            )
            
            -
            
            
            (1,488,966
            )
            
            (2,253,982
            )Net
                income (loss)
            
            
            (94,948
            )
            
            (467,597
            )
            
            (205,112
            )
            
            -
            
            
            (2,546,647
            )
            
            (3,314,304
            )




**Digital
      Media Group**





For
      the
      three months ended March 31, 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 March 31, 2007
      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 March 31, 2008 .
      The
      Company will increase personnel, as needed, when the Digital Distribution Group
      becomes fully operational.




33




**Integrated
      Services Group**





The
      decrease in revenues for the three months ended March 31, 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 totaling
      $106,000. For the three months ended, March 31, 2007, Tytess generated $338,000
      in revenue and none for the same period in 2008. Automated Interiors revenues
      decreased by $106,000. The decrease in revenues for Tytess totaled $338,000
      as
      construction was 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 the three months ended March 31, 2008 was negative $29,000 compared
      to positive $155,000 for the same period of 2007, a decrease of $184,000. For
      the three months ended March 31, 2007, Tytess generated $40,000 in gross margin
      and none for the same period in 2008. Automated Interiors gross margin decreased
      by $144,000. The decrease in gross margin for Tytess was related to the fact
      that construction was halted due to projected cost over-runs and the expanded
      completion time frames estimated to perform the contracts. The decrease in
      gross
      margin for Automated Interiors is related to cash flow and staffing challenges
      which have not allowed it to complete jobs to allow for revenue recognition
      and
      the related cost of goods sold.





Total
      operating costs have decreased for the three months ended March 31, 2008
      compared to the same period in 2007. The decrease is comprised of $85,000 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 comprised of increases in bad debt expense
      of $38,000 and facilities costs of $32,000 offset 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 March 31, 2008 consisted of occupancy costs
      under a sublease with the Corporate Group totaling $20,000 and certain
      consulting costs totaling $20,000.





**Corporate
      Group**





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





Operating
      expenses for the Corporate Group decreased by $424,000 during the three months
      ended March 31, 2008 compared to the same period in 2007. The decrease was
      primarily related to a decrease in stock based compensation of $458,000 offset
      by small increases 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 March 31,
      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
      $15,332,000 as of March 31, 2008, compared
      to a deficit of $15,763,000 as of December 31, 2007.




34




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 three months ended March 31, 2008, the Company used $653,000 in its
      operating activities, compared with $607,000 for the same period in 2007.





During
      the three months ended March 31, 2008 the Company’s investing activities used
      $78,000 for the purchase of fixed assets, compared to $13,000 for the same
      period in 2007.





During
      the three months ended March 31, 2008 the Company’s financing activities
      generated $640,000 compared to $617,000 for the same period in 2007. The funds
      generated from the Company’s financing activities during the three months ended
      March 31, 2008 consists primarily of proceeds from loans payable of $293,000,
      exercise of warrants to purchase shares of the Company’s common stock of
      $284,000, the issuance of convertible debentures of $52,000 and an increase
      in
      the bank overdraft in the amount of $11,000. For the same period in 2007, the
      Company raised $40,000 from loans payable, $243,000 from loans payable – related
      party, $179,000 from the issuance of convertible notes and an increase in the
      bank overdraft in the amount of $160,000 which was partially offset by the
      payment of loans payable of $5,000.





From
      inception, the Company has raised $9,608,000 to fund operations.  Of the
      total funds raised, $7,928,000 was used to provide the necessary resources
      for
      the development stage operations of the Company and $1,680,000 was used to
      purchase fixed assets. The funds include $5,718,000 which was raised through
      convertible debentures and warrants (net of repayments) $1,879,000 which was
      raised through loans (net of repayments) and $11,000 from an increase in the
      bank overdraft.  The Company also raised $2,000,000 from the issuance of
      common stock.





During
      the three months ended March 31, 2008 the Company’s net cash position decreased
      by $91,000.





During
      2008, the Company’s monthly cash requirements will be approximately $360,000,
      excluding legal and auditing fees. The Company is in the process of negotiating
      funding to meet these requirements.




**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.




35




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.




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 March 31, 2008 and 2007, the Company committed to issue
      options to employees for 1,900,000 and 2,475,000 shares of common stock,
      respectively. The fair value of the options granted during the three months
      ended March 31, 2008 and 2007 was $594,000 and $1,143,000, respectively. The
      Company recorded compensation expense of $153,000 and $611,000, 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 option plan and will have
      terms and conditions determined under that plan.




36




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.





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.




37




At
      March 31, 2008, the Company did not have any derivative instruments or
      hedging activities .




**Off-Balance
      Sheet Arrangements**





As
      of
      March 31, 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 overall adequate and in general
      effective, but found one area of potential deficiency or material weakness
      to be
      addressed in the Company's internal controls, as of December 31, 2007, 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 as a shortcoming in communication from the Chief Executive Officer
      (who is also our Chief Financial Officer) regarding one employee stock option
      agreement from 2005 and a convertible note from 2004 both of which needed to
      be
      submitted to the accounting staff for recording of such transactions. These
      findings were 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. The two immaterial values
      consisted of one item which related to an employee option grant which would
      have
      fallen under APB 25 that was not properly tracked in prior years and would
      have
      had no financial statement impact. The second item related to a convertible
      note
      of $7,000 including interest that had not been recorded at the time of issuance;
      the shares issued upon conversion were recorded as financing cost in 2007.
      Since
      December 2007, 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. 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. During year 2007, we hired a Chief
      Operating Officer, a Vice President of Finance and Accounting and a Controller.
      We are interviewing candidates to fill the CFO position and certain other
      accounting positions.





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, Controller and other permanent
      accounting staff in 2007, the Company has greatly improved its internal control
      over financial reporting during the three months ended March 31,
      2008.




38





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
      9 - Summary of Legal Proceedings” and “Note 13 - 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 quarter ended March 31, 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.





During
      the quarter ended March 31, 2008, the Company issued an aggregate of 6,359,333
      restricted shares of common stock as further described below. The Company issued
      1,803,994 restricted shares of common stock in connection with certain financing
      transactions. The Company issued an aggregate of 2,229,877 restricted shares
      of
      common stock to sixteen holders of the Company’s convertible debentures who
      converted such debentures. The Company issued 450,000 restricted shares of
      common stock as payment for consulting services. The Company issued 920,534
      and
      650,000 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
      March 31, 2008, 34 convertible debentures totaling $ 577,926 are in default,
      seven of the Company’s notes payable totaling $343,472 are in default and one of
      the Company’s loans payable – related party in the amount of $80,950 is in
      default.




39




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





None





**Item
      5. Other Information**





On
      April
      17, 2008, Dr. Thomas Mensah resigned as a member of the Board of Directors
      of
      the Company.





**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 Agreementby
                andbetween
                WinSonic Digital Media Group, Ltd. and Dverb Media Group dated April
                24,
                2008.*10.4
            
            Loan
                Bank Agreement dated April 29, 2008 by andbetween
                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.*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.







*
      Filed
      herewith







40


**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)May
                15, 2008
            
            /s/
                Winston JohnsonWinston
                Johnson
              Chairman
                & CEO
              (Principal
                Executive Officer and Principal Financial
                Officer)





41