UNITED
      STATES


SECURITIES
      AND EXCHANGE COMMISSION


Washington,
      D.C. 20549





**FORM
      10-QSB**





(Mark
      One) ****




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


for
      the quarter ended September 30, 2006




 ̈ 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.**


(Name
      of
      small business issuer 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,
                GA.
              (Address
                of principal executive offices)
            
            30303
              (Zip
                Code)




Issuer’s
      telephone number (404) 230-5705





(not
      applicable)


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





Check
      whether the issuer: (1) filed all reports required to be filed by Section 13
      or
      15(d) of the Exchange Act during the past 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  ̈ No x





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





The
      issuer had 49,578,057 shares of common stock outstanding as of December 28,
      2006.





**Quarterly
      Report on Form 10-QSB**


**Quarter
      Ended September 30, 2006**





**Table
      of Contents**


PagePART
                I - FINANCIAL INFORMATIONItem
                1. Consolidated Financial Statements:Unaudited
                consolidated balance sheets as of September 30, 2006 and December
                31,
                2005
            
            
            3Unaudited
                consolidated statements of operations, for the three months and nine
                months ended September 30, 2006 and 2005 and inception (April 27,
                2000) to
                September 30, 2006
            
            
            4Unaudited
                consolidated statements of cash flows, for the nine months ended
                September
                30, 2006 and 2005 and inception ( April 27, 2000) to September 30,
                2006
            
            
            5Statement
                of stockholder’s deficit (Unaudited)
            
            
            6Notes
                to the Unaudited Financial Statements
            
            
            7Item
                2. Management’s Discussion and Analysis or Plan of
                Operation
            
            
            29Item
                3. Controls and Procedures
            
            
            36PART
                II - OTHER INFORMATIONItem
                1. Legal Proceedings
            
            
            37Item
                2. Unregistered Sales of Equity Securities and Use of
                Proceeds
            
            
            38Item
                3. Defaults Upon Senior Securities
            
            
            38Item
                6. Exhibits
            
            
            38SIGNATURES
            
            
            39EXHIBIT
                INDEX







**PART
      I - FINANCIAL INFORMATION**





**Item
      1. Financial Statements.**





WINSONIC
      DIGITAL MEDIA GROUP, LTD.


(A
      DEVELOPMENT STAGE COMPANY)


**CONSOLIDATED
      BALANCE SHEETS**


AS
      OF
      SEPTEMBER 30, 2006 (UNAUDITED) & DECEMBER 31, 2005
      (AUDITED)


**As
                  of September 30, 2006**
              
              **As
                  of December 31, 2005****ASSETS**ASSETS:Current
                  assets:Cash
              
              
              -
              
              
              -Accounts
                  receivable
              
              
              372,406
              
              
              -Prepaid
                  expense
              
              
              34,897
              
              
              16,476Construction
                  in process
              
              
              79,142
              
              
              -**Total
                  current assets**
              
              
              **486,445**
              
              
              **16,476**Fixed
                  assets:Computer
                  equipment
              
              
              1,109,309
              
              
              977,669Infrastructure
              
              
              158,400
              
              
              158,400Software
              
              
              83,597
              
              
              82,899Furniture
                  & fixtures
              
              
              84,503
              
              
              36,682Automobile
              
              
              74,631
              
              
              -Less:
                  accumulated depreciation
              
              
              (728,931
              )
              
              (614,194
              )Total
                  Net fixed assets
              
              
              781,509
              
              
              641,456Goodwill
              
              
              91,871
              
              
              -**TOTAL
                  ASSETS**
              
              **$**
              **1,359,825**
              
              **$**
              **657,932****LIABILITIES
                  AND STOCKHOLDERS' DEFICIT**LIABILITIES:Current
                  liabilities:Accounts
                  payable and accrued expenses
              
              $
              2,517,971
              
              $
              2,094,824Bank
                  overdraft
              
              
              5,559
              
              
              14,468Billings
                  on construction in process
              
              
              123,927
              
              
              -Accrued
                  payroll and related taxes
              
              
              2,307,055
              
              
              1,353,053Legal
                  settlement liabilities
              
              
              575,000
              
              
              1,020,000Loans
                  payable
              
              
              456,221
              
              
              383,357Loan
                  payable -related party
              
              
              334,653
              
              
              435,398Derivative
                  liability related to convertible debentures
              
              
              44,294
              
              
              82,483Warrant
                  liability related to convertible debentures
              
              
              748,680
              
              
              23,406Convertible
                  debentures
              
              
              253,707
              
              
              1,122,639Share
                  notes
              
              
              462,303
              
              
              -Current
                  portion of long term liabilities
              
              
              7,900
              
              
              -**Total
                  current liabilities**
              
              
              **7,837,270**
              
              
              **6,529,628****Long
                  term debt**
              
              
              **128,703**
              
              
              **-****TOTAL
                  LIABILITIES**
              
              
              **7,965,973**
              
              
              **6,529,628**Common
                  stock, $0.001 par value, 50,000,000 sharesauthorized,
                  48,132,306 and 40,204,556 shares issued andoutstanding
                  at September 30, 2006 and December 31, 2005,
                  respectively
              
              
              48,132
              
              
              40,205Additional
                  paid-in capital
              
              
              11,544,253
              
              
              6,517,807Common
                  stock payable at $0.33 per share at September 30, 2006 and December
                  31,2005,
                  respectively
              
              
              20,000
              
              
              20,000Accumulated
                  deficit during development stage
              
              
              (18,218,533
              )
              
              (12,449,708
              )**Total
                  stockholders' deficit**
              
              
              (6,606,148
              )
              
              (5,871,696
              )**TOTAL
                  LIABILITIES AND STOCKHOLDERS' DEFICIT**
              
              **$**
              **1,359,825**
              
              **$**
              **657,932**





*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)


**CONSOLIDATED
      STATEMENTS OF OPERATIONS**


FOR
      THE
      THREE & NINE MONTH PERIODS ENDED SEPTEMBER 30, 2006 & 2005


AND
      FROM
      INCEPTION (APRIL 27, 2000) TO SEPTEMBER 30, 2006 (UNAUDITED)


**For
                  the quarter ended**
              
              **For
                  the nine months ended****September
                  30,**
              
              **September
                  30,****2006**
              
              **2005**
              
              **2006**
              
              **2005**
              
              **Inception
                  (April 27, 2006) to September 30, 2006****REVENUE**
              
              **$**
              **310,364**
              
              **$**
              **-**
              
              **$**
              **547,140**
              
              **$**
              **-**
              
              **$**
              **604,430****COST
                  OF GOODS SOLD**
              
              
              **284,993**
              
              
              **40,232**
              
              
              **440,942**
              
              
              **273,946**
              
              
              **1,589,581****GROSS
                  PROFIT**
              
              
              **25,371**
              
              
              **(40,232**
              **)**
              
              **106,198**
              
              
              **(273,946**
              **)**
              
              **(985,151**
              **)****EXPENSES:**Selling,
                  general and administrative
              
              
              1,326,230
              
              
              224,604
              
              
              3,429,189
              
              
              776,904
              
              
              7,712,109Selling,
                  general and administrative, related party
              
              
              135,667
              
              
              207,500
              
              
              615,859
              
              
              622,500
              
              
              2,504,303Consulting
                  services, related party
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              2,071,268Depreciation
                  and amortization expense
              
              
              35,176
              
              
              85,600
              
              
              107,170
              
              
              256,800
              
              
              1,002,845**Total
                  expenses**
              
              
              **1,497,073**
              
              
              **517,704**
              
              
              **4,152,218**
              
              
              **1,656,204**
              
              
              **13,290,525****OPERATING
                  INCOME (LOSS)**
              
              
              **(1,471,702**
              **)**
              
              **(557,936**
              **)**
              
              **(4,046,020**
              **)**
              
              **(1,930,150**
              **)**
              
              **(14,275,676**
              **)****OTHER
                  INCOME/(EXPENSES):**Interest
                  expense and finace costs
              
              
              (444,708
              )
              
              (323,208
              
              
              (910,445
              )
              
              (916,505
              )
              
              (3,166,863
              )Unrealized
                  gain (loss) on adjustment of derivative and warrantliability
                  to fair value of underlying securities
              
              
              (520,006
              )
              
              157,210
              
              
              (814,709
              )
              
              1,212,102
              
              
              (1,834,709
              )Legal
                  settlement costs
              
              
              13,500
              
              
              -
              
              
              2,000
              
              
              -
              
              
              972,185Interest
                  income
              
              
              29
              
              
              28
              
              
              321
              
              
              461
              
              
              1,051Other
                  income (loss)
              
              
              (1,033
              )
              
              -
              
              
              28
              
              
              -
              
              
              85,479**Total
                  other income/(expenses)**
              
              
              **(952,218**
              **)**
              
              **(165,970**
              
              
              **(1,722,805**
              **)**
              
              **296,058**
              
              
              **(3,942,857**
              **)****NET
                  INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES**
              
              
              **(2,423,920**
              **)**
              
              **(723,906**
              **)**
              
              **(5,768,825**
              **)**
              
              **(1,634,092**
              **)**
              
              **(18,218,533**
              **)****PROVISION
                  FOR INCOME TAXES**
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -**NET
                  LOSS**
              
              **$**
              **(2,423,920**
              **)**
              
              **(723,906**
              
              **$**
              **(5,768,825**
              **)**
              
              **(1,634,092**
              
              **$**
              **(18,218,533**
              **)**Basic
                  weighted average number ofcommon
                  shares outstanding
              
              
              **46,539,328**
              
              
              **14,906,150**
              
              
              **43,218,180**
              
              
              **14,906,150****Net
                  loss per basic and diluted common share**
              
              **$**
              **(0.05**
              **)**
              **$**
              **(0.05**
              **)**
              **$**
              **(0.13**
              **)**
              **$**
              **(0.11**
              **)**


*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)


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**


FOR
      THE
      NINE MONTHS ENDED SEPTEMBER 30, 2006 & 2005


AND
      FROM
      INCEPTION (APRIL 27, 2000) TO SEPTEMBER 30, 2006 (UNAUDITED)


**For
                  the nine months ended September 30,****2006**
              
              **2005**
              
              **Inception
                  (April 20, 2000) to September 30, 2006****CASH
                  FLOWS FROM OPERATING ACTIVITIES:**Net
                  (loss)
              
              $
              (5,768,825
              )
              $
              (1,634,092
              )
              $
              (18,218,533
              )Adjustments
                  to reconcile net lossto
                  net cash used in operations:Depreciation
              
              
              107,170
              
              
              256,800
              
              
              1,002,845Accretion
                  of principal and interest related to convertible
                  debentures
              
              
              (756,052
              )
              
              826,801
              
              
              355,366Unrealized
                  (gain) loss on adjustment of derivative and warrant liability to
                  fair
                  value of underlying securities
              
              
              814,709
              
              
              (1,212,102
              )
              
              (155,476
              )Stock
                  based expenses
              
              
              1,810,819
              
              
              243,334
              
              
              5,040,034Change
                  in operating assets and liabilities:(Increase)
                  decrease in accounts receivable
              
              
              (153,586
              )
              
              -
              
              
              (153,586
              )(Increase)
                  decrease in prepaid expense
              
              
              (16,101
              )
              
              -
              
              
              (32,577
              )(Increase)
                  decrease in deposit
              
              
              -
              
              
              4,490
              
              
              -(Increase)
                  decrease in construction in progress
              
              
              (74,687
              )
              
              -
              
              
              (74,687
              )(Increase)
                  decrease in other assets
              
              
              (27,843
              )
              
              -
              
              
              (27,843
              )Increase
                  (decrease) in bank overdraft
              
              
              (8,909
              )
              
              -
              
              
              5,559Increase
                  (decrease) in accounts payable and accrued expenses
              
              
              391,867
              
              
              310,769
              
              
              2,730,162Increase
                  (decrease) in accrued payroll and related taxes
              
              
              1,257,664
              
              
              451,349
              
              
              2,901,371Increase
                  (decrease) in billings on construction in process
              
              
              86,986
              
              
              -
              
              
              86,986Increase
                  (decrease) in legal settlement liabilities
              
              
              5,000
              
              
              -
              
              
              1,025,000Increase
                  (decrease) in interest payable
              
              
              -
              
              
              38,184
              
              
              -**Net
                  cash used in operating activities**
              
              
              (2,331,788
              )
              
              (714,467
              )
              
              (5,515,379
              )**CASH
                  FLOWS FROM INVESTING ACTIVITIES:**Cash
                  acquired through business acquisition
              
              
              20,511
              
              
              **-**
              
              
              20,511Purchase
                  of fixed assets
              
              
              (180,691
              )
              
              (11,720
              )
              
              (1,436,341
              )Net
                  cash provided by investing activities
              
              
              (160,180
              )
              
              (11,720
              )
              
              (1,415,830
              )**CASH
                  FLOWS FROM FINANCING ACTIVITIES:**Proceeds
                  from loans payable
              
              
              69,666
              
              
              18,907
              
              
              489,239Payment
                  on loans payable
              
              
              -
              
              
              -
              
              
              -Proceeds
                  from loan payable - related party
              
              
              20,082
              
              
              44,877
              
              
              843,808Payment
                  on note payable - related party
              
              
              (120,830
              )
              
              (160,000
              )
              
              (280,830
              )Forgiveness
                  of accrued interest - Digital Services International,
                  Inc.
              
              
              -
              
              
              -
              
              
              152,592Proceeds
                  from convertible debentures
              
              
              1,233,950
              
              
              388,250
              
              
              2,437,200Proceeds
                  from common stock issued
              
              
              1,289,100
              
              
              -
              
              
              3,289,200**Net
                  cash(used in) provided by financing activities**
              
              
              **2,491,968**
              
              
              **292,034**
              
              
              **6,931,209****NET
                  (DECREASE) INCREASE IN CASH**
              
              **$**
              **-**
              
              **$**
              (434,153
              )
              **$**
              **-****CASH,
                  BEGINNING OF PERIOD**
              
              **$**
              **-**
              
              **$**
              **436,749**
              
              **$**
              **-****CASH,
                  END OF PERIOD**
              
              **$**
              **-**
              
              **$**
              **2,596**
              
              **$**
              **-****SUPPLEMENTARY
                  INFORMATION:**Interest
                  paid
              
              **$**
              **47,695**
              
              **$**
              **-**
              
              **$**
              **47,695****NON-CASH
                  ACTIVITIES:**Issuance
                  of common stock for common stock payable
              
              $
              19,867
              
              $
              -
              
              $
              289,867Forgiveness
                  of salary payable to officer
              
              $
              399,919
              
              $
              -
              
              $
              420,574Forgiveness
                  of payroll tax for officer
              
              $
              -
              
              $
              -
              
              $
              250,000Issuance
                  of common stock as deposit on lease obligation
              
              $
              -
              
              $
              -
              
              $
              820,000Issuance
                  of common stock as payment on notes payable - related party
              
              $
              -
              
              $
              -
              
              $
              231,000Issuance
                  of common stock upon conversion of debentures
              
              $
              889,709
              
              $
              -
              
              $
              1,007,709Issuance
                  of common stock for legal settlement
              
              $
              450,000
              
              $
              -
              
              $
              895,000Adjustment
                  to paid in capital for Accumulated Depreciation
              
              $
              -
              
              $
              -
              
              $
              -Issuance
                  of common stock as payment forsubsidiary
                  acquired
              
              $
              168,902
              
              $
              -
              
              $
              168,902Cash
                  free conversion of warrants
              
              $
              94,030
              
              $
              -
              
              $
              333,334Issuance
                  of common stock to key employees
              
              $
              314,823
              
              $
              -
              
              $
              314,823





*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)


**STATEMENT
      OF STOCKHOLDERS' DEFICIT**


(UNAUDITED)




Common
              
              
              
              AccumulatedStock
              
              Stock
              
              Deficit
                  During
              
              TotalPreferred
                  Stock
              
              Common
                  Stock
              
              Additional
                Paid-in
              
              Payable
              
              Options
              
              Development
              
              Stockholders'Shares
              
              Amount
              
              Shares
              
              Amount
              
              Capital
              
              or
                  Payment
              
              Payments
              
              Stage
              
              Deficit**Balance,
                  September 10, 2002 (Inception) - No Par Stock**
              
              
              **10,000,000**
              
              **$**
              **-**
              
              
              **10,000,000**
              
              **$**
              **-**
              
              **$**
              **-**
              
              **$**
              **-**
              
              **$**
              **-**
              
              **$**
              **-**
              
              **$**
              **-**Reverse
                  Merger - Re-acquisition of all outstanding sharesof
                  Winsonic Acquisition Sub, Inc. - No Par Stock (Restated to
                  inception)
              
              
              (10,000,000
              )
              
              **-**
              
              
              (10,000,000
              )
              
              **-**
              
              
              **-**
              
              
              **-**
              
              
              **-**
              
              
              **-**
              
              
              **-**Issuance
                  of common stock to founder for services
              
              
              
              
              
              **-**
              
              
              6,004,200
              
              
              6,004
              
              
              **-**
              
              
              
              
              
              
              
              
              
              
              
              6,004**Balance,
                  September 10, 2002 (Restated)**
              
              
              **-**
              
              
              **-**
              
              
              **6,004,200**
              
              
              **6,004**
              
              
              **-**
              
              
              **-**
              
              
              **-**
              
              
              **-**
              
              
              **6,004**Issuance
                  of stock warrants (December 26, 2002)
              
              
              **-**
              
              
              **-**
              
              
              **-**
              
              
              **-**
              
              
              **-**
              
              
              990,600
              
              
              **-**
              
              
              **-**
              
              
              990,600Net
                  loss
              
              
              **-**
              
              
              **-**
              
              
              **-**
              
              
              -
              
              
              **-**
              
              
              -
              
              
              **-**
              
              
              (647,417
              )
              
              (647,417
              )**Balance,
                  December 31, 2002 (Restated)**
              
              
              **-**
              
              
              **-**
              
              
              **6,004,200**
              
              
              **6,004**
              
              
              **-**
              
              
              **990,600**
              
              
              **-**
              
              
              **(647,417**
              **)**
              
              **349,187**Issuance
                  of stock warrants
              
              
              **-**
              
              
              **-**
              
              
              **-**
              
              
              **-**
              
              
              **-**
              
              
              1,009,500
              
              
              **-**
              
              
              **-**
              
              
              1,009,500Net
                  loss
              
              
              **-**
              
              
              **-**
              
              
              **-**
              
              
              **-**
              
              
              **-**
              
              
              **-**
              
              
              **-**
              
              
              (1,905,884
              )
              
              (1,905,884
              )**Balance,
                  December 31, 2003 (Restated)**
              
              
              **-**
              
              
              **-**
              
              
              **6,004,200**
              
              
              **6,004**
              
              
              **-**
              
              
              **2,000,100**
              
              
              **-**
              
              
              **(2,553,301**
              **)**
              
              **(547,197**
              **)**Issuance
                  of common stock for services, $0.75average
                  price per share
              
              
              **-**
              
              
              **-**
              
              
              1,980,946
              
              
              1,981
              
              
              1,488,328
              
              
              **-**
              
              
              **-**
              
              
              **-**
              
              
              1,490,309Issuance
                  of common stock in satisafaction of debts of$331,000
                  and deemed interest of $242,500
              
              
              **-**
              
              
              **-**
              
              
              758,000
              
              
              758
              
              
              572,742
              
              
              **-**
              
              
              **-**
              
              
              **-**
              
              
              573,500Issuance
                  of common stock, $1.00 price per share
              
              
              **-**
              
              
              **-**
              
              
              921,600
              
              
              922
              
              
              920,678
              
              
              (921,600
              )
              
              **-**
              
              
              **-**
              
              
              **-**Conversion
                  of common stock payable to loan payable
              
              
              **-**
              
              
              **-**
              
              
              **-**
              
              
              **-**
              
              
              60,000
              
              
              (258,500
              )
              
              **-**
              
              
              **-**
              
              
              (198,500
              )Issuance
                  of common stock related to reverse-merger
              
              
              **-**
              
              
              **-**
              
              
              23,956,138
              
              
              23,956
              
              
              (123,487
              )
              
              **-**
              
              
              **-**
              
              
              **-**
              
              
              (99,531
              )**-**
              
              
              **-**
              
              
              **-**
              
              
              **-**
              
              
              **-**
              
              
              **-**
              
              
              **-**
              
              
              **-**
              
              
              -Net
                  loss
              
              
              **-**
              
              
              **-**
              
              
              **-**
              
              
              **-**
              
              
              **-**
              
              
              **-**
              
              
              **-**
              
              
              (5,790,794
              )
              
              (5,790,794
              )**Balance,
                  December 31, 2004 (Restated)**
              
              
              **-**
              
              
              **-**
              
              
              **33,620,884**
              
              
              **33,621**
              
              
              **2,918,261**
              
              
              **820,000**
              
              
              **-**
              
              
              **(8,344,095**
              **)**
              
              **(4,572,213**
              **)**Issuance
                  of common stock for services, $1.30 average price per
                  share
              
              
              **-**
              
              
              **-**
              
              
              94,615
              
              
              95
              
              
              122,905
              
              
              **-**
              
              
              **-**
              
              
              **-**
              
              
              123,000Issuance
                  of common stock for services, $0.82 average price per
                  share
              
              
              **-**
              
              
              **-**
              
              
              91,463
              
              
              91
              
              
              74,909
              
              
              **-**
              
              
              **-**
              
              
              **-**
              
              
              75,000Issuance
                  of common stock for services, $0.68 average price per
                  share
              
              
              **-**
              
              
              **-**
              
              
              66,667
              
              
              67
              
              
              45,267
              
              
              **-**
              
              
              **-**
              
              
              **-**
              
              
              45,334Issuance
                  of common stock for equity investment in NATVN
              
              
              **-**
              
              
              **-**
              
              
              1,670,000
              
              
              1,670
              
              
              (1,670
              )
              
              **-**
              
              
              **-**
              
              
              **-**
              
              
              **-**Issuance
                  of common stock founder to relieve related party note payable due
                  him,
              
              
              **-**
              
              
              **-**
              
              
              700,000
              
              
              700
              
              
              230,300
              
              
              **-**
              
              
              **-**
              
              
              **-**
              
              
              231,000at
                  $0.33 average price per shareIssuance
                  of common stock to founder for services, $0.33 average price per
                  share
              
              
              **-**
              
              
              **-**
              
              
              500,000
              
              
              500
              
              
              164,500
              
              
              **-**
              
              
              **-**
              
              
              **-**
              
              
              165,000Issuance
                  of common stock for services, $0.70 average price per
                  share
              
              
              **-**
              
              
              **-**
              
              
              900,000
              
              
              900
              
              
              629,100
              
              
              **-**
              
              
              **-**
              
              
              **-**
              
              
              630,000Issuance
                  of common stock for services, $0.48 average price per
                  share
              
              
              **-**
              
              
              **-**
              
              
              225,000
              
              
              225
              
              
              107,775
              
              
              **-**
              
              
              **-**
              
              
              **-**
              
              
              108,000Issuance
                  of common stock in satisfaction of convertible debentures debts
                  of
                  $118,000,at
                  $0.20 average price per share
              
              
              **-**
              
              
              **-**
              
              
              590,000
              
              
              590
              
              
              117,410
              
              
              **-**
              
              
              **-**
              
              
              **-**
              
              
              118,000Issuance
                  of common stock as lease deposit, $0.27 average price per
                  share
              
              
              **-**
              
              
              **-**
              
              
              925,927
              
              
              926
              
              
              249,074
              
              
              (250,000
              )
              
              **-**
              
              
              **-**
              
              
              **-**Issuance
                  of common stock for common stock payable, $1.00 average price per
                  share
              
              
              **-**
              
              
              **-**
              
              
              820,000
              
              
              820
              
              
              819,180
              
              
              (820,000
              )
              
              **-**
              
              
              **-**
              
              
              **-**Return
                  of pledged assets, reversal of accumulated depreciation, and forgiveness
                  of debt - related party
              
              
              **-**
              
              
              **-**
              
              
              **-**
              
              
              **-**
              
              
              281,481
              
              
              **-**
              
              
              **-**
              
              
              **-**
              
              
              281,481Forgiveness
                  of interest expense - related party
              
              
              **-**
              
              
              **-**
              
              
              **-**
              
              
              **-**
              
              
              152,592
              
              
              **-**
              
              
              **-**
              
              
              **-**
              
              
              152,592Vested
                  common stock award for officer
              
              
              **-**
              
              
              **-**
              
              
              **-**
              
              
              **-**
              
              
              185,000
              
              
              **-**
              
              
              **-**
              
              
              **-**
              
              
              185,000Common
                  stock payable to officer for separation agreement, $0.33 average
                  price per
                  share
              
              
              **-**
              
              
              **-**
              
              
              **-**
              
              
              **-**
              
              
              **-**
              
              
              270,000
              
              
              **-**
              
              
              **-**
              
              
              270,000Record
                  forgiveness of accrued salary for officer per separation
                  agreement
              
              
              **-**
              
              
              **-**
              
              
              **-**
              
              
              **-**
              
              
              270,000
              
              
              **-**
              
              
              **-**
              
              
              **-**
              
              
              270,000Record
                  adjustment for accrued payroll taxes for officer per separation
                  agreement
              
              
              **-**
              
              
              **-**
              
              
              **-**
              
              
              **-**
              
              
              20,655
              
              
              **-**
              
              
              **-**
              
              
              **-**
              
              
              20,655Vested
                  stock options granted to officer for separation agreement
              
              
              **-**
              
              
              **-**
              
              
              **-**
              
              
              **-**
              
              
              131,068
              
              
              **-**
              
              
              **-**
              
              
              **-**
              
              
              131,068Net
                  loss
              
              
              **-**
              
              
              **-**
              
              
              **-**
              
              
              **-**
              
              
              **-**
              
              
              **-**
              
              
              **-**
              
              
              (4,105,613
              )
              
              (4,105,613
              )**Balance,
                  December 31, 2005**
              
              
              **-**
              
              
              **-**
              
              
              **40,204,556**
              
              
              **40,205**
              
              
              **6,517,807**
              
              
              **20,000**
              
              
              **-**
              
              
              **(12,449,708**
              **)**
              
              **(5,871,696**
              **)**Issuance
                  of common stock in accordance with mutual general release and settlement
                  agreement of$693,000,
                  at $0.46 average price per share
              
              
              **-**
              
              
              **-**
              
              
              900,000
              
              
              900
              
              
              449,100
              
              
              **-**
              
              
              **-**
              
              
              **-**
              
              
              450,000Issuance
                  of common stock in conversion of shareholder note payable, 0.20
                  per
                  share
              
              
              **-**
              
              
              **-**
              
              
              751,432
              
              
              750
              
              
              149,536
              
              
              **-**
              
              
              **-**
              
              
              **-**
              
              
              150,286Issuance
                  of common stock to employees converting options
              
              
              **-**
              
              
              **-**
              
              
              500,000
              
              
              500
              
              
              4,500
              
              
              **-**
              
              
              **-**
              
              
              **-**
              
              
              5,000Issuance
                  of stock in acquisition of subsidiary
              
              
              **-**
              
              
              **-**
              
              
              411,956
              
              
              412
              
              
              168,490
              
              
              **-**
              
              
              **-**
              
              
              **-**
              
              
              168,902Issuance
                  of stock for services to AI employees
              
              
              **-**
              
              
              **-**
              
              
              750,000
              
              
              750
              
              
              299,250
              
              
              **-**
              
              
              **-**
              
              
              **-**
              
              
              300,000Issuance
                  of common stock subject to conversion of option for services, $0.40
                  average price per share
              
              
              **-**
              
              
              **-**
              
              
              82,051
              
              
              82
              
              
              31,918
              
              
              **-**
              
              
              **-**
              
              
              **-**
              
              
              32,000Incentive
                  stock options for employees
              
              
              **-**
              
              
              **-**
              
              
              -
              
              
              -
              
              
              419,645
              
              
              **-**
              
              
              **-**
              
              
              
              
              
              419,645**-**Discount
                  allocated to warrant on convertible debt
              
              
              **-**
              
              
              **-**
              
              
              -
              
              
              -
              
              
              621,229
              
              
              **-**
              
              
              **-**
              
              
              
              
              
              621,229Discount
                  for intrinsic value of embedded beneficial conversion
                  option
              
              
              **-**
              
              
              **-**
              
              
              -
              
              
              -
              
              
              381,221
              
              
              **-**
              
              
              **-**
              
              
              **-**
              
              
              381,221Issuance
                  of warrants to fianncial consultant
              
              
              **-**
              
              
              **-**
              
              
              -
              
              
              -
              
              
              9,359
              
              
              
              
              
              
              
              
              
              
              
              9,359To
                  record forgiveness of accrued salary for officer
              
              
              **-**
              
              
              **-**
              
              
              -
              
              
              -
              
              
              399,919
              
              
              **-**
              
              
              **-**
              
              
              **-**
              
              
              399,919(2,943,494
              )Issuance
                  of stock to shareholder replacing shares loaned to the Company
              
              
              **-**
              
              
              **-**
              
              
              400,000
              
              
              400
              
              
              84,292
              
              
              **-**
              
              
              **-**
              
              
              **-**
              
              
              84,692Issuance
                  of stock in repayment of cash loaned to the Company at $0.20 per
                  share
              
              
              **-**
              
              
              **-**
              
              
              89,850
              
              
              90
              
              
              35,940
              
              
              **-**
              
              
              **-**
              
              
              **-**
              
              
              36,030Issuance
                  of shares upon exercise of convertible notes at $0.20 per
                  share
              
              
              **-**
              
              
              **-**
              
              
              992,800
              
              
              993
              
              
              199,975
              
              
              **-**
              
              
              **-**
              
              
              **-**
              
              
              200,968Issuance
                  of shares upon exercise of convertible notes at $0.40 per
                  share
              
              
              **-**
              
              
              **-**
              
              
              2,153,719
              
              
              2,154
              
              
              859,334
              
              
              **-**
              
              
              **-**
              
              
              **-**
              
              
              861,488Issuance
                  of shares for legal services
              
              
              **-**
              
              
              **-**
              
              
              89,231
              
              
              89
              
              
              57,911
              
              
              **-**
              
              
              **-**
              
              
              **-**
              
              
              58,000Fair
                  market value of options and shares issued to consultants for
                  services
              
              
              **-**
              
              
              **-**
              
              
              610,000
              
              
              610
              
              
              247,154
              
              
              **-**
              
              
              **-**
              
              
              **-**
              
              
              247,764Shares
                  issued in satisfaction of cash and interest loaned to the
                  Company
              
              
              **-**
              
              
              **-**
              
              
              64,211
              
              
              64
              
              
              12,975
              
              
              **-**
              
              
              **-**
              
              
              **-**
              
              
              13,039Shares
                  issued for cash at $0.20 per share
              
              
              **-**
              
              
              **-**
              
              
              32,500
              
              
              33
              
              
              6,468
              
              
              **-**
              
              
              **-**
              
              
              **-**
              
              
              6,501Shares
                  issued to employee upon exercise of warrant
              
              
              **-**
              
              
              **-**
              
              
              100,000
              
              
              100
              
              
              14,723
              
              
              **-**
              
              
              **-**
              
              
              **-**
              
              
              14,823Charge
                  to Paid in Capital for accretion of beneficial conversion feature
                  on
                  convertible notes
              
              
              **-**
              
              
              **-**
              
              
              **-**
              
              
              **-**
              
              
              127,944
              
              
              **-**
              
              
              **-**
              
              
              **-**
              
              
              127,944Charge
                  to Paid in Capital for discount allocated to warrant attached to
                  convertible shares
              
              
              **-**
              
              
              **-**
              
              
              **-**
              
              
              **-**
              
              
              122,056
              
              
              **-**
              
              
              **-**
              
              
              **-**
              
              
              122,056Charge
                  to Paid in Capital for fair market value of employee incentive
                  options
                  vesting during the period
              
              
              **-**
              
              
              **-**
              
              
              **-**
              
              
              **-**
              
              
              323,507
              
              
              **-**
              
              
              **-**
              
              
              **-**
              
              
              323,507Net
                  loss
              
              
              **-**
              
              
              **-**
              
              
              **-**
              
              
              **-**
              
              
              **-**
              
              
              **-**
              
              
              **-**
              
              
              (5,768,825
              )
              
              (5,768,825
              )**Balance,
                  September 30, 2006**
              
              
              **-**
              
              **$**
              **-**
              
              
              **48,132,306**
              
              **$**
              **48,132**
              
              **$**
              **11,544,253**
              
              **$**
              **20,000**
              
              **$**
              **-**
              
              **$**
              **(18,218,533**
              **)**
              **$**
              **(9,573,824**
              **)**
  *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 FINANCIAL STATEMENTS**




**NOTE
      1 - BASIS OF PRESENTATION**




The
      accompanying consolidated financial statements have been prepared by Winsonic
      Digital Media Group, Ltd. (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 at September 30, 2006 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 of America have been condensed or omitted for purposes of filing
      interim financial statements with the Securities and Exchange Commission. It
      is
      suggested that these condensed financial statements 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, 2005 and
      the supplementary information filed in connection with the acquisition of
      Automated Interiors, LLC (“AI”), including audited December 31, 2005 financial
      statements of AI. The results of operations for the three and nine month periods
      ended September 30, 2006 are not necessarily indicative of the operating results
      for the full year.





**Winsonic
      Digital Media Group, Ltd.**





The
      Company is a media distribution solutions company that primarily offers media
      distribution of digital information via the Internet, ATM, SDI, HDTV, digital
      cable, cable TV and satellite. The Company’s network, Winsonic Digital Cable
      Systems Network (WDCSN), enables users to view, interact, transport, and listen
      to all types of audio, online video, and digital TV in full screen format,
      at
      high speed, high quality, and greatly reduced cost, thereby reducing the need
      for expensive high-speed connections.





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.
      As of
      September 30, 2006, the Company has not commenced its planned principal
      operations and has no significant revenues.




**Automated
      Interiors, LLC**


On
        April
        18, 2006, the Company acquired Automated Interiors, LLC (“AI”) (a private
        Georgia Limited Liability Corporation) pursuant to an Amended and Restated
        Acquisition and Share Exchange Agreement (the “Acquisition Agreement”) executed
        on May 15, 2006 and effective for all purposes as of April 18, 2006. AI plans
        and engineers the installation of electronic components to facilitate “smart”
buildings. It has partnered with developers and builders who now offer
        structured wiring in newly constructed homes and buildings as a result of
        a
        dramatic increase in broadband use and consumer demand for the latest
        technological innovations in home and security automation. AI’s operations are
        centered primarily in the Southeast Region of the United States. It has been
        in
        business since 2003 and currently has offices and design facilities in Atlanta,
        Georgia.





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




**Principles
      of Consolidation:** The
      attached consolidated financial statements include the accounts of the Company
      and its wholly owned subsidiary. All significant inter-company transactions
      have
      been eliminated in consolidation. ****





**Definition
      of Fiscal Year:** The
      Company’s fiscal year end is December 31.





7


**Cash
      and Cash Equivalents:** Cash
      equivalents consist of highly liquid investments with maturities of three months
      or less when purchased. Cash and cash equivalents are on deposit with financial
      institutions without any restrictions.





**Concentration
      of Credit Risk:** The
      Company maintains its cash and cash equivalents in bank accounts in two
      financial institutions. The Federal Deposit Insurance Corporation insures
      deposits up to $100,000 per account. As of September 30, 2006, the Company
      did
      not have any accounts with balances in excess of the insured balances. As of
      September 30, 2006 and December 31, 2005, the Company had a balance of ($5,559)
      and ($14,468), respectively, in its cash accounts. Currently, cash management
      is
      handled by Company management. Typically, the cash balances are less than
      $100,000 per account.





**Accounts
      Receivable:** Accounts
      receivable is uncollateralized customer obligations due under normal trade
      terms
      requiring payment within 30 days from the invoice date. The carrying amount
      of
      accounts receivable is reviewed for collectibility. Should management determine
      that collection is unlikely, an allowance that reflects management’s best
      estimate of the amounts that will not be collected will be provided. Management
      reviews each accounts receivable balance that exceeds 30 days from the invoice
      date and, based on an assessment of creditworthiness, estimates the portion,
      if
      any, of the balance that will not be collected. At September 30, 2006 and
      December 31, 2005, there was no reserve for doubtful accounts.




**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.





**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
      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 and nine months ended September 30, 2006, the Company granted options
      for 2,000,000 and 4,800,000 shares of common stock, respectively, to employees.
      Of these granted options, 996,540 and 709,622 vested during the three-month
      and
      nine-month periods ended September 30, 2006, respectively. For the vested
      portion, there was a related accrual of compensation expense of $323,507 and
      $743,153 for the three months and the nine months ended September 30, 2006,
      respectively. The compensation expense is based on the fair market value of
      the
      options utilizing the Black-Scholes option pricing model. The Company’s employee
      stock option activity for the three months and nine months ended September
      30,
      2006 and the year ended December 31, 2005 is presented below:





**Three
                months ended**
              **September
                30, 2006**
            
            **Nine
                months ended**
              **September
                30, 2006**
            
            **December
                31, 2005**Options
            
            Weighted
                Average
              Exercise
                Price
            
            Options
            
            Weighted
                Average
              Exercise
                Price
            
            Options
            
            Weighted
                Average
              Exercise
                PriceOutstanding
                - Beginning of Period
            
            
            5,300,000
            
            $
            0.69
            
            
            4,000,000
            
            $
            0.82
            
            
            3,250,000
            
            
            
            
            $
            0.97Granted
                or committed
            
            
            2,000,000
            
            
            0.75
            
            
            4,800,000
            
            
            0.66
            
            
            1,250,000
            
            
            
            
            
            0.41Exercised
            
            
            (100,000
            )
            
            -
            
            
            (600,000
            )
            
            -
            
            
            -
            
            
            
            
            
            -Cancelled
            
            
            
            
            
            -
            
            
            (1,000,000
            )
            
            -
            
            
            (500,000
            )
            
            
            
            
            -Outstanding
                - End of Period
            
            
            7,200,000
            
            
            0.69
            
            
            7,200,000
            
            $
            0.69
            
            
            4,000,000
            
            
            
            
            $
            0.82Exercisable
                - End of Period
            
            
            3,992,894
            
            $
            0.88
            
            
            3,992,894
            
            $
            0.80
            
            
            3,275,796
            
            
            
            
            $
            0.82





In
        addition to the options granted to employees, the Company had granted options
        to
        certain consultants. At June 30, 2006, there were 685,000 options granted
        to
        consultants and exercisable at an average price of $0.60. In the three months
        ended September 30, 2006, an additional 450,000 options were granted to
        consultants at an exercise price of $0.01, of which 200,00 were exercised
        at
        $0.01 per share during the current quarter. At September 30, 2006, the total
        number of options outstanding to consultants was 935,000 at an average exercise
        price of $0.44.


8




In
      prior
      years, the Company followed APB Opinion No. 25, “Accounting for Stock Issued to
      Employees,” and the related interpretations, in accounting for its employee
      stock options because the alternative fair value accounting provided for under
      SFAS No. 123, “Accounting for Stock-Based Compensation,” required the use of
      option valuation models that were not developed for use in valuing employee
      stock options. Under APB Opinion No. 25, if the exercise price of the Company’s
      employee stock options were equal to or greater than the market price of the
      underlying stock on the date of the grant, no compensation expense was
      recognized. The following pro forma information summarizes the effect on
      earnings for the three-month and nine-month periods ended September 30, 2006,
      had the Company followed SFAS No. 123(R) for the earlier period:




**For
                the Three-months Ended**
            
            **For
                the Nine-months Ended****September
                30,**
              **2005**
            
            **September
                30,**
              **2004**
            
            **September
                30,**
              **2005**
            
            **September
                30,**
              **2004**Net
                Income (Loss) as Reported
            
            
            
            
            $
            (723,906
            )
            $
            (614,918
            )
            
            
            
            $
            (1,634,092
            )
            $
            (1,229,609
            )Add:
                Stock-based non-employee compensation expense included in reported
                net
                income
            
            
            
            
            
            —
            
            
            —
            
            
            
            
            
            —
            
            
            —Deduct:
                Total stock-based employee compensation expense determined under
                fair
                value based method
            
            
            
            
            
            (202,248
            )
            
            —
            
            
            
            
            
            (615,913
            )
            
            —Net
                Income (loss) Pro forma
            
            
            
            
            $
            (926,154
            )
            $
            (614,918
            )
            
            
            
            $
            (2,250,005
            )
            $
            (1,229,609
            )Pro
                forma earnings (loss) per share
            
            
            
            
            $
            (0.06
            )
            $
            (0.10
            )
            
            
            
            $
            (0.15
            )
            $
            (0.20
            )




**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 embedded 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) titled "Share-based Payment," which was
      revised in 2004, the Company recognized the fair value of the
      options in the statement of operations on the
      date of grant.   Fair value was determined using
      the Black-Scholes option pricing model
      based on the following assumptions: expected dividends - $0;
      volatility - 185%; and risk free interest rate - 4.5%.  The determined fair
      value recognized in the current period was $323,507.




**Fixed
      Assets:** Fixed
      assets are stated at cost. Expenditures that materially increase the life of
      the
      assets are capitalized. Ordinary maintenance and repairs are charged to expense
      as incurred. When assets are sold or otherwise disposed of, the cost and the
      related accumulated depreciation are removed from the accounts, and any
      resulting gain or loss is recognized at that time. Depreciation is computed
      primarily on the declining balance method for financial statement purposes
      over
      the following estimated useful lives:





**Telecommunication
                Equipment**
            
            
            **15
                Years****Furniture
                & Fixtures**
            
            
            **7
                Years****Computer
                Equipment**
            
            
            **5
                Years****Transportation
                Equipment**
            
            
            **5
                Years****Software**
            
            
            **3
                Years**




9




**Goodwill:** Goodwill
      represents the excess of the purchase price of an acquired enterprise or assets
      over the fair value of the identifiable assets acquired and liabilities assumed.
      The Company tests for impairment of goodwill on an annual basis in the fourth
      quarter and at any other time if events occur or circumstances indicate that
      the
      carrying amount of goodwill may not be recoverable.





Circumstances
      that could trigger an impairment test include, but are not limited to: a
      significant adverse change in the business climate or legal factors; an adverse
      action or assessment by a regulator; unanticipated competition; loss of key
      personnel; the likelihood that a reporting unit or significant portion of a
      reporting unit will be sold or otherwise disposed; results of testing for
      recoverability of a significant asset group within a reporting unit; or
      recognition of a goodwill impairment loss in the financial statements of a
      subsidiary that is a component of a reporting unit.





If
      the
      carrying amount of the reporting unit goodwill exceeds the implied fair value
      of
      that goodwill, an impairment loss is recorded in the Statement of Operations
      as
“Reduction of goodwill.” Measurement of the fair value or a reporting unit is
      based on one or more of the following fair value measures including: amounts
      at
      which the unit as a whole could be bought or sold in a current transaction
      between willing parties; using present value techniques of estimated future
      cash
      flows; or using valuation techniques based on multiples of earnings or revenue
      or a similar performance measure.





**Impairment
      of Long-Lived Assets:** In
      accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of
      Long-Lived Assets," long-lived assets, such as property and equipment and
      intangible assets subject to amortization, are reviewed for impairment whenever
      events or changes in circumstances indicate that the carrying amount of an
      asset
      group may not be recoverable. Recoverability of asset groups to be held and
      used
      is measured by a comparison of the carrying amount of an asset group to
      estimated undiscounted future cash flows expected to be generated by the asset
      group. If the carrying amount of an asset group exceeds its estimated future
      cash flows, an impairment charge is recognized for the amount by which the
      carrying amount of an asset group exceeds fair value of the asset
      group.





**Revenues
      and Expenses Recognition:** The
      Company is a “development stage” company and has not had significant sales or
      revenue to date. The Company plans to sell services together with software
      and
      to provide network media distribution. Revenues will be recognized upon
      rendering services to customers. Costs and expenses are recognized during the
      period in which they are incurred.





AI,
      a
      subsidiary of the Company, has elected to recognize revenue on a completed
      contract method. The completed contract **** method
      requires AI to defer revenue and expense recognition until the contract has
      been
      substantially completed. Management has determined that the completed contract
      method of accounting for AI contracts will more accurately reflect the nature
      of
      all jobs where, due to the volatile nature of electronic components, significant
      uncertainty may exist with respect to the total cost of performing the contract
      and, accordingly, the ultimate amount of profit to be recognized thereon. AI
      has
      developed criteria for determining whether a project should be recorded as
      a
      sale or as a deferred sale (a balance sheet liability). 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.





**Construction
      in Process** :
      In
      connection with the utilization of the completed contract method of revenue
      recognition for the consolidated financial statements, AI maintains a
      construction 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.




**Billings
      on Construction in Process:** Interim
      billings for contracts in progress are credited prior to completion of the
      contract. Upon completion of a contract, all related billings are credited
      to
      revenue for the period.





**Advertising
      Costs:** The
      Company expenses all costs of advertising as incurred. During the three and
      nine
      month periods ended September 30, 2006, the Company incurred advertising costs
      of $762. No advertising costs were incurred during the three and nine month
      periods ended September 30, 2005.





10




**Warranties:** The
      Company, through AI, warrants installed systems against defects in materials
      and
      workmanship for a period of one year through the manufacturer. The Company
      warrants the installation labor of the systems installed. Currently there is
      no
      reserve for warranty obligations.





**Research
      and Development Costs:** Research
      and development costs are charged to expenses as incurred. There were no
      research and development costs incurred for the three months and nine months
      ended September 30, 2006 and 2005.





**Income
      Taxes:** Income
      taxes are generally provided for the tax effects of transactions reported in
      the
      financial statements, and consist of taxes currently due plus deferred taxes
      related primarily to differences between the basis of fixed assets for financial
      and income tax reporting. The Company has no deferred tax assets and liabilities
      representing the future tax return consequences of those differences because,
      currently, the Company has no material temporary timing differences that give
      rise to these tax assets and liabilities. Currently there are no federal income
      taxes due.





**Earnings
      (Loss) Per Share Calculations:** Basic
      earnings (loss) per share exclude any dilutive effects of options, warrants
      and
      convertible securities. Basic earnings (loss) per share are computed using
      the
      weighted-average number of outstanding common stocks during the applicable
      period. Diluted earnings per share are 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 anti-dilutive. For all periods presented, the Company has
      sustained losses that would make use of equivalent shares anti-dilutive and,
      as
      such, the calculation has not been included.





**Recently
      Issued Accounting Pronouncements** :
      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.
      The Company applies SFAS No. 123(R) for all periods ending after December 31,
      2005. For further details, see “Note 2 - Summary of Significant Accounting
      Policies, Stock Based Compensation: Stock Options.”




In
      May
      2005, the FASB issued SFAS No. 154, "Accounting Changes and Error Corrections” -
      a Replacement of APB Opinion No. 20 and SFAS No. 3". SFAS No. 154 requires
      retrospective application to prior period financial statements of changes in
      accounting principle, unless it is impracticable to determine either the
      period-specific effects or the cumulative effect of the change. SFAS No. 154
      also redefines "restatement" as the revising of previously issued financial
      statements to reflect the correction of an error. This statement is effective
      for accounting changes and corrections of errors made in fiscal years beginning
      after December 15, 2005. The Company does not believe that the adoption of
      SFAS
      No. 154 will have a significant impact on the consolidated financial
      statements.




In
      February 2006, the FASB issued SFAS No. 155, “Accounting for Certain Hybrid
      Financial Instruments,” which amends SFAS No. 133, “Accounting for Derivative
      Instruments and Hedging Activities,” and SFAS No. 140, “Accounting for Transfers
      and Servicing of Financial Assets and Extinguishments of Liabilities.” SFAS No.
      155 permits fair value measurement for any hybrid financial instrument that
      contains an embedded derivative that otherwise would require bifurcation, and
      establishes a requirement to evaluate interests in securitized financial assets
      to identify interests that are freestanding derivatives or hybrid financial
      instruments containing embedded derivatives. The Company expects the adoption
      of
      SFAS No. 155 may have a material impact on the Company’s consolidated financial
      position, results of operations and cash flows.





In
      March
      2006, the FASB issued SFAS No. 156, “Accounting for Servicing of Financial
      Assets,” which amends SFAS No. 140. SFAS No. 156 may be adopted as early as
      January 1, 2006 for calendar year-end entities, provided that no interim
      financial statements have been issued. Those not choosing to early adopt are
      required to apply the provisions as of the beginning of the first fiscal year
      that begins after September 15, 2006 (e.g., January 1, 2007, for calendar
      year-end entities). The intention of the new statement is to simplify accounting
      for separately recognized servicing assets and liabilities, such as those common
      with mortgage securitization activities, as well as, to simplify efforts to
      obtain hedge-like accounting. SFAS No. 156 permits a company using derivative
      financial instruments to report both the derivative financial instrument and
      related servicing asset or liability by using a consistent measurement attribute
      or fair value. The Company is not an early adopter and does not expect the
      adoption of SFAS No. 156 to have a material impact on its consolidated financial
      position, results of operations or cash flows.





11




In
      October 2006, the FASB issued SFAS No. 157, “Fair Value Measurements.”  The
      purpose of SFAS No. 157 is to provide users of financial statements with better
      information about the extent to which fair value is used to measure recognized
      assets and liabilities, the inputs used to develop the measurements, and the
      effect of certain of the measurements on earnings for the period.  SFAS No.
      157 also provides guidance on the definition of fair value, the methods used
      to
      measure fair value, and the expanded disclosures about fair value measurements.
      This changes the definition of fair value to be the price that would be received
      to sell an asset or paid to transfer a liability, an exit price, as opposed
      to
      the price that would be paid to acquire the asset or received to assume the
      liability, an entry price.  SFAS No. 157 is effective for financial
      statements issued for fiscal years beginning after November 15, 2007, and
      interim periods with those fiscal years (e.g., January 1, 2008, for calendar
      year-end entities.)





Also,
      under SFAS No. 157, when a subsidiary is the plan sponsor and is consolidated
      using a different fiscal period than its parent, the parent should measure
      the
      subsidiary’s post-retirement benefit plan assets and benefit obligations as of
      the same date used to consolidate the subsidiary; and when the plan is sponsored
      by an equity method investee and the financial statements of the equity method
      investee are not timely available for the investor to apply the equity method
      currently, the investor should measure the investee’s plan assets and benefit
      obligations as of the same date of the investee’s financial statements used to
      apply the equity method. We do not expect the adoption of SFAS No. 157 to have
      a
      material impact on our consolidated financial position, results of operations
      or
      cash flows.





Additionally,
      in September 2006, the FASB issued SFAS No. 158. SFAS No. 158 requires a
      calendar year-end company with publicly traded equity securities that sponsors
      a
      post-retirement benefit plan to fully recognize, as an asset or liability,
      the
      over-funded or under-funded status of its benefit plan(s) in its 2006 year-end
      balance sheet. The funded status is measured as the difference between the
      fair
      value of the plan’s assets and its benefit obligation as of the year-end balance
      sheet date. SFAS No. 158 will become effective for fiscal years ending after
      December 15, 2006 for entities with publicly traded equity securities. For
      all
      other entities, those provisions are effective for fiscal years ending after
      June 15, 2007. The provision to require measurement at the entity’s year-end
      balance sheet date will be effective for fiscal years ending after December
      15,
      2008. The Company does not expect the adoption of SFAS No. 158 to have a
      material impact on its financial position, results of operations or cash
      flows.




**NOTE
      3 - MERGERS AND ACQUISITIONS**





Effective
      as of April 18, 2006, the Company purchased the net assets of AI for 411,956
      shares of common stock, valued at $0.41 per share, for a total price of
      $168,901.





AI
      was
      formed on November 17, 2003 in the State of Georgia, and has offices and design
      facilities located in Atlanta, Georgia. AI designs and engineers the
      installation of electronic components to facilitate “smart” buildings. It has
      partnered with developers and builders who now offer structured wiring in newly
      constructed homes and buildings as a result of a dramatic increase in broadband
      use and consumer demand for the latest technological innovations in home and
      security automation. AI’s operations are centered primarily in the Southeast
      region of the United States. AI has, to date, utilized the services of
      independent subcontractors for staffing needs.




The
      purchase price was allocated as follows:





Net
                tangible assets acquired
            
            $
            77,030Intangible
                assets acquired
            
            
            -Goodwill
            
            
            91,871Total
                purchase price
            
            $
            168,901




12




The
      following table summarizes the components of the tangible assets acquired at
      fair value:




Cash
            
            $
            20,511Accounts
                receivable
            
            
            202,682Fixed
                assets
            
            
            66,532Other
                assets
            
            
            6,775Current
                liabilities
            
            
            (87,569
            )Long-term
                liabilities
            
            
            (131,901
            )Net
                tangible assets acquired
            
            $
            77,030





Goodwill,
      which represents the excess of the purchase price over the fair value of
      tangible and identified intangible assets acquired, is not being amortized;
      but
      will be reviewed annually for impairment, or more frequently, if impairment
      indicators arise in accordance with SFAS No. 142, “Goodwill and Other Intangible
      Assets.” In part, goodwill reflects the competitive advantages the Company
      expects to realize from the synergy of AI services and the Winsonic product
      line. Goodwill is not expected to be deducted for tax purposes.





The
      results of operations of AI have been included in the Company’s consolidated
      financial statements subsequent to the date of acquisition. The financial
      information in the table below summarizes the combined results of operations
      of
      the Company and AI on a pro forma basis as though the companies had been
      combined as of the beginning of each of the periods presented:





**For
                the Period Ended September 30,****Three
                Months**
            
            **Nine
                Months****2006**
            
            **2005**
            
            **2006**
            
            **2005**Total
                pro forma revenues
            
            $
            310,364
            
            $
            85,855
            
            $
            972,647
            
            $
            109,074Pro
                forma net loss
            
            
            (2,423,920
            )
            
            (651,992
            )
            
            (5,712,201
            )
            
            (1,539,522
            )Pro
                forma net loss per share - basic and diluted
            
            
            -
            
            
            -
            
            
            -
            
            
            -Reported
                net loss
            
            $
            (2,423,920
            )
            $
            (1,100,015
            )
            $
            (5,768,826
            )
            $
            (910,186
            )





**NOTE
      4 - STOCKHOLDERS’ EQUITY**




**Issuance
      of Common Stock**





**First
      Quarter:** During
      the quarters ending March 31, 2006 and 2005, the Company issued 900,000 and
      186,078 shares of its common stock, respectively. The 900,000 shares issued
      in
      the first quarter of 2006, were issued at $0.50 per share in settlement of
      a
      legal action. The settlement and the credit to Stockholders’ Equity were valued
      at $450,000. (See “Note 6 - Summary of Significant Legal Proceedings” for
      further details.) During the first quarter of 2005, the Company issued 94,615
      shares at $1.30 per share during January and 91,463 shares at $0.86 per share
      in
      March, pursuant to a warrant exercisable at $0.07 per share. The warrant had
      been issued as compensation to certain professional advisors for services
      rendered during 2004. The 2005 issuance was made pursuant to a “cashless
      exercise” of a warrant where the warrant holder received a reduced number of
      shares of common stock upon conversion and contributed the balance to the
      treasury of the Company based on the current market value of the stock. The
      warrant holders received 94,615 and 91,463 shares of stock during 2005, and
      contributed 5,385 shares and 8,537 shares, respectively, worth $7,000 each
      (the
      cost of their warrants) to the treasury.





13




**Second
      Quarter:** During
      the quarter ending June 30, 2006, the Company issued 2,494,619 shares of common
      stock. Of that amount, 411,956 shares were issued at $0.41 per share as
      consideration for the acquisition of all of the outstanding equity of AI. (See
      “Note 3 - Mergers and Acquisitions”). Also, in connection with the acquisition
      of AI and as an employment incentive, the Company issued 750,000 shares of
      stock, valued at $0.40, to five key employees of AI during April 2006.





During
      April 2006, 500,000 shares of stock were issued to the former Chief Financial
      Officer of the Company in connection with employment incentive options, which
      were granted to him in connection with his employment during 2005. In accordance
      with the accounting treatment under SFAS No. 124(R) and SFAS No. 125, the
      Company had previously recognized compensation expenses of $185,000 upon the
      grant and vesting of the options during the fourth quarter of 2005 and the
      first
      quarter of 2006.





During
      April and May of 2006, the Company issued 751,432 shares at $0.20 per share
      in
      connection with conversions of various convertible notes payable that had been
      issued during the first and second quarters of 2006.





In
      May
      2006, stock was issued at $0.39 per share pursuant to a “cashless exercise” of
      options held by an advisor. The advisor had received options for services
      rendered during 2004. Based
      on
      the current market value of the stock, t he
      option
      holder received
      a reduced number of shares of common stock upon exercise and contributed the
      balance to the treasury of the Company. For the May 2006 transaction, the option
      holder exercised an option for 100,000 shares of the Company’s stock at $0.07
      per share, received 82,051 shares of stock and contributed 17,949 shares to
      the
      treasury, (valued at $0.39 per share and worth $7,000, the current market value
      of the stock) as payment for the option cost.





During
      May of 2006, the Company engaged the services of a financial planning
      organization to assist with cash management and in assisting in locating
      potential investors during the startup phase of operations. As compensation
      for
      the services rendered, the Company agreed to issue 185,000 shares of common
      stock after 90 days to the financial planners. The stock was issued in August
      of
      2006. The Company accounted for a portion of the services rendered during the
      second quarter based upon the time spent in the second quarter relative to
      the
      entire contract. The contract was valued at $48,100 ($0.26 per share) based
      upon
      the price of the common stock on the date the contract was signed. During the
      second quarter, $19,867 of the $48,100 was recognized in selling, general and
      administrative expense.





During **** June
      2005, the Company issued 66,667 shares to an advisor at $0.68 per share. The
      transaction was treated in the same manner as the January and March 2005
      issuances described above, as it was a part of the same grant to the
      professional advisor who rendered services to the Company during 2004. The
      exercise was effected pursuant to a “cashless exercise,” wherein the warrant
      holder received a reduced number of shares of common stock upon exercise, and
      contributed the balance of the shares to the treasury of the Company based
      on
      the current market value of the stock. For June, the option holder exercised
      options for 100,000 shares of the Company’s common stock, receiving 66,667
      shares of common stock, and contributing 33,333 shares, valued at $0.21 per
      share (worth $7,000), to “pay” for the shares received.





**Third
      Quarter:**





As
      indicated above, the Company engaged the services of a financial planning
      organization, and as compensation, the Company agreed to issue 185,000 shares
      of
      its common stock. The stock was issued in August 2006, and the balance of the
      cost of the shares not recognized in the second quarter ($28,233) was recognized
      in selling, general and administrative in the third quarter of 2006. In
      addition, the Company issued 75,000 option shares in the third quarter to a
      consultant for services rendered earlier in the year.





The
      Company also issued options to purchase 150,000 of its common stock in July
      2006, to a consultant for services rendered.





**Convertible
      Notes and Warrants:** During
      January 2005, the Company issued convertible notes with detachable warrants
      in
      connection with a loan for $200,000. The notes included interest of 6% and
      were
      due on December 15, 2005, or upon the occurrence of certain events relating
      to
      the capital structure of the Company. To date, neither these warrants nor the
      conversion rights have been exercised.





14




During
      the first and second quarter of 2006, the Company raised additional proceeds
      of
      $504,200 and $300,000, respectively, through the issuance of 59 convertible
      notes with attached warrants to accredited investors in denominations of $1,000
      to $100,000. (For a more detailed discussion, see “Note 10 - Convertible
      Debentures” and “Note 12 - Subsequent Events.”)




During
      the second quarter of 2005, the Company did not issue any convertible notes
      or
      warrants in connection with operations or capitalization of the Company.





The
      following table summarizes the Company’s detachable stock warrant activities for
      the period ending September 30, 2006:




**Number
                of**
              **Warrants**
            
            **Exercise
                Price**Balance
                as of December 31, 2003
            
            
            -
            
            
            -Warrants
                issued
            
            
            1,164,286
            
            
            0.70Warrants
                cancelled/expired
            
            
            -
            
            
            -Warrants
                exercised
            
            
            -
            
            
            -Balance
                as of December 31, 2004
            
            
            1,164,286
            
            
            0.70Warrants
                issued
            
            
            285,714
            
            
            0.70Warrants
                cancelled due to extension agreement
            
            
            (1,450,000
            )
            
            0.70Warrants
                replaced due to extension agreement
            
            
            2,537,500
            
            
            0.40Warrants
                issued
            
            
            941,250
            
            
            0.20Warrants
                exercised
            
            
            -
            
            
            -Balance
                as of December 31, 2005
            
            
            3,478,750
            
            
            0.35Warrants
                issued
            
            
            4,071,000
            
            
            0.20Warrants
                exercised
            
            
            -
            
            
            -Balance
                as of September 30, 2006
            
            
            7,549,750
            
            $
            0.27





**NOTE
      5 - RELATED PARTY TRANSACTIONS**




**Officers’
      Compensation:** Officers’ compensation for services for the three-month periods ended September
      30, 2006 and 2005 was $126,667 and $207,500, respectively. For the nine-month
      periods ended September 30, 2006 and 2005, compensation was $606,859 and
      $415,000, respectively. Additionally, during the first and second quarters
      of
      2006, the Company recognized compensation expenses of $21,824 and $301,683,
      respectively, relating to incentive stock warrants issued to officers. The
      compensation expense was included in general and administrative expenses-
      related party. (For further information, see “Note 2 - Summary of Significant
      Accounting Policies”). The compensation for services from inception to September
      30, 2006 is $2,504,303. During fiscal year 2005, the Company issued 500,000
      shares of common stock to its founder for services valued at $165,000 or $0.33
      average price per share.





During
      fiscal year 2005, the Company recorded the vesting of 500,000 shares of a common
      stock award for an officer, for the net vested value of $185,000.





During
      April 2006, the Company issued 500,000 shares of common stock to the former
      Chief Financial Officer of the Company. The shares were issued pursuant to
      the
      exercise of a vested incentive stock option providing for the exercise of up
      to
      750,000 shares of common stock at $0.01 per share. At the time of the exercise,
      500,000 of the shares had vested under the terms of the option. The expense
      of
      the options was included in the incentive stock option expense included in
      the
      operations of the Company for the periods during which the options
      vested.





15




On
      June
      13, 2006, the management of the Company met to discuss the services being
      provided by, and the compensation paid to, the President of the Company. At
      that
      meeting the President resigned and it was mutually agreed by the President
      and
      the CEO of the Company that all salary accrued under the President’s employment
      contract of October 8, 2004 be forgiven. Additionally, a grant of 1,000,000
      options to purchase common stock of the Company at $1.00 per share, which were
      vested, was also forgiven. The net result of the meeting was to reduce accrued
      salaries by $399,919 (to $210,192) and to reduce issued and exercisable options
      by 1,000,000 shares ($1.00 average exercise price).





On
      June
      6, 2006, the Company hired a new Chief Operating Officer. (See “Note 11 -
      Commitments and Contingencies” for additional details.)





**Loans
      From Founder:**





**2005:** On
      September 15, 2005, the Company received a loan of $80,000 from the CEO and
      founder. As of September 30, 2006 and December 31, 2005, the loan balance
      totaled $0 and $82,672, respectively, consisting of principal of $80,000 and
      accrued interest of $8,074 and $2,672. For the three and nine months ended
      September 30, 2006, interest expense of $718 and $5,402 was incurred. Under
      the
      terms of the Note, interest will be paid at the rate of 10% annually, with
      principal and interest payable on December 1, 2005. Unpaid principal and
      interest after December 1, 2005 is subject to interest of five percent (5%)
      in
      excess of the rate otherwise applicable to the unpaid balance. The loan was
      repaid with restricted stock issued on July 20, 2006. The Company issued 341,608
      shares at approximately $0.25 per share in payment of the principal and interest
      in the third quarter of 2006.




**2004:** As
      of
      September 30, 2004 and December 31, 2004, respectively, the Company had a loan
      payable totaling $334,653 and $352,726 to the CEO and founder, consisting of
      principal of $236,836 and $288,726. The Company is also obligated to issue
      to
      the CEO and founder 80,000 shares of common stock valued at $64,000. Under
      the
      terms of the Note, interest will be paid at the rate of 10% annually. Accrued
      interest included in the loan balances as of September 30, 2006 and December
      31,
      2005 was $91,426 and $60,000, respectively.


During
        the first quarter of 2004, the Company paid $160,000 to the CEO and founder
        against this loan. Additionally, on December 5, 2004, 700,000 shares of the
        Company’s Common Stock were issued to the CEO and founder as payment to be
        applied against the balance of the loan. The price per share of the common
        stock
        was $0.33 per share or $231,000.
  During
        the three-month and nine-month periods ended September 30, 2004, the Company
        paid $15,000 and $43,000, respectively, to the CEO and founder against this
        loan. The Company also accrued $8,316 and $31,426 in interest for the three
        and
        nine months ended September 30, 2004, respectively.
  **Native
        American Television Network, Inc (“NATVN”):** During
        the third quarter of 2005, the Company issued 1,670,000 shares of common
        stock
        to NATVN in exchange for 4,000,000 shares of NATVN common stock. The former
        President of the Company and a Company shareholder are shareholders in NATVN,
        owning 9% of the total outstanding equity in NATVN.





The
      investment in NATVN is accounted for under the “equity” method. The equity
      method of accounting is used if the investor has the ability to significantly
      influence the investee’s financial and operating policies, or if an investor is
      accounting for an investment in a corporate joint venture, but holds less than
      50% of the investee. Under the equity method, an investment is initially
      recorded at cost. Thereafter, the carrying amount of the investment is increased
      for the investor’s proportionate share of the investee’s gains, or is reduced
      for the proportionate share of the investee’s losses or for distributions
      received from the investee. As of September 30, 2006, there has been no
      significant operations commenced by NATVN. (See “Item 2. Management’s Discussion
      and Analysis or Plan of Operation” in this report for additional details of the
      NATVN transaction.)





**Winsonic
      Diversity, LLC:** On
      May
      22, 2006, Winsonic Diversity, LLC (“Winsonic Diversity”) was organized in the
      State of Georgia by Winston D. Johnson and the Company. Mr. Johnson holds a
      majority of the ownership interests and is responsible for the management of
      Winsonic Diversity, while the Company holds a minority interest. Winsonic
      Diversity is committed to developing urban communities by providing resources
      and services that will improve quality of life. As such, Winsonic Diversity
      intends to provide its customers with high quality products, competitive
      pricing, accurate and efficient technical support, prompt services, and a
      continuing dedication to new product development. Winsonic Diversity has
      identified and is currently working on several urban community initiatives.
      It
      currently offers a full portfolio of public and private network access points,
      media distribution solutions, and products that deliver powerful private and
      public solutions and ensure business-critical availability, lower cost of
      operations and application optimized performance. Additionally, Winsonic
      Diversity offers thorough information, technology analysis, creative
      architectural and software designs, and a full range of technical and
      professional expertise. As of September 30, 2006, there have been no material
      transactions entered into by Winsonic Diversity.





16




**NOTE
      6 - SUMMARY OF LEGAL PROCEEDINGS**




An
      estimated liability of $575,000 and $1,020,000 for legal settlements was
      recorded as of September 30, 2006 and 2005, respectively. Other than as
      described below and in Note 12, the Company is not currently involved in any
      legal proceedings that it deems to be material to its financial condition.




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





On
      March
      22, 2004, the Company (then known as Media and Entertainment.com, Inc.)
      commenced a civil lawsuit in Los Angeles Superior Court (Case No. BC312530)
      against Caesar Collazo, a former officer of the Company, seeking damages in
      excess of $40,000, as well as, punitive and exemplary damages. The Company
      had
      purchased the assets of Nexcode of which Mr. Collazo was a founder, and Mr.
      Collazo received 400,000 shares of the Company’s common stock (the “Shares”) in
      consideration of the sale. While still employed by the Company, Mr. Collazo
      allegedly formed a competing company, stole proprietary property of the Company
      and solicited Company clients on behalf of the competitor. The Company sought
      a
      constructive trust, injunctive relief and the return of the Shares.




Prior
      to
      this suit, in February 2004, Mr. Collazo had commenced a lawsuit in Los Angeles
      Superior Court against the Company and its transfer agent seeking to remove
      the
      restrictive legend from the shares. The injunctive relief was denied and Mr.
      Collazo dismissed the complaint. In March 2004, the Company commenced a lawsuit
      in U.S. District Court, Clark Country Nevada (Case No. A480587) to enjoin the
      transfer of the shares. The Court issued an Order on March 19, 2004, enabling
      Mr. Collazo to sell 30,000 shares of common stock and issued a temporary
      restraining order with regard to the remaining 370,000 shares, provided the
      Company posted a bond for the entire amount of $424,000. The Company’s
      principals chose not to pledge personal assets as collateral for the bond,
      and
      the Nevada action was dismissed.





In
      the
      above-described litigation brought by the Company against Mr. Collazo, the
      defendant denied the allegations, asserted 21 affirmative defenses and bought
      a
      cross-complaint against the Company. Mr. Collazo alleged that the Company
      breached the employment agreement with him because he had not been paid
      compensation due him, he had not received a percentage of gross profit earnings,
      the Company had not exercised a good faith effort to raise an additional
      $250,000 in capital, and he did not receive the equity promised him. The Company
      denied the allegations of the cross complaint and asserted 13 affirmative
      defenses. At a settlement conference on April 11, 2005, the Company agreed
      to
      issue 900,000 shares of common stock to Mr. Collazo as of September 20, 2002
      and
      to pay attorney fees of $120,000. The Company also agreed to issue 900,000
      shares of common stock to Mr. Nana Yalley, who was then an officer and current
      shareholder, as well as an equal partner of Mr. Collazo in Nexcode. 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. The settlement was not finalized by June 10, 2005; therefore,
      Mr. Collazo could have exercised, at his option, the right to enforce the
      settlement agreement for the issuance of the 900,000 shares of the Company’s
      stock to him and the payment of his attorneys’ fees or the issuance of 200,000
      shares of stock to his attorney in lieu of payment.





17




On
      March
      16, 2006, the Company issued 900,000 restricted shares to Mr. Collazo in
      settlement of this matter. However, this matter remains unresolved, as Mr.
      Collazo is seeking to have the Company reissue the 900,000 shares without
      restrictions. As of November 2, 2006, neither the 900,000 shares of common
      stock
      to Mr. Yalley, nor the 200,000 shares or $120,000 for Mr. Collazo’s attorneys’
fees have been issued or paid.





On
      May 4,
      2006, the Court relieved Mr. Collazo’s former attorneys from their
      representation of Mr. Collazo in this action as a result of a dispute between
      them.  In an attempt to force the Company to reissue without
      restrictions the 900,000 restricted shares already issued to
      him, Mr. Collazo, through his new attorneys, moved the Court to
      enforce the terms of the April 11, 2005 settlement agreement, wherein
      the Company agreed to issue the 900,000 shares to Mr. Collazo as of
      September 20, 2002.  The motion was heard, and the Court ordered the
      Company to reissue the 900,000 shares to Mr. Collazo as of
      September 20, 2002 without restrictions.





On
      July
      7, 2006, Mr. Collazo’s former attorneys, Wilshire Palisades Law Group, P.C.,
      filed an attorney lien on any and all judgments rendered in favor of Mr.
      Collazo.  Under advisement of counsel, the Company has not reissued the
      900,000 shares, nor has it made any additional payments to Mr. Collazo. As
      of the
      date of this report, no further action has been taken in this
      matter.





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





Yellowbrix,
      Inc. filed a collection suit against Media and Entertainment.com regarding
      an
      alleged contract authorized by the former CEO of Media and Entertainment.com.
      The pending lawsuit amount in dispute is $19,800, which was expensed in general
      and administrative expense in 2004 and accrued within accounts payable of the
      Company as of September
      30, 2006 and 2005 .





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. An additional charge of $90,000 in attorney fees was entered in the
      judgment; however, the Company is negotiating a forgiveness of the attorney
      fees
      based on timely payment of the judgment. The $474,285 in dispute was expensed
      as
      a general and administrative expense in 2005 and accrued within accounts payable
      of the Company as of September 30, 2006. The $90,000 in attorney fees has also
      been expensed and accrued.





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
      further 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)





18




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 as of
      September 30, 2006 and 2005. Pursuant to a Stipulation for Entry of Judgment,
      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. The stipulation also provided that, in the event of a breach by the
      Company, plaintiff could enforce the entire amount sought in the complaint
      -i.e., $100,769. As of September 30, 2006 the Company has accrued an additional
      $25,000 accounts payable to reflect the breach.





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 pursuant to the
      Stipulation for Entry of Judgment. As of the date of this report, no further
      action has been taken in this matter.





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





The
      disputed amount of $25,000 in this collection lawsuit was expensed as a general
      and administrative expense in 2005 and accrued within accounts payable as of
      September 30, 2006 and 2005. On
      September 15, 2006, this matter was dismissed by the court; however, 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.





**Crown
      Office Suites, Inc. vs. Winsonic Digital Media Group, Ltd.** (State
      Court of Cobb County, Georgia - complaint filed November 23, 2005)





This
      is
      an action for breach of a lease agreement against the Company. The disputed
      amount of $50,193 was expensed as a general and administrative expense in 2005
      and accrued within accounts payable of the Company as of September 30, 2006.
      On
      April 5, 2006, Crown filed a motion to change venue from Cobb County to Fulton
      County. On April 18, 2006, the Company, through its attorneys, filed an Answer
      contesting service, a Motion to Open Default and a Brief in Support of the
      Motion to Open Default. As of the date of this report, no other events have
      occurred in this matter.





**Lefkowitz
      vs. Winsonic Digital Media Group, Ltd.** (Superior
      Court of CA, Los Angeles County - complaint filed May 18, 2006)





This
      is
      an action for breach of contract brought by David Lefkowitz, Caesar Collazo’s
      attorney in Collazo vs. Media and Entertainment.com. Mr. Lefkowitz seeks payment
      of $125,000 in attorney fees, which he asserts he is entitled to pursuant to
      the
      Settlement Agreement of April 11, 2005 in the Collazo matter. The disputed
      amount was charged as expenses in 2004. (For further background information
      on
      this matter, see “Note 6 - Summary of Legal Proceedings, Collazo vs. Media and
      Entertainment.com.”)




On
      June
      22, 2006, the Company filed its answer to the unverified complaint denying
      each
      allegation and asserting various affirmative defenses, including, failure to
      state a claim, waiver, ratification, etc. On July 17, 2006, Mr. Lefkowitz filed
      an offer to compromise requesting that the Company agree to a judgment in his
      favor in the amount of $120,000. (See “Note 12 - Subsequent Events” for further
      details regarding this lawsuit.)





**NOTE
      7 - GOING CONCERN**




These
      financial statements have been prepared in accordance with Generally Accepted
      Accounting Principles (GAAP) 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 September 30, 2006, the Company has
      accumulated losses of approximately $18,200,000 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 resolution of this uncertainty.




19






**NOTE
      8 - FIXED ASSETS**




The
      major
      classifications of property and equipment consist of the following as of
      September 30, 2006 and December
      31, 2005:




**September
                30****,**
              **2006**
            
            **December
                31,**
              **2005**Computer
                Equipment
            
            $
            1,109,309
            
            $
            977,669Infrastructure
            
            
            158,400
            
            
            158,400Software
            
            
            83,597
            
            
            82,899Automobiles
            
            
            74,631
            
            
            -Furniture
                & Fixtures
            
            
            84,503
            
            
            36,682Less:
                Accumulated Depreciation
            
            
            (728,931
            )
            
            (614,194
            )Total
                Net Fixed Assets
            
            $
            781,509
            
            $
            641,456





During
      2006 and 2005, the Company accrued the following amounts of depreciation
      expense:





**2006**
            
            **2005**For
                the three-month periods ended September 30,
            
            $
            35,176
            
            $
            107,170For
                the nine-month periods ended September 30,
            
            $
            85,600
            
            $
            171,200





Depreciation
      expense from inception to September 30, 2006 was $1,002,845.


Depreciation
        expense for the three-month and nine-month periods ended September 30, 2006
        was
        $35,176 and $107,170 respectively. For the three-month and nine-month periods
        ended September 30, 2005, depreciation expense was $85,600 and $256,800
        respectively. Depreciation expense from inception to September 30, 2006 was
        $1,002,845.


In
      December 2005, the Company reduced computer equipment, infrastructure, and
      software included in the above Fixed Assets by $842,000 through the
      renegotiation of its equipment purchase agreement and related Note Payable
      with
      Digital Service International (“DSI”).




**NOTE
      9 - LOANS PAYABLE**




The
      Company had loans outstanding of $403,438 and $383,357 as of September 30,
      2006
      and December 31, 2005, respectively, payable to certain individuals. Proceeds
      from these loans were used for working capital purposes. The following is a
      summary of the loans payable:




**Interest
                Rate**
            
            **Loans
                Payable**
            
            **September
                30****,**
              **2006**
            
            **December
                31,**
              **2005**Unstated
            
            
            The
                Company issued eight convertible promissory notes, due October 2005,
                convertible into shares of common stock at any time prior to maturity.
                No
                conversions were exercised.
            
            $
            198,500
            
            $
            198,5006.00%
            
            
            This
                loan was for a principal amount of $108,000, with no stated interest
                rate,
                repayment terms or maturity date. Interest is imputed at 6% annually,
                based upon a 365-day calendar year. Accrued interest payable included
                in
                the balance is $18,107 at September 30, 2006 and $13,260 at December
                31,
                2005.
            
            
            126,108
            
            
            121,2616.00%
            
            
            This
                loan was for a principal amount of $40,000, with no stated interest
                rate,
                repayment terms or maturity date. Interest is imputed at 6% annually,
                based upon a 365-day calendar year. Accrued interest payable included
                in
                the balance is $8,421 at September 30, 2006 and $6,626 at December
                31,
                2005.
            
            
            48,421
            
            
            46,626Unstated
            
            
            This
                loan was for a principal amount of $5,000 with no stated interest
                rate,
                repayment terms, or maturity date. No interest was
                imputed.
            
            
            5,000
            
            
            16,970Unstated
            
            
            This
                loan, arising from costs advanced on behalf of the Company, was for
                a
                principal amount of $78,192 with no stated interest rate, repayment
                terms,
                or maturity date. No interest was imputed.
            
            
            78,192
            
            
            -Total
                Loans Payable
            
            $
            456,221
            
            $
            383,357





20


Long
      Term
      Liabilities: Effective as of April 18, 2006, the Company acquired the net assets
      of AI, including long term liabilities of $131,901 (See “Note 3 - Mergers and
      Acquisitions” for further details.) The long term liabilities are due to an
      officer of AI representing cash he advanced to AI operations and the obligations
      for two vehicles purchased by AI. Following is a summary of AI’s long-term debt
      at September 30, 2006, with current maturities determined based upon the net
      reduction of debt arising from AI making the minimum agreed-to payments.





**September
                30,****2006**15.25%
                loan payable to an officer for the purchase of a vehicle; monthly
                payments
                of $574.96 through August 2011, secured by the vehicle
                purchased.
            
            $
            24,33419.50%
                loan payable to an officer for the purchase of a vehicle;
                monthly payments of $897.02 through January 3, 2011, secured by the
                vehicle purchased.
            
            
            31,319Unsecured,
                interest free loan payable to an officer for various cash advances,
                expenses paid and assets transferred to AI by the creditor; payoff
                due on
                December 4, 2007; 6% interest to be paid on any outstanding balance
                as of
                December 4, 2007.
            
            
            80,950Total
                long term debt
            
            
            136,603Less:
                Current portion of long-term debt:
            
            
            (7,900
            )Net
                Long Term Debt
            
            $
            128,703




Under
      the
      terms of the loans described above, AI is obligated to pay at least the
      following principal amounts in the years specified below:





**Year**
            
            **Amount**2006
            
            $
            3,2772007
            
            
            89,9332008
            
            
            10,7192009
            
            
            12,7962010
            
            
            15,2822011
            
            
            4,596Total
            
            $
            136,603




21




**NOTE
      10 - CONVERTIBLE DEBENTURES**





**2004/2005
      Agreements** :
      During
      December 2004 and January 2005, the Company received proceeds of $815,000 and
      $200,000, respectively, from Convertible Note and Warrant Purchase Agreements
      (“the 2004/2005 Agreements”). The offering was made to accredited investors. The
      Convertible Notes, including interest of 6% were due in December 2005 or upon
      the occurrence of certain events relating to potential changes in the capital
      structure of the Company. The conversion feature portion of the 2004/2005
      Agreements included the right of the note holder to convert the face value
      of
      the note into common stock of the Company at the lower of $0.70 per share or
      85%
      of the market value of the common stock (at the time of conversion). The
      2004/2005 Agreements also included a detachable warrant, which allowed the
      warrant holders to purchase shares of common stock of the Company at $0.70
      per
      share (potentially, 1,450,000 shares of common stock) through December
      2007.





On
      December 15, 2005, the maturity dates of the 2004/2005 Agreements were extended
      to June 30, 2006. The conversion feature portion of the amended 2004/2005
      Agreements included the right of the note holders 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 amended 2004/2005 Agreements reduced the purchase price of
      the
      warrants to $0.40 per share.





During
      the third quarter of 2006, following the expiration of the extension of the
      maturity dates of the 2004/2005 Agreements (i.e., June 30, 2006), all but three
      of the note holders agreed to convert their notes, plus accrued interest, into
      common stock of the Company at the rate of $0.40 per share. One note holder
      has
      requested that he be repaid in cash. The Company has continued to calculate
      interest on the notes through September 30, 2006 and subsequently, up to the
      date of conversion (or in one case, repayment), which was determined to be
      the
      date that the note holders signed their conversion agreements. The Company
      has,
      based upon the notes and the accrued interest, agreed to issue a total of
      approximately 1,899,450 shares of its restricted common stock.





The
      transactions, to the extent that they are to be satisfied with common stock
      of
      the Company, would normally be included as equity obligations. However, as
      of
      September 30, 2006, due to the indeterminate number of shares which might be
      issued under the embedded host debt conversion feature of the note, the Company
      is required to record a liability relating to both the detachable warrant and
      the embedded convertible feature of the note (included in the current
      liabilities as “derivative liability”). As of September 30, 2006, the
      contingency in share pricing which caused the determinate share calculation
      was
      resolved with the final conversion agreements for all but two of the note
      holders. Consistent with its current commitments, the Company has treated the
      notes where note holders have requested conversion of their notes at $0.40
      per
      share to be reset during the third quarter when the conversion agreements were
      received. During the third quarter, the Company will transfer the derivative
      and
      warrant liabilities to paid-in capital. The following table summarizes the
      remaining embedded derivatives at September 30, 2006:




**September
                30,****2006**
            
            
            **December
                31,**
              **2005**Derivative
                liability
            
            $
            44,294
            
            $
            82,483Warrant
                liability
            
            
            748,680
            
            
            23,406Convertible
                debentures
            
            
            253,707
            
            
            1,121,360Subtotal
            
            
            1,046,682
            
            
            1,227,249Adjustment
                of derivative and warrant liability to fair value
            
            
            (792,974
            )
            
            970,185Less:
                Accretion of principal and interest related to convertible
                debentures
            
            
            (253,707
            )
            
            (1,112,184
            )Total
                Proceeds from convertible debentures
            
            
            1,015,000
            
            
            1,085,250Plus:
                Accrued interest
            
            
            100,195
            
            
            68,181Less:
                Notes converted
            
            
            (861,487
            )
            
            -Total
                Convertible debentures
            
            
            253,707
            
            
            1,153,431Less:
                Current portion of convertible debentures
            
            
            (253,707
            )
            
            (1,153,431
            )Total
                Non-current Convertible Debentures
            
            $
            -
            
            $
            -





22




**2005/2006
      Debentures:** During
      the third quarter of 2005 and during the first and second quarters of 2006,
      the
      Company entered into a series of agreements with accredited investors, wherein
      the Company borrowed $1,002,450 and issued convertible debentures with
      detachable warrants to the creditors. The debentures, which include interest
      of
      6.0%, are due in 12 months, and are convertible into Company stock at $0.20
      per
      share. Additionally, the creditors also received a warrant, which is exercisable
      for a period of three years and can be exercised at $0.20 per share. During
      the
      third quarter of 2005, the Company placed six convertible debentures ranging
      in
      value from $15,000 to $53,000, individually, and with a total principal amount
      of $188,250. During the fourth quarter of 2005, the debentures were converted
      into 590,000 restricted shares of common stock, and $118,000 in debentures
      were
      retired. At September 30, 2006, the balance of the notes outstanding was
      approximately $75,827 - which represented interest of $5,577 and principal
      of
      $70,250.





During
      the first and second quarters of 2006, the Company continued to raise funds
      via
      issuance of convertible debentures under the same terms as the debentures issued
      during the third quarter of 2005. During the first quarter, the Company raised
      $504,200 through the issuance of 43 debentures ranging in value from $2,000
      to
      $50,000. During the second quarter, the Company raised $310,000 through the
      sale
      of 16 debentures ranging in value from $5,000 to $100,000. During the second
      quarter, seven of the investors elected to exercise the conversion feature
      of
      the notes and converted $150,000 in principal into 750,000 shares of restricted
      common stock.





At
      September 30, 2006, the Company has outstanding 54 convertible debentures with
      a
      principal balance of $734,450. These debentures are convertible into 3,672,250
      shares of common stock and, combined with the related warrants, commit the
      Company to the issuance of a potential 5,012,250 shares of its stock in exchange
      for investments of $1,002,450. The Warrants will expire during the period of
      July 5, 2008 through June 23, 2009. As of September 30, 2006, the Company is
      obligated to retain at least 8,684,500 shares of common stock in the treasury
      to
      satisfy the potential conversion of Notes and Warrants related to unexercised
      contracts from the 2005/2006 Agreements.





The
      following table summarizes the outstanding notes and warrants:


**Summary
                of 2005/2006 Debentures & Warrants**
            
            **Convertible
                Notes**
            
            **Warrants****Proceeds**
            
            **Shares**
            
            **Proceeds**
            
            **Shares**Proceeds
                received during third quarter of 2005
            
            $
            188,250
            
            
            941,250
            
            $
            188,250
            
            
            941,250Conversions
                during fourth quarter of 2005
            
            
            (118,000
            )
            
            (590,000
            )
            
            -
            
            
            -Total
                outstanding at December 31, 2005
            
            
            70,250
            
            
            351,250
            
            
            -
            
            
            -Proceeds
                received during first quarter of 2006
            
            
            504,200
            
            
            2,521,000
            
            
            504,200
            
            
            2,521,000Proceeds
                received during second quarter of 2006
            
            
            310,000
            
            
            1,550,000
            
            
            310,000
            
            
            1,550,000Conversions
                during second quarter of 2006
            
            
            (150,000
            )
            
            (750,000
            )
            
            -
            
            
            -Accrued
                Interest
            
            
            16,292
            
            
            81,461
            
            
            -
            
            
            -Total
                outstanding at September 30, 2006
            
            $
            750,742
            
            
            3,753,711
            
            $
            1,002,450
            
            
            5,012,250





The
      Company has determined that the Notes contain a beneficial conversion feature
      and qualify for treatment under Emerging Issue Task Force No. 00-27. The
      estimated fair value of the detachable warrants of $1,294,678 has been
      determined using Black-Scholes option pricing model under the following
      assumptions: stock price volatility of 84%; risk free interest rate of 4.5%;
      dividend yield of 0%; and a one year term. The face amount of the Notes (i.e.,
      $1,002,450) was proportionately allocated to the Notes and the Warrants in
      the
      amount of $621,229 and $381,221, respectively. The Notes proportionate
      allocation factor was then further allocated between the Notes and the
      beneficial conversion feature, which the entire remaining value of $381,221
      was
      allocated to the beneficial conversion feature. The combined total value of
      the
      Warrants and the beneficial conversion feature amounting to $1,002,450 has
      been
      accounted for as a debt discount which is being amortized and treated as
      interest expense over the term of the Notes. For the nine months ended September
      30, 2006, the Company amortized a total of $229,476. The discounts and
      amortization are summarized in the following table:





**September
                30****,**
              **2006**
            
            **December
                31,**
              **2005**BCF
                discount to Paid in capital
            
            $
            (601,966
            )
            $
            (105,913
            )Warrant
                Discount to Paid in capital
            
            
            (650,484
            )
            
            (82,337
            )Proceeds
                from convertible debentures
            
            
            1,252,450
            
            
            188,250Subtotal
            
            
            -
            
            
            -Deduct
                value converted to common stock
            
            
            (268,000
            )
            
            (118,000
            )Total
                discount to accreted
            
            
            984,450
            
            
            70,250
            )Interest
                expense on convertible debentures - Amortized
            
            
            (435,119
            )
            
            (24,038
            )Interest
                expense on convertible debentures - Accrued
            
            
            (28,564
            )
            
            3,487Total
                Current Liability
            
            $
            (463,684
            )
            $
            (27,525
            )





23




**Defaults
      on Convertible Debentures**


As
        of
        September 30, 2006, and subsequently, the Company had several convertible
        notes
        mature without conversion or repayment. As of September 30, 2006, nineteen
        note
        holders have provided written notice to the Company for the conversion of
        their
        notes; one note holder agreed to extend the term of his note; and three notes
        totaling $230,000 are currently in default.
 
 As
        of
        September 30, 2006, the Company is also in default on ten notes to creditors
        of
        the Company dating back to 2003. The total amount in default relating to
        the ten
        notes is $346,500.
  **NOTE
        11 - COMMITMENTS AND CONTINGENCIES**





**Network
      Operations and 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 office space located on the 26 th floor of
      the Centennial Tower at 101 Marietta Street in Atlanta, Georgia (the “Lease”).
      For further details concerning this Lease, see the Company’s Form 8K filed on
      October 18, 2005 and its Form 10-KSB for the 2005 fiscal year.





On
      February 23, 2006, the Lease was amended to expand the rental space by 9,415
      square feet, bringing the total rental square feet to 18,830. The term of the
      Lease remained unchanged. In accordance with the amended lease agreement, a
      payment of $17,246 was made on March 10, 2006 and was applied to the June 2006
      rent.





Under
      the
      terms of the amended lease, the Company will make annual rental payments to
      the
      Landlord in the following amounts:




Years
      ending December 31


2007
              
              $
              406,3562008
              
              $
              416,5152009
              
              $
              426,9282010
              
              $
              437,6012011
              
              $
              448,541Thereafter
              
              $
              2,077,597Total
              
              $
              4,213,538





24




**Facilities
      Lease -** On
      May
      17, 2006, the Company entered into a Sublease Agreement with Rogers Telecom
      Inc., wherein the Company leased a portion of the 16 th floor of
      a building located at 55 Marietta Street, Atlanta, Georgia 30303. The lease
      commenced on June 1, 2006 and continues through April 29, 2007. The master
      lease
      was dated May 1, 1997 and continues through April 30, 2007. The Company will
      use
      the space for the location of a telecom switch and for meetings where the
      functionality of the various pieces of equipment will be demonstrated. The
      space
      provides the Company exposure for the typical high-end automation and
      communication equipment. The Company is obligated to pay monthly rents of $8,397
      per month through April 30, 2007. Under the terms of the lease, the Company
      will
      make additional rental payments of $58,779 through the life of the lease.





**Employment
      Agreements/Employee Matters**





On
      October 8, 2004, the Company entered into binding offer letters with Winston
      Johnson, as Chairman and CEO, Jon Jannotta, as President, Nana Yalley, as
      Executive Vice President, one former executive officer and two non-executive
      officers. Under the terms of employment, Messrs. Johnson, Jannotta and Yalley
      were to receive base salaries of $290,000, $270,000 and $270,000 per annum,
      respectively, with $7,000 per month deferred until the next funding occurs
      or
      January 1, 2005, whichever occurred first. Each officer was eligible for annual
      incentive bonuses based on performance. The agreements were terminable at will
      with or without cause (as defined therein).




The
      employment agreements of October 8, 2004, provided for the grant of an aggregate
      of 3,000,000 incentive or non-statutory stock options for the three executive
      officers to purchase 1,000,000 shares each of common stock for $1.00 per share.
      These options primarily vest equally over a twelve-month period effective with
      date of the employment agreement.





Subsequently,
      on December 9, 2005, Mr. Yalley entered into a separation agreement with the
      Company, which
      nullified and voided his employment agreement of October 8, 2004 with
      the Company .
      Pursuant to the separation agreement, Mr. Yalley agreed to a reduction to
      500,000 stock options in lieu of the 1,000,000 options he was to receive under
      the 2004 agreement. Additionally, on June 13, 2006, Jon Jannotta resigned from
      his position as President of the Company; however, he continues to serve as
      a
      member of the Board of Directors of the Company. Mr. Jannotta has agreed to
      forgive all accrued salary, as well as, the 1,000,000 options he had received
      pursuant to the employment agreement. (See “Note 4 - Related Party Transactions”
for further details.)





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 employment, Mr. Young was to receive a base salary of $200,000 per annum,
      with $5,000 per month deferred until the next funding occurs or January 1,
      2006,
      whichever occurred first. Mr. Young was eligible for an annual incentive bonus
      based on performance. The agreement was terminable at will with or without
      cause
      (as defined therein). Mr. Young received non-qualified incentive stock options
      to purchase 500,000 shares of common stock at an exercise price of $1.00 per
      share in accordance with the Company's Employee Stock Option Plan. Ten percent
      of the options vested immediately upon the signing of the employment agreement
      and the remaining options were to vest at the rate of 1/12th per month for
      12
      months. In addition, upon his execution of the employment agreement, Mr. Young
      received additional options to purchase 750,000 shares of common stock of the
      Company at a purchase price of $0.01 per share, in which 1/3 vested upon the
      signing of the employment agreement, 1/3 vested at the closing of the next
      round
      of financing or January 1, 2006, whichever occurred earlier, and the remaining
      1/3 would vest when the Company’s Common Stock resumed trading on the OTCBB. As
      was discussed on the Company’s Form 8-K filed on August 24, 2006, Mr. Young
      resigned on August 1, 2006 to pursue other opportunities.





During
      the first two quarters of 2006, the consolidated Company entered into at-will
      employment agreements with seventeen key employees. The agreements, in the
      aggregate, provided annual compensation of approximately $1.85 million and
      provided for the issuance of options to the employees to acquire an aggregate
      of
      approximately 1.1 million shares of the Company’s common stock at $1.00 per
      share. Ten percent of the options vested immediately upon the signing of the
      Employment Agreement and the remaining options will vest at the rate of 1/12th
      per month for 12 months. In addition to the stock options exercisable at $1.00
      per share, an aggregate of 1,300,000 additional options will be issued to
      certain of these employees. The general terms of the additional stock options
      included a purchase price of $0.01 per share and will vest upon the Company
      achieving certain milestones.





Effective
      June 6, 2006, Joseph Morris succeeded Eric Young as Chief Operating Officer
      of Winsonic Digital Media Group, Ltd. Previously, Mr. Morris served
      as Chief Operating Officer of AI, which was acquired on April 18,
      2006.  Mr. Morris' base salary is $150,000 per annum. 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
      upon signing the employment agreement and the remaining 90% will vest at the
      rate of 1/12th per month for twelve months. Mr. Morris’ compensation is included
      in the summary totals of the preceding paragraph.




25





During
      the third quarter of 2006, the Company entered into at-will employment
      agreements with four executives. Under the terms of employment, the executives
      will receive a base salary, with a portion deferred on a monthly basis until
      the
      next funding occurs. The executives are also eligible for an annual incentive
      bonus based on performance. The employment agreements are terminable at will
      with or without cause (as defined therein). The executives will receive
      non-qualified incentive stock options to purchase a cumulative 1,050,000 shares
      of common stock at an exercise price of $1.00 per share in accordance with
      the
      Company's Employee Stock Option Plan. Ten percent of the options vested
      immediately upon the signing of the employment agreement and the remaining
      options shall vest at the rate of 1/12th per month for 12 months. In addition,
      they will receive an additional restricted 750,000 cumulative shares of stock
      at
      a purchase price of $.01 per share, in which 1/3 vested upon the signing of
      the
      employment agreement, 1/3 will vest at the closing of the next round of
      financing, and the remaining 1/3 when the Company’s Common Stock resumes trading
      on the OTCBB.





The
      terms
      of these first, second and third quarter employment agreements include a
      deferral of a portion of the individual employee’s salary pending the Company’s
      receipt of substantial financing. The Company will issue the options as soon
      as
      a satisfactory employee stock option plan has been approved by the Company’s
      shareholders. Consistent with the written obligation to issue the options,
      the
      Company has elected to accrue the fair market value of the options as if they
      had been issued under the requirements of SFAS No. 123(R).





**Consulting
      Contracts**





During
      the first quarter of 2006, the Company engaged a financial consultant to assist
      management with accounting and reporting issues. The contract included an hourly
      fee of $100 per hour, as well as, warrants to purchase up to 150,000 shares
      of
      the Company’s restricted Common Stock at $0.28 per share, based upon the
      completion of certain milestones. The milestones were accomplished by March
      31,
      2006, and the Company has accrued expense of $27,536 based upon the fair market
      value of the vested warrants.





During
      the second quarter of 2006, the Company entered into consulting agreements
      with
      three contractors. The first agreement was executed on April 12, 2006 between
      the Company and a financial consultant, who was engaged to assist the Company
      with its accounting and reporting issues. The contract included an hourly fee
      of
      $100 per hour, as well as, warrants to purchase up to 25,000 shares of the
      Company’s restricted Common Stock at $0.50 per share, based upon the completion
      of certain milestones. The milestones were accomplished by September 30, 2006,
      and the Company has accrued expense of $9,539 based upon the fair market value
      of the vested warrants. The second agreement, which was executed on May 26,
      2006
      for strategic and long-term financial advisory services, provided for the
      issuance of 185,000 shares of common stock of the Company. The agreement had
      a
      three-month term, and the Company issued the shares to the consultant on August
      23, 2006. The shares, when issued were valued at the market price of the
      Company’s stock, at the date of the agreement, in the amount of $48,100, ($0.26
      per share) of which the Company recognized consulting expenses of $19,867 during
      the second quarter and the remaining balance of $28,233 in the third quarter.
      (See “Note 4 - Stockholders Equity” for further details.) The third agreement
      was executed on June 12, 2006 between the Company and Dennis James for switch
      management and consulting services. The agreement has an indefinite term; but
      can be terminated by either party upon 30 days written notice. Additionally,
      it
      provides for a minimum of ten (10) hours per week and includes an hourly fee
      of
      $25.00.




During
      the period ended September 30, 2006, the Company entered into two consulting
      agreements. The first agreement was executed on July 28, 2006 for business
      development and financial advisory services in exchange for 150,000 shares
      of
      the Company’s Common Stock. The agreement has a one year term. The second
      agreement, which was executed on August 1, 2006 for strategic and long-term
      financial advisory services, has a six-month term and provides for the issuance
      of 60,000 shares of the Company’s Common Stock. To date, the stock has not been
      issued to the consultant.





**Interconnection
      Agreement with BellSouth Telecommunications, Inc** *.*




26


On
      September 27, 2006, the Company executed an Interconnection Agreement with
      BellSouth Telecommunications, Inc. (“BellSouth”). The agreement is effective for
      a period of five years and shall apply to the BellSouth territory in the State
      of Georgia. The execution of this agreement will allow the Company to (1)
      interconnect with BellSouth at the Winsonic network located at 55 Marietta
      Street in Atlanta, Georgia to provide local, long distance or other network
      services to its customers; (2) collocate with BellSouth in its central offices
      to access unbundled services at discounted rates and provide them to the
      Company’s customers at its tariffed rates; (3) gain nondiscriminatory access to
      any pole, duct, conduit, or right-of-way owned or controlled by Bellsouth;
      and
      (4) resell services from the BellSouth Resale Tariff, which includes most local
      services, private line services and connection charges. Additionally, the
      Company’s customers can be listed in the BellSouth telephone directory and have
      access to Bellsouth’s operator services (0), directory assistance (411) and
      emergency services (911).





**NOTE
      12 - SUBSEQUENT EVENTS**





**AI
      Lease Termination Agreement**





On
      December 11, 2006, the Company’s subsidiary, AI, terminated its facilities lease
      effective on December 31, 2006. The January 2004 lease, which was scheduled
      to
      run through December 31, 2015, was terminated via mutual agreement between
      AI
      and the landlord. The lease, which was executed between AI and the spouse of
      an
      officer of AI, had been included as one of AI obligations during the
      acquisition. (See “Note 3 - Mergers and Acquisitions” for further information.)
      Pursuant to the lease, AI was obligated to pay monthly rents of $3,000 ($36,000
      annually) through December 31, 2015. With the termination of the lease, the
      future obligations under the lease were reduced from $342,000 to $18,000. This
      amount has been paid in the fourth quarter of 2006.





**Convertible
      Notes Payable**




Subsequent
        to the end of the second quarter, twenty (20) of the twenty-two (22) convertible
        note holders holding notes that matured on June 30, 2006 agreed in writing
        to
        exercise their conversion options at $0.40 per share. Based on these agreements,
        the Company converted $785,000 in principal and $76,486 in accrued interest
        in
        exchange for 2,153,719 shares of common stock.  As a result of the
        conversions and the subsequent issuances, the Company recorded the issuance
        of
        2,153,719 shares of restricted common stock during the third quarter, thereby
        reducing the liability for convertible notes payable by approximately $869,000,
        compared to the balance outstanding at December 31, 2005.


**Employee
      Matters**




Subsequent
      to September 30, 2006, the Company entered into at-will employment agreements
      with three executives and six employees and amended its agreement with a current
      employee. Under the terms of employment, these individuals will receive a base
      salary, with a portion deferred on a monthly basis until the next funding
      occurs. These individuals are also eligible for annual incentive bonuses based
      on performance. The employment agreements are terminable at will with or without
      cause (as defined therein). These employees will also receive non-qualified
      incentive stock options to purchase a cumulative 925,000 shares of common stock
      at an exercise price of $1.00 per share. Ten percent of these options vested
      immediately upon the signing of the employment agreement and the remaining
      options shall vest at the rate of 1/12th per month for 12 months. In addition,
      they will receive an additional restricted 300,000 shares of stock at a purchase
      price of $0.01 per share, in which 1/3 vested upon the signing of the employment
      agreement, 1/3 will vest at the closing of the next round of financing, and
      the
      remaining 1/3 when the Company’s Common Stock resumes trading on the OTCBB. The
      Company will issue the options as soon as a satisfactory employee stock option
      plan has been approved by its shareholders. Consistent with the written
      obligation to issue the options, the Company has elected to accrue the fair
      market value of the options as if they had been issued under the requirements
      of
      SFAS No. 123(R).





**Consulting
      Agreements**





On
      October 17, 2006 the Company entered into a consulting agreement with Coral
      Capital Partners, in which Coral agreed to provide various reports and opinions
      on a number of issues, including the merger between WinSonic Holdings, Ltd.
      and
      WinSonic Digital Cable Systems, Ltd. and Media and Entertainment, Inc. As
      compensation for the services provided, the Company agreed to compensate Coral
      Capital a fee equal to $75,000, of which included a note to Coral Capital for
      $60,000, as well as, the issuance of 40,000 shares of the Company’s Common Stock
      in lieu of the remaining $15,000 cash. The shares issued to Coral Capital
      Partners carry “piggy back” registration rights allowing their inclusion in the
      shares to be registered should an appropriate registration statement be planned.
      The agreement has an indefinite term; but can be terminated by either party
      upon
      written notice. Additionally, it provides for all reasonable out-of-pocket
      expenses limited to no more than $1,000 per month, unless approved in writing
      by
      the company. The stock was issued to the consultant on December 19,
      2006.





27




**Acquisition
      of Digital Distribution Platform (also known as DVerb)**





On
      October 6, 2006, the Company completed the acquisition of a distribution
      platform, (formerly called SNATCHBOX, which has been renamed DVerb), which
      provides a vehicle for delivery of digital content, including music downloads,
      ring-tones, video, and wallpaper. As part of the agreement the Company was
      awarded the personal relationships, trade secrets and knowledge in the
      development and sale of products and services related to DVerb.




Pursuant
      to the Asset & Goodwill Purchase Agreement, the Company acquired 100% of the
      equity interests in DVerb for a total consideration of 500,000 shares of the
      Company’s Common Stock. For further information regarding this transaction, see
      the Company’s Form 8-K filed on October 4, 2006 which references the Memorandum
      of Understanding executed between the parties.





**Acquisition
      of Tytess Design and Development, Inc.**





On
      November 2, 2006, the Company completed the acquisition of Tytess Design and
      Development, Inc., a Georgia Corporation, which provides architectural,
      engineering and construction solutions to commercial builders and builders
      of
      institutional facilities and residential communities.




Pursuant
      to the Acquisition and Share Exchange Agreement, the Company acquired 100%
      of
      the equity interests in Tytess for a total consideration of 1,146,593 shares
      of
      the Company’s Common Stock, valued at $458,637.  The value of the
      transaction is based on Tytess’ net income of $141,137 for the year 2005 and
      estimates of the net income to be derived from its current contracts for the
      fourth quarter of 2006 and its estimated contract revenue for the 2007 fiscal
      year.  For further information regarding this transaction, see the
      Company’s Form 8-K filed on November 3, 2006.





**Acquisition
      of DV Photo Shop/Establishment of WinSonic Digital Store,
      Ltd.**





On
        November 20, 2006, the Company completed the acquisition of DV Photo Shop
        pursuant to an Asset & Goodwill Purchase Agreement (the “Acquisition
        Agreement”). DV Photo Shop is an urban retail store located at Centennial Tower,
        101 Marietta Street, Atlanta, Georgia, and specializes in photography
        development, digital photography and the sale of mobile phones, accessories,
        and
        wireless communications services. DV Photo Shop provides service to downtown
        Atlanta, specifically those in need of convenience for uploading, developing
        and
        printing digital photographs and activating mobile phone services. DV Photo
        Shop
        offers the Company other streams of revenue, which will be derived from retail
        and on-line distribution of Winsonic products, digital services and other
        telecommunication offerings.
  Pursuant
        to the Acquisition Agreement, the Company acquired 100% of the interests
        in DV
        Photo Shop for a total consideration of $200,000, which was divided as follows:
        a 6% Convertible Subordinated Promissory Note for sixty thousand dollars
        ($60,000) issued to JungSook Yoon, HeungWoo Park, and SunWoo Park having
        a
        maturity date of March 20, 2007 and convertible at a rate of $0.58 per share;
        103,448 shares of the Company’s Common Stock, valued at $60,000, issued to
        JungSook Yoon, HeungWoo Park, and SunWoo Park; and 137,931 shares of the
        Company’s Common Stock, valued at $80,000, issued to Sung Yeol Yoon.





Following
      the acquisition, the Company changed the name from DV Photo Shop to Winsonic
      Digital Store, Ltd., (the “Store”) and incorporated the new entity in the State
      of Georgia on December 8, 2006. The Store, of which the Company is now a one
      hundred percent (100%) equity owner, obtained its business license from the
      City
      of Atlanta on December 13, 2006, thereby enabling it to transact business in
      the
      City of Atlanta. Currently, the Store offers the same products and services
      offered by DV Photo Shop before the acquisition; however, its future offerings
      include music downloads, digital photo depot, on-line storage, video
      conferencing, content development, music lab for mixing and mastering, and
      film,
      video and photo editing.





28




**Legal
      Proceedings**





**Lefkowitz
      vs. Winsonic Digital Media Group, Ltd.** (Superior
      Court of CA, Los Angeles County - complaint filed May 18, 2006)





The
      Court
      has ordered mediation of this action on January 26, 2007 in Los Angeles,
      California. Other than as described herein, no other action has been taken
      in
      this matter as of the date of this report.





**Yalley
      vs. Winsonic Digital Media Group, Ltd.** (District
      Court of Nevada, Clark County - complaint filed October 13, 2006)





This
      is
      an action for declaratory and injunctive relief brought by Nana Yalley, a former
      director and officer of the Company, requesting that the court grant a
      declaratory judgment ordering the Company and its stock transfer agent to remove
      the restrictive legends from 2,724,998 restricted shares of common stock of
      the
      Company owned by Mr. Yalley, pursuant to Rule 144(k) of the Securities Act
      of
      1993. In addition to the foregoing, Mr. Yalley seeks an indeterminate amount
      of
      attorneys’ fees and costs. The Company and its stock transfer agent were each
      served with a summons and complaint on October 17, 2006.





On
      November 7, 2006, the Company, through local counsel in the State of Nevada,
      filed responses to the complaint on behalf of itself and the stock transfer
      agent, whom the Company has agreed to indemnify in this action. On November
      13,
      2006, Mr. Yalley filed a Motion for Partial Summary Judgment; Ex Parte Request
      for Order Shortening Time, wherein he requested that the Court hear his motion
      as soon as possible, and order the Company to remove the restrictive legends
      from his shares. The Company filed an opposition to this request soon thereafter
      and Mr. Yalley filed a reply to the opposition on December 13, 2006. During
      the
      hearing which was scheduled for December 19, 2006, the Court ordered the Company
      to remove the restrictive legends from Mr. Yalley’s shares, but did not set any
      particular deadline to do so. As of the date of this filing, the restrictions
      have not yet been removed from Mr. Yalley’s shares and the remaining claims are
      still pending.





**Eric
      Young vs. Winsonic Digital Media Group, Ltd.**





The
      Company has been notified by letter, dated November 29, 2006, prepared by legal
      counsel for Mr. Eric Young, a former financial officer of the Company, that
      Mr.
      Young will be seeking compensation and severance for accounting services
      rendered during 2005 and 2006. The Company is currently in discussions with
      Mr.
      Young in an attempt to resolve the issue amicably.





**Insurance
      Binder**





On
      November 3, 2006, the Company, through its broker/agent, Gaston &
Associates, entered into a Binder of Insurance with Beazley Insurance Company,
      Inc. for Director’s and Officer’s Liability Insurance. The total premium is
      $30,310. To facilitate payment, the Company has entered into a finance agreement
      with Premium Assignment Corporation, wherein, the Company agreed to a
      down-payment of $10,010, and ten monthly payments of $2,115.





**Item
      2. Management’s Discussion and Analysis or Plan of
      Operation.**





**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.




29




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, management's ability to raise capital in
      the
      future, 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.




**General**





Winsonic
      Digital Media Group, Ltd. (“we”, “Winsonic”, or the “Company”) is a media
      distribution solutions company. We believe that our software and network will
      establish a new standard for media distribution of digital information via
      the
      Internet, ATM, SDI, HDTV, digital cable, cable TV and satellite. Our network
      enables users to view, interact, and listen to all types of audio, online video
      and digital TV, in full screen format, at high speed, high quality, and greatly
      reduced cost, reducing the need for expensive high-speed
      connections.





We
      are
      pursuing the commercialization of our products, which will provide media
      distribution of digital content and information, seamless compatibility with
      all
      major networks, copyright enforcement, multi-tier encryption (moving files
      in a
      secure environment) and wireless viewing capabilities for laptops and hand
      held
      products, such as cellular telephones and PDA devices. Our facilities-based
      products and services in out-of-franchise markets will enable communications
      companies, such as Verizon, to partner with Winsonic and to allow us to provide
      services to their customers. Other services include high-end consulting services
      in the areas of programming, audio research and engineering, as well as digital
      transport telecommunications services for film and television.





Our
      objective is to maximize product performance while reducing cost through
      technology innovation. Winsonic has built upon its long-term business model
      that
      incorporates reliable technical support and service levels. This offers network
      resilience and sustainable growth for its infrastructure and customer base.
      This
      business model is expected to provide multiple revenue streams enabling Winsonic
      to fully realize its expansion position and growth potential. The result is
      one
      of the most comprehensive and cost effective product portfolios for the
      industry: one which establishes a reputation as a respected facilities-based
      media and entertainment distribution service and network provider.





Our
      network, Winsonic Digital Cable Systems Network (“WDCSN”), concentrates on
      carrier-class high-speed connectivity solutions that bring together a
      first-class facility around the country along with network, multimedia and
      content distribution communication services to its customers, without requiring
      substantial capital investments. Verizon,
      Sun Microsystems, and Level 3 are among the leading companies to team with
      Winsonic to implement a high-end facilities-based infrastructure to aid and
      facilitate voice transport, audio, video, data, media and broadcast content
      over
      protocol-independent multi-layered communication systems.





WDCSN
      provides customers with an enhanced gateway to national and international
      communication lines. With the network as a foundation, Winsonic provides its
      customers sophisticated, state of the art application software and hardware
      solutions tailored to meet their specific needs. These applications include,
      but
      are not limited to, carrier solutions for regional phone companies such as
      special software that provides networks the capability of accommodating all
      software platforms as well as custom hardware platforms that facilitate
      consumer, medical, commercial, and government applications.





Winsonic
      can provide digital custom application development for Voice Over Internet
      Protocol “(VOIP)”, standard national and international communications, PDA,
      audio/video transport, e-commerce, radio frequency devices, television and
      satellite broadcast. Winsonic offers the expertise for building out digital
      television networks that accommodate, high definition television, streaming
      video and real time interactive networks.




Automated
        Interiors, LLC (“ AI”)
        is a
        systems integration company, which designs and installs electronics systems
        and
        telecommunication services, including media rooms, whole house music, lighting
        controls, video distribution, phone systems with intercom, and security systems.
        These systems are designed to enhance lifestyles and to meet the growing
        demands
        of families and businesses in a technological-driven environment. The Company,
        as a facilities-based entity, enables AI to offer telecommunications services
        to
        its clients, in compliance with FCC, PUC, state and local regulations.




30




Winsonic
      Diversity is committed to developing urban communities by providing resources
      and services that will improve quality of life. As such, Winsonic Diversity
      intends to provide its customers with high quality products, competitive
      pricing, accurate and efficient technical support, prompt services, and a
      continuing dedication to new product development. Winsonic Diversity has
      identified, and is currently working on, several urban community initiatives.
      It
      offers a full portfolio of public and private network access points, media
      distribution solutions, and products that deliver powerful private and public
      solutions that ensure business-critical availability, lower cost of operations
      and application optimized performance. Additionally, Winsonic Diversity offers
      thorough information technology analysis, creative architectural and software
      designs, and a full range of technical and professional expertise.





For
      a
      more detailed explanation of Winsonic’s and AI’s capabilities we invite you to
      visit the Winsonic website at: www.winsonic.net and the
      AI website at: www.autointer.com .
      The
      information contained on the websites is not incorporated by reference in this
      report and should not be considered a part of this report.





**Discussion
      of Material Transactions and Developments**





*Native
      American Television Network*





On
      September 29, 2005, the Company consummated a stock exchange agreement with
      the
      Native American Television Network (“NATVN”), based in Albuquerque, New Mexico.
      NATVN intends to launch the first Western Hemisphere, pan-tribal digital cable
      channel. The Company will provide to NATVN its nationwide distribution platform
      and technical support, expertise and personnel. NATVN will provide the Company
      with commercial airtime on regularly scheduled programming that offers air
      space
      to advertisers with the exception of paid programming or long form
      advertisements.





In
      accordance with the stock exchange agreement between the two parties, the
      Company issued 1,670,000 shares of its Common Stock to NATVN, and the Company
      acquired 4,000,000 shares of stock in NATVN, representing 27% of the NATVN
      equity.





The
      value
      of the investment to the Company is based upon the promising mutually beneficial
      opportunities of the relationship between the Company, NATVN and a significant
      number of potential digital-services subscribers within the American Indian
      community; however, currently there are no signed agreements in place. The
      Company anticipates tangible progress toward contractually capturing the target
      market, and NATVN is currently negotiating with representatives of the potential
      digital-services subscribers. As of yet, contractual agreements with the
      potential subscribers have not been secured. Without the agreements in place,
      the final number of subscribers to be serviced, the actual services to be
      provided (i.e. cable television, digital television, advertising revenues,
      telephony services, and high-speed internet) and the prices to be charged for
      the services are not certain.





This
      transaction was recorded in accordance with Staff Accounting Bulletin (SAB)
      Topic 5(g), which states that the transfer of non-monetary assets by
      shareholders should be recorded at the transferor’s historical cost basis as
      determined under Generally Accepted Accounting Principles (GAAP). The President
      of the Company and a Company shareholder are also shareholders and co-founders
      in NATVN, owning approximately 9% of the total outstanding equity in NATVN.
      Since NATVN is an early development stage company, the historical cost and
      therefore initial value of the non-monetary asset received is valued at zero
      as
      of September 30, 2006 since there are no tangible or intangible assets and
      signed agreements in place. While management believes that the relationship
      will
      serve to provide a much needed service to customers and prove to be financially
      rewarding, management shall adhere to valuation of the investment in NATVN
      at
      the historical based cost.





The
      Company and NATVN are currently in ongoing discussions to consider alternatives
      in the structure of the existing agreement, as to provide both parties with
      an
      optimal structure and enhanced opportunities to service its customers. Until
      then, the ongoing investment in NATVN will be accounted for under the “equity”
method. The equity method of accounting is used if the investor has the ability
      to significantly influence the investee’s financial and operating policies or if
      an investor is accounting for an investment in a corporate joint venture, but
      holds less than 50% of the investee. Under the equity method, an investment
      is
      initially recorded at cost. Thereafter, the carrying amount of the investment
      is
      increased for the investor’s proportionate share of the investee’s gains or
      reduced for the proportionate share of the investee’s losses or for
      distributions received from the investee.





31




*Interconnection
      Agreement with BellSouth Telecommunications, Inc.*





On
      September 27, 2006, the Company executed an Interconnection Agreement with
      BellSouth Telecommunications, Inc. (“BellSouth”). The agreement is effective for
      a period of five years, and applies to the BellSouth territory in the State
      of
      Georgia. The execution of this agreement allows the Company to (1) interconnect
      with BellSouth at the Winsonic network located at 55 Marietta Street in Atlanta,
      Georgia to provide local, long distance or other network services to its
      customers; (2) collocate with BellSouth in its central offices to access
      unbundled services at discounted rates and provide them to the Company’s
      customers at its tariffed rates; (3) gain nondiscriminatory access to any pole,
      duct, conduit, or right-of-way owned or controlled by Bellsouth; and (4) resell
      services from the BellSouth Resale Tariff, which includes most local services,
      private line services and connection charges. Additionally, the Company’s
      customers can be listed in the BellSouth telephone directory and have access
      to
      Bellsouth’s operator services (0), directory assistance (411) and emergency
      services (911).





*Licenses,
      Certifications and Intellectual Property*





The
      Company has recently obtained a number of certifications from various local,
      state and federal regulatory bodies that will enable it to be a strong
      competitor in today’s market. Namely, on August 15, 2006, the Company was
      granted approval by the Georgia Public Service Commission (PSC) as (1) a
      Competitive Local Exchange Carrier (CLEC), (2) an Other Common Carrier (OCC),
      and (3) an IntereXchange Carrier (IXC). As a certified CLEC, the Company is
      able
      to offer local exchange services within the local calling areas (IntraLATA)
      throughout the State of Georgia, and is in a position to compete with Local
      Exchange Carriers (LECs) through use of LEC infrastructure. Through this
      certification, the Company has the ability to collocate with various LECs (i.e.,
      connect its switches with the LECs’ switches) to gain access to their unbundled
      network elements (UNE) - e.g., facilities, equipment, features and functions.
      Essentially, this certification allows the Company access to LEC customers,
      and
      enables it to provide voice, data and video services in each of the calling
      areas in the State of Georgia. As an OCC, the Company can offer facilities-based
      services and extend the provisioning of services beyond that of a reseller
      within the State of Georgia; while its IXC status allows it to offer long
      distance services in the State of Georgia.





Additionally,
      on May 30, 2006 and August 15, 2006, the Company obtained a FCC Registration
      Number (FRN) and registered as an IXC with the Federal Communications Commission
      (FCC), respectively. Registration with the FCC allows the Company to conduct
      business with the FCC, while the FRN enables it to offer interstate long
      distance services throughout the United States. What this means for the Company
      is that it can now offer to its Georgia-based customers telecommunications
      services (including voice, data, and video offerings) between states.





On
      July
      21, 2006, the Company’s Section 214 application was approved, which enables it
      to provide international facilities-based and resold telecommunications services
      between the U.S. and foreign points. This certification is particularly
      important to the Company’s ability to compete in a global digital content
      market.





In
      its
      efforts to move forward with its “Have and Have-Nots” initiative (a program
      established by the Company to deliver affordable telecommunication services
      to
      inner city communities), the Company sought designation as an Eligible
      Telecommunications Provider (ETP), and in September 2006, obtained a Service
      Provider Identification Number (SPIN) from the Universal Service Administration
      Company (USAC), the administrator of the federal Universal Service Fund (USF).
      Registration with, and approval by, USAC will allow the Company to participate
      in the High Cost, Low Income, Rural Health Care Providers, and Schools and
      Libraries programs sponsored by the USF. Under these programs, consumers, at
      discounted rates, will have access to enhanced telecommunications services
      and
      new technology that are comparable to those available to more privileged
      consumers.


On
        September 15, 2006, the Company was certified by the FCC to operate an Open
        Video System (OVS) in Metropolitan Atlanta and Athens, Georgia. With this
        certification, the Company is authorized to offer video services in the service
        areas by distributing programming as a cable television provider or by
        establishing an open video system (OVS) to deliver video programming to the
        home
        or business. Services such as “on-demand” and other video programming can be
        made available on a point-to-point basis to the Company’s customers through its
        OVS. The offering of cable services expands the Company’s ability to serve the
        consumer market and differentiate the Company from other competitors.


32




On
      September 12, 2006, the Company’s application for the registration of the
      WINSONIC trademark and service mark was approved pursuant to the Trademark
      Act
      of 1946, as amended. The approval of the mark entitles the Company to use the
      WINSONIC name on its products and services and in its marketing and advertising
      campaigns. The Company was approved to use its mark under two classes:





Class
      38
      - which includes Internet telephony services; telecommunication services,
      namely, personal communication services using a public switch telephone network
      or PSTN; local and long distance telephone services using a public switch
      telephone network or PSTN; voice over asynchronous transfer mode (ATM) services;
      voice over IP services; providing telecommunications connections to a global
      computer network; telecommunications consultation and gateway services;
      telecommunications reseller services, namely, providing local and long distance
      telecommunications services; telecommunications services, namely, ISDN services,
      personal communication services, providing fiber optic network services, and
      providing multiple user dial-up and dedicated access to the Internet; wireless
      services, namely, text and numeric digital messaging services, facsimile mail
      services, PBX services; voice mail services; electronic voice messaging, namely,
      the recording and subsequent transmission of voice messages by telephone;
      electronic transmission of documents among users of computers via computer
      terminals.





Class
      42
      - which includes the design for others of integrated circuits and integrated
      circuit cores for use in wireless communications and wireless communication
      equipment and apparatus and digital signal processors (DSP); cross-platform
      conversion of digital content into other forms of digital content; providing
      electronic verification of on-line orders of digital content and generating
      electronic permission codes which allow users to access said digital content;
      providing temporary use of non-downloadable computer software for shipment
      processing over computer networks, intranets and the Internet and PSTN
      networks.





**Material
      Changes in Results of Operations**




As
      a
“development stage company” we have not commenced material commercial
      operations. Prior to the three months ended September 30, 2006, the Company
      recorded $294,587 of revenue since inception, which was earned prior to 2005.





During
      the quarter ended September 30, 2006, the consolidated operations of the Company
      and AI yielded revenue of $309,843.





The
      following pro forma information includes the separate and consolidating
      information for the operations of the two companies for the nine months ended
      September 30, 2006:


**WDMG**
              
              **AI**
              
              **Combined**Revenue
              
              $
              -
              
              $
              546,619
              
              $
              546,619Gross
                  Profit
              
              
              -
              
              
              106,198
              
              
              106,198G
                  & A expenses
              
              
              (3,878,072
              )
              
              (274,146
              )
              
              (4,152,218
              )Profit
                  (Loss ) from operations
              
              
              (3,878,072
              )
              
              (167,948
              )
              
              (4,046,020
              )Net
                  Income (Loss)
              
              $
              (5,597,654
              )
              $
              (171,171
              )
              $
              (5,768,825
              )Income
                  (loss) per share - basic and diluted
              
              
              
              
              
              
              
              $
              (0.13
              )




33


For
          the
          three months ended September 30, 2006, we had gross consolidated revenue
          of
          $309,843 with a gross profit of $25,371. The consolidated operations, however,
          continued to generate an operating loss in the amount of $5,768,825 for
          the nine
          months ended September 30, 2006. The consolidated losses were composed
          of
          Winsonic losses of $2,264,858 and $5,597,654 for the three-month and nine-month
          periods ended September 30, 2006, respectively. During the comparable periods
          ended September 30, 2005, the Company incurred net losses of $723,906 and
          $1,634,092, respectively. The operating losses for the three-month period
          ending
          September 30, 2006, primarily represent selling, general and administrative
          expenses of approximately $1,461,897 and depreciation expense of approximately
          $35,176, compared to total operating expenses of approximately $517,704
          in the
          comparable period last year, which consist primarily of selling, general,
          and
          administrative expenses of approximately $432,104 and depreciation expense
          of
          $85,600.
 
 During
          the period ended September 30, 2006, the Company applied SFAS No. 123(R),
          which
          requires the Company to recognize the expense of employee incentive options
          that
          vested during the reported period.  The selling, general and administrative
          expenses for the three and nine months ended September 30, 2006 include
          compensation expenses of $323,507 and $743,153 arising from vested employee
          stock options committed to employees during the quarter.  The related
          period ended September 30, 2005 has no comparable charge.  (For
          additional information, see “Note 2 - Summary of Significant Accounting
          Policies, Stock Based Compensation”.)
 
 For
          the
          three months period ending September 30, 2006, the Company incurred interest
          expense and finance cost of $444,708 compared to an interest expense of
          approximately $323,208 in the comparable period of 2005, which reflects
          a
          decrease of $121,499. (See “Note 10 - Convertible Notes” for more
          information.)
  During
          December of 2004 and January of 2005, the Company issued approximately
          $1,015,000 in convertible debentures. The conversion feature of the debentures
          included the right of the note holder to convert the face value of the
          Note into
          common stock of the Company at the lower of $0.70 per share or 85% of the
          market
          value of the common stock (at the time of conversion). The agreement also
          included a detachable warrant, which allowed the warrant holders to purchase
          shares of common stock of the Company at $0.70 per share (1,450,000 shares
          of
          common stock), through December 2006. During the period ended December
          31, 2005,
          the debentures were renegotiated and extended to June 2006, and the conversion
          price was decreased from $0.70 to $0.40 or 85% of the market price of the
          stock
          at the time of conversion. (Please reference “Note 10 - Convertible Debentures”
for a more detailed explanation.) The transaction, to the extent that it
          is to
          be satisfied with common stock of the Company, would normally be classified
          as
          an equity obligation. However, the Company could be required to issue an
          indeterminate number of shares of its common stock to satisfy the optional
          (85%
          of market value) conversion feature of the debentures. This could cause
          the
          Company to exceed the number of shares of common stock it is authorized
          to
          issue, which would also prevent the delivery of common shares if the warrants
          were exercised during that period of time. Under GAAP, the Company is required
          to record the warrants and the convertible notes as a liability. Changes
          in the
          value of the derivative liability and the warrant liability are reflected
          on our
          income statement as *“* unrealized
          gain (loss) on adjustment of derivative and warrant liability to fair value
          of
          underlying securities. *”* During
          the three-month period ended September 30, 2006, the Company recorded an
          unrealized loss of approximately $520,006 compared to a loss of approximately
          $157,210 during the period ended September 30, 2005 from the adjustment
          of these
          liabilities.
 
 For
          the
          three-month period ending September 30, 2006, the Company recorded a net
          loss of
          approximately $2,423,920, compared to the three-month period ended September
          30,
          2005 when the Company recorded a net loss of approximately $723,906.




The
      largest component of change in loss recognized during the three-month period
      ended September 30, 2006, compared to September 30, 2005, is the portion of
      the
      loss related to the selling, general and administrative expenses. During the
      third quarter, the selling, general and administrative expenses increased from
      $314,390 during the three months ended September 30, 2005 to $1,463,712 during
      the three months ended September 30, 2006. The loss reflected the increase
      in
      the number of employees, with several of them receiving options for the
      Company’s stock and the cost of the convertible notes issued by the Company to
      finance the operation. The selling, general and administrative expenses for
      September 30, 2006 include $1,660,000 of expense related to employee stock
      incentive option expense and discounts for beneficial conversion features and
      attached warrant expenses.





34




Management
      of the Company expects that, due to the volatile nature of the Company’s Common
      Stock price, liabilities related to the convertible notes and to employee costs
      will continue to 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. The management
      of
      the Company feels that as long as the derivative and warrant liabilities exist,
      the reported operating income (loss) will be a more accurate reference for
      the
      true performance of the Company.





**Material
      Changes in Financial Condition**





As
      of
      September 30, 2006, we had a working capital deficit of approximately
      $7,350,566, compared to a deficit of approximately $6,513,152 as of December
      31,
      2005.





If
      we are
      unable to generate sufficient sustainable revenues or obtain additional
      financing to meet our financial obligations, we will have to further reduce
      our
      operations, and we will not be able to continue as a going concern. Our
      independent accountants have indicated that there is substantial doubt about
      our
      ability to continue as a going concern without increased revenues and additional
      financing.




For
          the
          nine-month period ending September 30, 2006, we used approximately $2,331,788
          in
          our operating activities, compared with approximately $714,467 in the comparable
          period of 2005.
 
 For
          the
          nine-month period ending September 30, 2006, our investing activities used
          approximately $160,180 for the purchase of fixed assets, compared to $11,720
          in
          the comparable period of 2005.
 
 For
          the
          nine-month period ending September 30, 2006, our financing activities generated
          approximately $2,491,968 compared to approximately $292,034 being generated
          in
          the comparable period last year. The $2,491,968 generated from our financing
          activities in the second quarter of 2006 consists primarily of proceeds
          from
          loans payable and convertible loans of $1,233,950, which was partially
          offset by
          a payment of related-party loan payable of $120,830 and the payment of
          legal
          fees through the issuance of restricted common stock with proceeds totaling
          $1,298,100. For the comparable period ended September 30, 2005, the Company
          raised $388,250 from loans and convertible notes, which was offset by repayments
          of $160,000 on loan obligations.
 
 From
          inception, the Company has raised $5,726,400 from issuances of stock and
          convertible debts to fund operations.  Of the total funds raised,
          $3,842,484 have been used to provide the necessary resources for the development
          stage operations of the Company and $1,436,343 was used to purchase fixed
          assets. The funds include cash of $4,017,550, which was raised through
          convertible debentures and warrants for common stock; and cash of $1,291,174,
          which was raised through loans (net of repayments).  The balance of the
          funds raised to date include an issuance of stock used as payment of a
          legal
          settlement in the amount of $445,000 and a concession from  a vendor who
          provided $153,000 by way of reducing interest charged to the Company for
          fixed
          assets.


For
      the
      nine-month period ending September 30, 2006, the Company’s net cash position
      decreased by approximately $14,511 compared to a net decrease of $9,053 in
      the
      comparable period of 2005.




**Continuing
      Operations**




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 planned expansion includes, among other things,
      commercial operations where the Company will be delivering broadband services
      across several platforms, the integration of AI, and potential joint ventures,
      such as NATVN.





With
      the
      addition of AI as a wholly-owned subsidiary, the Company’s ability to establish
      itself as a leading provider of enhanced bundled solutions is strengthened. AI’s
      ability to offer bundled services -- i.e., internet, wireless fidelity (WiFi),
      Voice over Internet Protocol (VOIP), Video on Demand (VOD), hardware/software
      solutions, local and long distance services, video conferencing via broadband
      services -- brings state-of-the-art advantages to its clients.  AI’s
      integrated systems are on the leading edge of home and business automation
      in
      today’s market and provide services that are most desirable and beneficial to
      its clients’ lifestyles. We expect the integration of AI’s services with those
      of the Company will result in the establishment of a “one-stop-shop” for
      clients, which we believe will create significant efficiencies.





35




The
      Company’s priorities for the next twelve months of operations are to continue to
      develop and subsequently market our products and services. We remain focused
      on
      our organizational activities, raising capital and establishing a business
      presence with vendors, business owners and referral sources. As we expand and
      prepare to initiate operations with the expectation of generating 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 commence and increase rapidly once
      initiated, the Company expects to operate with a deficit in cash flows for
      the
      next few months. Management’s current projections of operations for the balance
      of the 2006 fiscal year are expected to generate a net deficit of approximately
      $300,000 per month. The deficit, which arises primarily from payroll
      obligations, may be satisfied prior to commencement of operations through a
      combination of employee salary deferrals of approximately $90,000 per month
      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 operational deficit during
      the
      next few months. The funding effort will proceed at the same time as commercial
      operations are commenced. The Company believes that the current management
      team
      has the necessary time and 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.




While
      we
      will attempt to retain qualified employees under terms similar to those
      currently in place, we may not be able to obtain agreements allowing for
      deferral of payroll or payment of portions of compensation in the form of
      equity.




Once
        we
        commence material operations, we may be unable to compete successfully, and
        the
        competitive pressures we face might have an adverse effect on our business,
        results of operations and financial condition. This intensified competition
        could force us out of business.





**Off-Balance
      Sheet Arrangements**





As
      of
      September 30, 2006, the Company has not engaged in any off-balance sheet
      arrangements, and management does not anticipate that the Company will be
      engaged in off-balance sheet arrangements in the foreseeable
      future.





**Item
      3. Controls and Procedures.**





Our
      management team, under the leadership and with the participation of our Chief
      Executive 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 September 30, 2006. Based on this evaluation,
      our
      management concluded that our disclosure controls and procedures were not
      effective as of September 30, 2006 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.





Our
      management team is diligently developing & implementing disclosure 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
      on
      August 1, 2006. The resignation of our CFO has exacerbated an existing problem
      of sufficiency of accounting personnel. To date, we have hired a Chief Operating
      Officer, a Vice President of Accounting Compliance & Disclosure, and a Vice
      President of Finance. We are interviewing candidates to fill the CFO position
      and certain other accounting positions.





In
      connection with the growth of the Company, as it relates to mergers and
      acquisitions, we have instituted a policy of early review of accounting systems
      and personnel of all acquirees to discern their reporting systems and the effect
      such reporting will have on the consolidation of operations. The companies
      that
      we have considered for acquisition have been private companies and have not
      typically maintained the types of control and reporting procedures that are
      required of public companies. Although we attempt to perform thorough inspection
      of accounting records and reporting controls when we do our due diligence,
      it is
      likely that acquirees will not have the type of control and reporting procedures
      required by public companies. As such, depending upon the materiality of the
      operations of the acquiree, compared to our total assets and revenues, it is
      possible that the acquisition of private subsidiaries may lead to errors in
      reporting.




36




In
      that
      regard, we closed our acquisition of AI on April 18, 2006, and the results
      of
      operations and financial condition of AI are included in this report. We are
      in
      the process of integrating AI (a company which has internal control and
      disclosure procedures that were not designed or maintained for public company
      reporting) into our financial reporting procedures. We are focusing our efforts
      on identifying weaknesses in accounting controls, doing additional internal
      inspection of material transactions and financial accounts, and improving our
      internal control over financial reporting. AI’s total assets and total revenues
      represent approximately 31% and 100%, respectively, of the related consolidated
      financial statement amounts as of, and for, the quarter ended September 30,
      2006.





We
      have
      identified two control deficiencies with regard to AI that represent material
      weaknesses in AI’s controls:





AI
      did
      not maintain effective controls over the accounting for the existence, accuracy
      and valuation of sales and cost of goods sold. Specifically, adequate controls
      were not designed over (1) the recording of revenue and related accounts
      receivable and (2) the existence and accuracy of costs assigned to the matching
      of costs of sales by period and by customer.





The
      weakness resulted in material internal adjustments of sales, accounts receivable
      and costs of sales. The internal controls relating to the identification of,
      and
      accounting for, contractual sales terms, the amount and timing of revenue,
      related costs of sales, the recording of accounts receivable, and the
      qualitative analysis of the collectibility of certain accounts were not in
      place. The weakness could result in a misstatement of the Company’s revenue,
      cost of sales or assets that could result in a material misstatement to the
      Company’s interim or annual consolidated financial statements, which would not
      be prevented or detected.





There
      was
      no change in the Company’s internal control over financial reporting during the
      three months ended September 30, 2006, that has materially affected, or was
      reasonably likely to materially affect, the Company’s internal control over
      financial reporting.




Notwithstanding
      the above-mentioned weaknesses, we believe that the consolidated financial
      statements included in this report fairly present our consolidated financial
      position.




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.**





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See
“Note
      6 - Summary of Legal Proceedings” and “Note 12 - 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
      2. Unregistered Sales of Equity Securities and Use of
      Proceeds.**





During
      the first quarter of 2006, the Company issued 900,000 shares of restricted
      common stock to settle a lawsuit.





During
      the second quarter of 2006, the Company issued a total of 2,495,439 shares
      of
      restricted common stock. The Company issued 1,161,956 shares relating to the
      acquisition of AI, including 411,956 shares to acquire the net assets of AI
      and
      750,000 shares to the employees of AI. Additionally, the Company also issued
      82,051 shares to a law firm, which had exercised a warrant received in 2004
      for
      legal services rendered. An officer of the Company exercised an employee
      incentive warrant for 500,000 shares and 751,432 shares were issued to various
      convertible debt holders, who exercised their option and converted their debt
      to
      equity.




During
        the third quarter of 2006, the Company issued 4,532,311 shares of restricted
        common stock. Of that amount, 400,000 shares were issued in repayment for
        shares
        of common stock that had been loaned to the Company by a shareholder, and
        an
        additional 154,061 shares of stock were issued as repayment of a loan plus
        interest at approximately $0.20 per share. During the quarter, the Company
        also
        issued 3,146,519 shares upon conversion of various convertible debentures,
        including 2,153,719 shares to various note holders at $0.40 per share, and
        992,800 shares to various note holders at $0.20 per share. Additionally,
        the
        Company issued 32,500 shares in exchange for cash of $6,500, and 699,231
        shares
        to various consultants. Finally during the quarter, the Company issued 100,000
        shares at $0.01 per share to an employee under an employee stock
        option.


**Item
      3. Defaults Upon Senior Securities.**


As
        of
        September 30, 2006, the Company had several convertible notes mature without
        conversion or repayment. As of September 30, 2006, twenty note holders had
        provided written notice to the Company for the conversion of their notes;
        one
        note holder had agreed to extend the term of its note; and only three notes
        totaling $230,000 were in default. As of the date of this filing, all except
        three of the notes have been converted into 2,153,719
        of the
        Company’s common stock. As a result of the
        issuance, the Company reduced its convertible note liability by approximately
        $854,000.





As
      of the
      date of this report, the Company is also in default on ten notes to creditors
      of
      the Company dating back to 2003. The total amount in default relating to the
      ten
      notes is $346,500.




**Item
      6. Exhibits.**





Exhibit
                No.
            
            Description10.1
            
            Employment
                Agreement for Jeffrey Burke dated August 8, 2006.(1)10.2
            
            Employment
                Agreement for LaMar Williams dated August 4, 2006.(1)10.3
            
            Employment
                Agreement for Gary Peterson dated August 9, 2006.(1)10.4
            
            Employment
                Agreement for Darrin Johnson dated August 14, 2006.(1)10.5
            
            Interconnection
                Agreement between BellSouth Telecommunications, Inc. and Winsonic
                Digital
                Media Group, Ltd., dated September 27, 2006.(2)*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


(1)
      Incorporated herein by reference to the Registrant’s Form 8-K filed August 24,
      2006.


(2)
      Incorporated herein by reference to the Registrant’s Form 8-K filed October 4,
      2006.




38


**Signatures**





In
      accordance with the requirements of the Exchange Act, the registrant caused
      this
      report to be signed on its behalf by the undersigned, thereunto duly
      authorized.




WINSONIC
                DIGITAL MEDIA GROUP, LTD.
              (Registrant)January
                2, 2007
            By:
            /s/
                Winston JohnsonWinston
                Johnson
              Chairman
                & CEO
              (Principal
                Executive Officer and Principal Financial
                Officer)





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