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 June 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.
            
            30303(Address
                of principal executive offices)
            
            (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 46,036,731 shares of common stock outstanding as of December 13,
      2006.





**Quarterly
      Report on Form 10-QSB**


**Quarter
      Ended June 30, 2006**





**Table
      of Contents**




PagePART
                  I - FINANCIAL INFORMATIONItem
                  1. Consolidated Financial Statements:Unaudited
                  consolidated balance sheets, June 30, 2006 and December 31,
                  2005
              3Unaudited
                  consolidated statements of operations, for the three months and
                  six months
                  ended June 30, 2006 and 2005 and inception (April 27, 2000) to
                  June 30,
                  2006
              4Unaudited
                  consolidated statements of cash flows, for the six months ended
                  June 30,
                  2006 and 2005
              5Statement
                  of stockholder’s deficit (Unaudited)
              6Notes
                  to the Unaudited Financial Statements
              7Item
                  2. Management’s Discussion and Analysis or Plan of
                  Operation
              28Item
                  3. Controls and Procedures
              35PART
                  II - OTHER INFORMATIONItem
                  1. Legal Proceedings
              36Item
                  2. Unregistered Sales of Equity Securities and Use of
                  Proceeds
              36Item
                  3. Defaults Upon Senior Securities
              36Item
                  6. Exhibits
              36SIGNATURES
              30EXHIBIT
                  INDEX




2


**PART
      I - FINANCIAL INFORMATION**





**Item
      1. Financial Statements.**





WINSONIC
      DIGITAL MEDIA GROUP, LTD.


(A
      DEVELOPMENT STAGE COMPANY)


**CONSOLIDATED
      BALANCE SHEETS**


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


**As
                  of June 30, 2006**
              
              **As
                  of December 31, 2005****ASSETS**ASSETS:Current
                  assets:Cash
              
              $
              -
              
              $
              -Accounts
                  receivable
              
              
              365,662
              
              
              -Prepaid
                  expense
              
              
              -
              
              
              16,476Construction
                  in process
              
              
              129,338
              
              
              -**Total
                  current assets**
              
              
              **495,000**
              
              
              **16,476**Fixed
                  assets:Computer
                  equipment
              
              
              1,109,309
              
              
              977,669Infrastructure
              
              
              161,738
              
              
              158,400Software
              
              
              83,597
              
              
              82,899Furniture
                  & fixtures
              
              
              81,166
              
              
              36,682Automobile
              
              
              74,631
              
              
              -Less:
                  accumulated depreciation
              
              
              (693,755
              )
              
              (614,194
              )Total
                  net fixed assets
              
              
              816,686
              
              
              641,456Goodwill
              
              
              47,739
              
              
              -**TOTAL
                  ASSETS**
              
              **$**
              **1,359,425**
              
              **$**
              **657,932****LIABILITIES
                  AND STOCKHOLDERS' DEFICIT**LIABILITIES:Current
                  liabilities:Accounts
                  payable and accrued expenses
              
              $
              2,516,679
              
              $
              2,094,824Bank
                  overdraft
              
              
              28,979
              
              
              14,468Billings
                  on construction in process
              
              
              170,920
              
              
              -Accrued
                  payroll and related taxes
              
              
              1,725,360
              
              
              1,353,053Legal
                  settlement liabilities
              
              
              575,000
              
              
              1,020,000Loans
                  payable
              
              
              403,439
              
              
              383,357Loan
                  payable -related party
              
              
              420,192
              
              
              435,398Derivative
                  liability related to convertible debentures
              
              
              179,118
              
              
              82,483Warrant
                  liability related to convertible debentures
              
              
              101,500
              
              
              23,406Convertible
                  debentures
              
              
              1,107,750
              
              
              1,122,639Share
                  notes
              
              
              249,862
              
              
              -Current
                  portion of long term debt
              
              
              7,900
              
              
              -**Total
                  current liabilities**
              
              
              **7,486,699**
              
              
              **6,529,628**Long
                  term debt
              
              
              131,901
              
              
              -**TOTAL
                  LIABILITIES**
              
              
              **7,618,600**
              
              
              **6,529,628**Common
                  stock, $0.001 par value, 50,000,000 sharesauthorized,
                  43,559,995 and 40,204,556 shares issued andoutstanding
                  at June 30, 2006 and December 31, 2005, respectively
              
              
              43,599
              
              
              40,205Additional
                  paid-in capital
              
              
              9,451,974
              
              
              6,517,807Common
                  stock payable at $0.33 per share at June 30, 2006and
                  December 31, 2005, respectively
              
              
              39,867
              
              
              20,000Accumulated
                  deficit during development stage
              
              
              (15,794,615
              )
              
              (12,449,708
              )**Total
                  stockholders' deficit**
              
              
              **(6,259,175**
              **)**
              
              **(5,871,696**
              **)****TOTAL
                  LIABILITIES AND STOCKHOLDERS' DEFICIT**
              
              **$**
              **1,359,425**
              
              **$**
              **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 & SIX MONTH PERIODS ENDED JUNE 30, 2006 & 2005


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


**For
                  the quarters ended**
              
              **For
                  the six months ended****June
                  30,**
              
              **June,
                  30**
              
              **Inception
                  (April****2006**
              
              **2005**
              
              **2006**
              
              **2005**
              
              **27,
                  2000) to June 30, 2006****REVENUE**
              
              **$**
              **236,776**
              
              **$**
              **-**
              
              **$**
              **236,776**
              
              **$**
              **-**
              
              **$**
              **294,588****COST
                  OF GOODS SOLD**
              
              
              **155,949**
              
              
              **110,607**
              
              
              **155,949**
              
              
              **233,714**
              
              
              **1,305,109****GROSS
                  PROFIT**
              
              
              **80,827**
              
              
              **(110,607**
              **)**
              
              **80,827**
              
              
              **(233,714**
              **)**
              
              **(1,010,520**
              **)****EXPENSES:**Selling,
                  general and administrative
              
              
              1,595,668
              
              
              314,390
              
              
              2,102,959
              
              
              552,300
              
              
              6,385,879Selling,
                  general and administrative, related party
              
              
              268,275
              
              
              207,500
              
              
              480,192
              
              
              415,000
              
              
              2,368,636Consulting
                  services, related party
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              2,071,268Depreciation
                  and amortization expense
              
              
              35,176
              
              
              85,600
              
              
              71,994
              
              
              171,200
              
              
              967,669**Total
                  expenses**
              
              
              **1,899,119**
              
              
              **607,490**
              
              
              **2,655,145**
              
              
              **1,138,500**
              
              
              **11,793,452****OPERATING
                  INCOME (LOSS)**
              
              
              **(1,818,292**
              **)**
              
              **(718,097**
              **)**
              
              **(2,574,317**
              **)**
              
              **(1,372,214**
              **)**
              
              **(12,803,972**
              **)****OTHER
                  INCOME/(EXPENSES):**Interest
                  expense and finance costs
              
              
              (428,679
              )
              
              (302,987
              )
              
              (465,738
              )
              
              (593,297
              )
              
              (2,722,156
              )Unrealized
                  gain (loss) on adjustments of derivativeand
                  warrant liability to fair value of underlying securities
              
              
              301,122
              
              
              (78,944
              )
              
              (294,703
              )
              
              1,054,892
              
              
              (1,314,703
              )Legal
                  settlement costs
              
              
              (6,500
              )
              
              -
              
              
              (11,500
              )
              
              -
              
              
              958,685Interest
                  income
              
              
              79
              
              
              13
              
              
              290
              
              
              433
              
              
              1,020Other
                  income (loss)
              
              
              1,061
              
              
              -
              
              
              1,061
              
              
              -
              
              
              86,512**Total
                  other income/(expenses)**
              
              
              **(132,917**
              **)**
              
              **(381,918**
              **)**
              
              **(770,590**
              **)**
              
              **462,028**
              
              
              **(2,990,642**
              **)****NET
                  INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES**
              
              
              **(1,951,210**
              **)**
              
              **(1,100,015**
              **)**
              
              **(3,344,907**
              **)**
              
              **(910,186**
              **)**
              
              **(15,794,615**
              **)****PROVISION
                  FOR INCOME TAXES**
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -**NET
                  LOSS**
              
              **$**
              **(1,951,210**
              **)**
              **$**
              **(1,100,015**
              **)**
              **$**
              **(3,344,907**
              **)**
              **$**
              **(910,186**
              **)**
              **$**
              **(15,794,615**
              **)**Basic
                  weighted average number ofcommon
                  shares outstanding
              
              
              42,841,045
              
              
              14,906,150
              
              
              41,530,083
              
              
              14,906,150**Net
                  loss per basic common share**
              
              **$**
              **(0.05**
              **)**
              **$**
              **(0.07**
              **)**
              **$**
              **(0.08**
              **)**
              **$**
              **(0.06**
              **)**




*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
      SIX MONTHS ENDED JUNE 30, 2006 & 2005


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


**For
                  the six months ended June 30,**
              
              **Inception
                  (April 27, 2000) to June 30,****2006**
              
              **2005**
              
              **2006****CASH
                  FLOWS FROM OPERATING ACTIVITIES:**Net
                  (loss)
              
              $
              (3,344,907
              )
              $
              (910,186
              )
              $
              (15,794,616
              )Adjustments
                  to reconcile net lossto
                  net cash used in operations:Depreciation
              
              
              71,994
              
              
              171,200
              
              
              967,669Accretion
                  of principal and interest related to convertible
                  debentures
              
              
              465,738
              
              
              533,765
              
              
              1,716,926Unrealized
                  loss on adjustment of derivative and warrant liability to fair
                  value of
                  underlying securities
              
              
              294,703
              
              
              (1,054,892
              )
              
              (795,456
              )Stock
                  based compensation
              
              
              773,667
              
              
              243,334
              
              
              4,383,007Change
                  in operating assets and liabilities:(Increase)
                  decrease in prepaid expense
              
              
              18,796
              
              
              -
              
              
              2,320(Increase)
                  decrease in deposit
              
              
              -
              
              
              4,490
              
              
              -(Increase)
                  decrease in accounts receivable
              
              
              (102,710
              )
              
              -
              
              
              (102,710
              )(Increase)
                  decrease in construction
              
              
              (124,883
              )
              
              -
              
              
              (124,883
              )(Increase)
                  decrease in other assets
              
              
              (27,843
              )
              
              -
              
              
              (27,843
              )Increase
                  (decrease) in accounts payable and accrued expenses
              
              
              390,836
              
              
              224,271
              
              
              2,729,130Increase
                  (decrease) in bank overdraft
              
              
              14,511
              
              
              9,053
              
              
              28,979Increase
                  (decrease) in billings on construction in process
              
              
              133,978
              
              
              -
              
              
              133,978Increase
                  (decrease) in accrued payroll and related taxes
              
              
              772,226
              
              
              251,623
              
              
              2,016,014Increase
                  (decrease) in legal settlement liabilities
              
              
              5,000
              
              
              -
              
              
              1,025,000(Decrease)
                  increase in interest payable
              
              
              -
              
              
              25,375
              
              
              -**Net
                  cash used in operating activities**
              
              
              **(658,893**
              **)**
              
              **(501,967**
              **)**
              
              **(3,842,485**
              **)****CASH
                  FLOWS FROM INVESTING ACTIVITIES:**Cash
                  acquired through business acquisition
              
              
              20,511
              
              
              -
              
              
              20,511Purchase
                  of fixed assets
              
              
              (180,693
              )
              
              (11,720
              )
              
              (1,436,343
              )**Net
                  cash (used in) provided by investing activities**
              
              
              **(160,182**
              **)**
              
              **(11,720**
              **)**
              
              **1,415,832****CASH
                  FLOWS FROM FINANCING ACTIVITIES:**Proceeds
                  from loans payable
              
              
              20,081
              
              
              7,184
              
              
              439,654Payments
                  on loans payable
              
              
              -
              
              
              -
              
              
              -Proceeds
                  from loan payable - related party
              
              
              27,794
              
              
              29,754
              
              
              851,520Payment
                  on note payable - related party
              
              
              (43,000
              )
              
              (160,000
              )
              
              (203,000
              )Forgiveness
                  of accrued interest - Digital Services International,
                  Inc.
              
              
              -
              
              
              -
              
              
              152,592Proceeds
                  from convertible debentures
              
              
              814,200
              
              
              200,000
              
              
              2,017,450Proceeds
                  from warrants for common stock
              
              
              -
              
              
              -
              
              
              2,000,100**Net
                  cash provided by financing activities**
              
              
              **819,075**
              
              
              **76,938**
              
              
              **5,258,316****NET
                  (DECREASE) INCREASE IN CASH**
              
              **$**
              **-**
              
              **$**
              **(436,749**
              **)**
              **$**
              **-****CASH,
                  BEGINNING OF PERIOD**
              
              **$**
              **-**
              
              
              **436,749**
              
              
              **-****CASH,
                  END OF PERIOD**
              
              **$**
              **-**
              
              **$**
              **-**
              
              **$**
              **-****SUPPLEMENTARY
                  INFORMATION:**Interest
                  paid
              
              **$**
              **47,695**
              
              **$**
              **-**
              
              **$**
              **47,695****NON-CASH
                  ACTIVITIES:**Issuance
                  of common stock for common stock payable
              
              $
              -
              
              $
              -
              
              $
              270,000Forgiveness
                  of salary payable to officer
              
              $
              -
              
              $
              -
              
              $
              20,655Forgiveness
                  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
              
              $
              105,287
              
              $
              -
              
              $
              268,285Issuance
                  of common stock for legal settlement
              
              $
              450,000
              
              $
              -
              
              $
              895,000Adjustment
                  to paid in capital for accumulated depreciation
              
              $
              -
              
              $
              -
              
              $
              -Issuance
                  of common stock as payment for
              
              
              -
              
              
              -
              
              
              -subsidiary
                  acquired
              
              $
              168,902
              
              $
              -
              
              $
              168,902Cash
                  free conversion of warrants
              
              $
              32,000
              
              $
              -
              
              $
              275,334Issuance
                  of common stock to key employees
              
              $
              300,000
              
              $
              -
              
              $
              300,000




*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
              
              
              
              AccumulatedAdditional
              
              Stock
              
              Stock
              
              Deficit
                  During
              
              TotalPreferred
                  Stock
              
              Common
                  Stock
              
              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 - ReAcquisition of all outstandingshares
                      of Winsonic Acquisition Sub, Inc. - No Par Stock (Recasted
                      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 (Recasted)**
              
              
              **-**
              
              
              **-**
              
              
              **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,
                  at
                  $0.33 average price per share
              
              
              **-**
              
              
              **-**
              
              
              700,000
              
              
              700
              
              
              230,300
              
              
              **-**
              
              
              **-**
              
              
              **-**
              
              
              231,000Issuance
                  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
                  agreementof
                  $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
              
              
              751
              
              
              149,536
              
              
              **-**
              
              
              **-**
              
              
              **-**
              
              
              150,287Issuance
                  of common stock for for services
              
              
              **-**
              
              
              **-**
              
              
              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, $0.39
                  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 financial consultant
              
              
              **-**
              
              
              **-**
              
              
              **-**
              
              
              **-**
              
              
              9,359
              
              
              **-**
              
              
              **-**
              
              
              **-**
              
              
              9,359To
                  record forgiveness of accrued salary for officer
              
              
              **-**
              
              
              **-**
              
              
              **-**
              
              
              **-**
              
              
              399,919
              
              
              **-**
              
              
              **-**
              
              
              **-**
              
              
              399,919To
                  record proportionate share of consulting expense paid by stock
                  issuance
              
              
              **-**
              
              
              **-**
              
              
              **-**
              
              
              **-**
              
              
              **-**
              
              
              19,867
              
              
              **-**
              
              
              **-**
              
              
              19,867Net
                  loss
              
              
              **-**
              
              
              **-**
              
              
              **-**
              
              
              **-**
              
              
              **-**
              
              
              **-**
              
              
              **-**
              
              
              (3,344,907
              )
              
              (3,344,907
              )**Balance,
                  June 30, 2006**
              
              
              **-**
              
              **$**
              **-**
              
              
              **43,599,995**
              
              **$**
              **43,599**
              
              **$**
              **9,451,974**
              
              **$**
              **39,867**
              
              **$**
              **-**
              
              **$**
              **(15,794,615**
              **)**
              **$**
              **(6,259,175**
              **)**




*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 June 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 six month periods
      ended June 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
      therefrom. As of June 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 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.





**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.




7





**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 June 30, 2006, the Company did not
      have any accounts with balances in excess of the insured balances. As of June
      30, 2006 and December 31, 2005, the Company had a balance of ($28,978) 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 collectability. 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 June 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 six months ended June 30, 2006, the Company granted options for
      1,350,000 and 2,850,000 shares of common stock, respectively, to employees.
      Of
      these granted options, 713,083 and 1,320,558 vested during the three-month
      and
      six-month periods ended June 30, 2006, respectively. For the vested portion,
      there was a related accrual of compensation expense of $303,662 and $419,646
      for
      the three months and the six months ended June 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 six months ended June 30, 2006 and the year
      ended December 31, 2005 is presented below:


**3
                  months ended**
                **June
                  30, 2006**
              
              **6
                  months ended**
                **June
                  30, 2006**
              
              **December
                  31, 2005**Options
              
              Weighted
                  Average
                Exercise
                  Price
              
              Options
              
              Weighted
                  Average
                Exercise
                  Price
              
              Options
              
              Weighted
                  Average
                Exercise
                  PriceOutstanding
                  - Beginning of Period
              
              
              5,500,000
              
              $
              0.77
              
              
              4,000,000
              
              $
              0.79
              
              
              3,250,000
              
              $
              0.97Granted
                  or committed
              
              
              350,000
              
              
              0.60
              
              
              1,850,000
              
              
              0.66
              
              
              1,250,000
              
              
              0.41Exercised
              
              
              (500,000
              )
              
              -
              
              
              (500,000
              )
              
              -
              
              
              -
              
              
              -Cancelled
              
              
              (1,000,000
              )
              
              -
              
              
              (1,000,000
              )
              
              -
              
              
              (500,000
              )
              
              -Outstanding
                  - End of Period
              
              
              4,350,000
              
              
              0.79
              
              
              4,350,000
              
              $
              0.79
              
              
              4,000,000
              
              $
              0.82Exercisable
                  - End of Period
              
              
              2,096,354
              
              $
              1.00
              
              
              2,096,354
              
              $
              0.91
              
              
              3,275,796
              
              $
              0.82





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 six-month periods ended June 30, 2005, had
        the
        Company followed SFAS No. 123(R) for the earlier period:




**Three
                Months**
            
            **Six
                Months**Net
                Income (Loss) as Reported
            
            $
            (1,100,015
            )
            $
            (910,186
            )Adjust:
                Stock-based non-employee compensation expense included in reported
                net
                income
            
            
            -
            
            
            -Adjust:
                Total stock-based employee compensation expense determined under
                fair
                value method
            
            
            (413,665
            )
            
            (413,665
            )Net
                Income (loss) Pro forma
            
            $
            (1,513,680
            )
            $
            (1,323,851
            )Pro
                forma earnings (loss) per share
            
            $
            (10.1
            )
            $
            (8.9
            )




**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 $419,645




**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**




**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.




9





**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 to deferred revenue 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
      six
      month periods ended June 30, 2006, the Company incurred advertising costs of
      $762. No advertising costs were incurred during the three and six month periods
      ended June 30, 2005.





**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 six months
      ended June 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.




10





**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 antidilutive. For all periods presented, the Company has
      sustained losses that would make use of equivalent shares antidilutive 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 servicer 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.





In
      October 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS No.
      157”).  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.)  We do not expect the
      adoption of SFAS No. 157 to have a material impact on its consolidated financial
      position, results of operations or cash flows.




11





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
      postretirement 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.





SFAS
      No.
      157 is effective for financial statements issued for fiscal years beginning
      after November 15, 2007 and interim periods within those fiscal years. Earlier
      application is encouraged. AI does not expect the adoption of SFAS No. 157
      to
      have a material impact on its 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
      postretirement 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. AI does not expect the adoption of SPAS 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
            
            $
            121,163Intangible
                assets acquired
            
            
            -Goodwill
            
            
            47,739Total
                purchase price
            
            $
            168,902





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




Cash
            
            $
            20,511Accounts
                receivable
            
            
            235,108Fixed
                assets
            
            
            66,532Other
                assets
            
            
            6,775Current
                liabilities
            
            
            (75,862
            )Long-term
                liabilities
            
            
            (131,901
            )Net
                tangible assets acquired
            
            $
            121,163





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 Statement of Financial Accounting Standards
      No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”). 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.




12





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 June 30****3
                Months**
            
            **6
                Months****2006**
            
            **2005**
            
            **2006**
            
            **2005**Total
                pro forma revenues
            
            
            236,776
            
            
            19,548
            
            
            662,283
            
            
            20,378Pro
                forma net loss
            
            
            (1,951,210
            )
            
            (1,079,236
            )
            
            (3,268,913
            )
            
            (890,400
            )Pro
                forma net loss per share - basic and diluted
            
            
            0.040
            
            
            0.073
            
            
            0.072
            
            
            0.056Reported
                net loss
            
            
            (1,951,210
            )
            
            (1,100,015
            )
            
            (3,344,907
            )
            
            (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.





**Second
      Quarter:** During
      the quarter ending June 30, 2006, the Company issued 2,494,619 shares of common
      stock. 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.




13





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, worth $7,000, the current market value
      of
      the stock) as payment for the option cost.





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.





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.





**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.





During
      the first and second quarter of 2006, the Company raised an additional $504,200
      and $300,000, respectively, of proceeds in connection with the placement of
      59
      convertible notes, with attached warrants, purchased by 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.





Certain
      detachable stock warrants have been granted in connection with the issuance
      of
      certain convertible debentures which are discussed in “Note 10 - Convertible
      Debentures.”




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




Number
                of
              Warrants
            
            ExercisePriceBalance
                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 June 30, 2006
            
            
            7,549,750
            
            $
            0.27





14




**NOTE
      5 - RELATED PARTY TRANSACTIONS**




**Officers’
      Compensation:** Officers’ compensation for services for the three-month periods ended June 30,
      2006 and 2005 was $210,192 and $207,500, respectively. For the six-month periods
      ended June 30, 2006 and 2005, compensation was $480,192 and $415,000,
      respectively. Additionally, during the first and second quarters of 2006, the
      Company recognized compensation expenses of $21,917 and $62,252, 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 June 30, 2006 is $2,436,136.
      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.





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 (October 8, 2004 agreement) be forgiven. Additionally, a grant of
      1,000,000 options to purchase common stock of the Company at $1 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 average exercise price).





**Loans
      From Founder:**





**2005:** On
      September 15, 2005, the Company received a loan of $80,000 from the CEO and
      founder. As of June 30, 2006 and December 31, 2005, the loan balance totaled
      $87,356 and $82,672, respectively, consisting of principal of $80,000 and
      accrued interest of $7,356 and $2,672. For the three and six months ended June
      30, 2006, interest expense of $3,000 and $4,684 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. As of the date of this report,
      the loan remains unpaid.




**2004:** As
      of
      June 30, 2006 and December 31, 2005, respectively, the Company had a loan
      payable totaling $332,836 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 June 30, 2006 and December 31,
      2005
      was $83,110 and $60,000, respectively.




15




During
      the first quarter of 2005, the Company paid $160,000 to the CEO against this
      loan. Additionally, on December 5, 2005, 700,000 shares of the Company’s Common
      Stock were issued to the CEO 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 six-month periods ended June 30, 2006, the Company paid
      $15,000 and $43,000, respectively, to the CEO against this loan. The Company
      also accrued $8,316 and $23,110 in interest for the three and six months ended
      June 30, 2006, 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 June 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 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. As of June 30, 2006, there have been no material
      transactions entered into by Winsonic Diversity.





**NOTE
      6 - SUMMARY OF LEGAL PROCEEDINGS**




An
      estimated liability of $575,000 and $1,020,000 for legal settlements was
      recorded as of June 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.




16





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.





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 --  i.e., without restrictions. (See
“Note 12 - Subsequent Events” for further details regarding this
      lawsuit.)





**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 June
      30,
      2006 and 2005 . (See
      “Note 12 - Subsequent Events” for further details regarding this
      lawsuit.)





**Berman,
      Romeri and Associates, LLP vs. Media and Entertainment.com** (Superior
      Court of CA, Los Angeles County - complaint filed in 2004)





This
      collection lawsuit arises from an alleged contract and services obligating
      the
      Company, which was allegedly authorized by the former CEO of Media and
      Entertainment.com, Inc. The disputed amount of $8,733 was expensed as a general
      and administrative expense in 2005 and accrued within accounts payable of the
      Company as of June 30, 2006.





On
      March
      9, 2006, Berman, Romeri and Associates, LLP and the Company entered into a
      written stipulation for Judgment, whereby the Company agreed to pay the
      settlement amount of $6,500 to Berman, Romeri and Associates, LLP by April
      10,
      2006. The entire settlement amount was remitted on April 7, 2006, and this
      matter is now closed.




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




17





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 June 30, 2006. The $90,000 in attorney fees has been
      expensed and (See “Note 12 - Subsequent Events” for further details regarding
      this lawsuit.)





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





The
      disputed amount of $75,000 in this collection lawsuit was expensed as a general
      and administrative expense in 2004 and accrued within accounts payable as of
      June 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. The Company has accrued an additional $25,000 account payable to
      reflect the breach. (See “Note 12 - Subsequent Events” for further details
      regarding this lawsuit.)





**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
      June 30, 2006 and 2005. (See “Note 12 - Subsequent Events” for further details
      regarding this lawsuit.)





**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 June 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 filing, 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. (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 applicable to a going concern, which contemplates the
      realization of assets and the satisfaction of liabilities and commitments in
      the
      normal course of business. As of June 30, 2006, the Company has accumulated
      losses of approximately $15,900,000 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.




18




**NOTE
      8 - FIXED ASSETS**




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




**June
                30****,**
              **2006**
            
            **December
                31,**
              **2005**Computer
                Equipment
            
            $
            1,109,309
            
            $
            977,669Infrastructure
            
            
            161,738
            
            
            158,400Software
            
            
            83,597
            
            
            82,899Automobiles
            
            
            74,631
            
            
            -Furniture
                & fixtures
            
            
            81,166
            
            
            36,682Less:
                accumulated depreciation
            
            
            (693,755
            )
            
            (614,194
            )Total Net Fixed Assets
            
            $
            816,686
            
            $
            641,456




Depreciation
      expense for the three-month and six-month periods ended June 30, 2006 was
      $35,176 and $71,994, respectively. For the three-month and six-month periods
      ended June 30, 2005, depreciation expense was $85,600 and $171,200,
      respectively. Depreciation expense from inception to June 30, 2006 was
      $967,669.




In
      December 2005, the Company reduced computer equipment, infrastructure, and
      software included in the above Fixed Assets by $842,000 by renegotiating 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 June 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**
            
            **June
                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 $16,474 at June 30, 2006 and $13,260 at December 31,
                2005.
            
            
            124,474
            
            
            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 $7,816 at June 30, 2006 and $6,626 at December 31,
                2005.
            
            
            47,816
            
            
            46,626Unstated
            
            
            This
                loan was for a principal amount of $16,970 with no stated interest
                rate,
                repayment terms or maturity date. No interest was imputed.
            
            
            16,970
            
            
            16,970Unstated
            
            
            This
                loan, arising from costs advanced on behalf of the Company, was for
                a
                principal amount of $15,678 with no stated interest rate, repayment
                terms
                or maturity date. No interest was imputed.
            
            
            15,678
            
            
            -Total
                Loans Payable
            
            $
            403,438
            
            $
            383,357





19




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





**June
                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.
            
            $
            24,63519.50%
                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.
            
            
            34,216Unsecured,
                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
            
            
            139,801Less:
                Current portion of long-term debt:
            
            
            (7,900
            )Net
                Long Term Debt
            
            $
            131,901




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
            
            Amount2006
            
            $
            6,4752007
            
            
            89,9332008
            
            
            10,7192009
            
            
            12,7962010
            
            
            15,282Thereafter
            
            
            4,596Total
            
            $
            139,801





**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.




20





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 June 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 holder signed their conversion agreement. 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
      June 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 June 30, 2006, the contingency in share pricing
      which had 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 June 30, 2006.





**June
                30,**
              **2006**
            
            **December
                31,**
              **2005**Derivative
                liability
            
            $
            179,118
            
            $
            82,483Warrant
                liability
            
            
            101,500
            
            
            23,406Convertible
                debentures
            
            
            1,107,750
            
            
            1,121,360Subtotal
            
            
            1,388,368
            
            
            1,227,249Adjustment
                of derivative and warrant liability to fair value
            
            
            294,618
            
            
            970,185Less:
                Accretion of principal and interest related to convertible
                debentures
            
            
            (667,986
            )
            
            (1,112,184
            )Total
                Proceeds from convertible debentures
            
            
            1,015,000
            
            
            1,085,250Plus:
                Accrued interest
            
            
            92,750
            
            
            68,181Total
                Convertible debentures
            
            
            1,107,750
            
            
            1,153,431Less:
                Current portion of convertible debentures
            
            
            (1,107,750
            )
            $
            (1,153,431Total
                Non-current Convertible Debentures
            
            $
            -
            
            $
            -





**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 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 June 30, 2006, the balance of the notes outstanding was
      approximately $75,827 - which represented interest of $5,577 and principal
      of
      70,250.




21





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
      June
      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 June 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
            
            WarrantsProceeds
            
            Shares
            
            Proceeds
            
            SharesProceeds
                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 June 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
      warrant 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 six months ended June
      30,
      2006, the Company amortized a total of $229,476. The discounts and amortization
      are summarized in the following table:





**June
                30****,**
              **2006**
            
            **December
                31,**
              **2005**BCF
                discount to paid in capital
            
            $
            (381,
                221
            )
            $
            (105,913
            )Warrant
                Discount to Paid in capital
            
            
            (621,229
            )
            
            (82,337
            )Proceeds
                from convertible debentures
            
            
            1,002,450
            
            
            188,250Subtotal
            
            
            -
            
            
            -Deduct
                value converted to common stock
            
            
            (268,000
            )
            
            (118,000
            )Total
                discount to accreted
            
            
            734,450
            
            
            70,250
            )Interest
                expense on convertible debentures - Amortized
            
            
            (233,570
            )
            
            (24,038
            )Interest
                expense on convertible debentures - Accrued
            
            
            (16,292
            )
            
            3,487Total
                current liability
            
            $
            (249,862
            )
            $
            (27,525
            )




22




**Defaults
      on Convertible Debentures**





As
      of
      June 30, 2006, and subsequently, the Company had several convertible notes
      mature without conversion or repayment. As of the date of this filing, nineteen
      note holders have provided written notice to the Company for the conversion
      of
      their notes; one note holder has agreed to extend the term of its note; and
      three notes totaling $335,770 are currently in default.





As
      of the
      date of this filing, 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 paid 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





2006
            
            $
            170,0002007
            
            $
            406,3562008
            
            $
            416,5152009
            
            $
            426,9282010
            
            $
            437,601Thereafter
            
            $
            2,568,253




**Facilities
      Lease -** On
      of 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 30, 2006. 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 total rental payments of $100,759 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 is eligible for annual
      incentive bonuses based on performance. The agreements are terminable at will
      with or without cause (as defined therein).




23




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 .
      Additionally, on June 13, 2006, Jon Jannotta resigned from his position as
      President of the Company; however, Mr. Jannotta continues to serve as a member
      of the Board of Directors of the Company. Mr. Jonnatta has agreed to forgive
      all
      accrued salary arising from the October 8, 2004 agreement, as well as, all
      the
      options he had received. (See Note 4 - Related Party Transactions).





The
      employment agreements effective October 8, 2004 provided for the grant of an
      aggregate of 3,000,000 incentive or non-statutory stock options for three
      executive officers to purchase 1,000,000 shares each of common stock for $1.00
      per share. Pursuant to the separation agreement dated December 9, 2005, Mr.
      Yalley agreed to a reduction to 500,000 stock options to purchase common stock
      of the Company in lieu of the 1,000,000 options he was to receive under the
      2004
      agreement. These options primarily vest equally over a twelve-month period
      effective with date of the employment agreement. Additionally, Mr. Jonnatta
      has
      agreed to eliminate the entire 1,000,000 options he had received as part of
      his
      June 13, 2006 agreement with the Company.





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). 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 is earlier, and the remaining 1/3 will vest when
      the Company’s Common Stock resumes 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, will provide annual compensation of approximately $1.85 million
      and
      provide 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% to vest at the
      rate
      of 1/12th per month for twelve months. Mr. Morris compensation is included
      in
      the summary totals of preceding paragraph.





The
      terms
      of these first and second quarter employment agreements include a deferral
      of a
      significant portion (approximately 40%) of the individual employee’s salary
      pending the Company’s receipt of a substantial financing. The Company will issue
      the options as soon as a satisfactory employee stock option plan has been
      approved. 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).




24





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 period ended June 30, 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 June
      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. 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.




**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). 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.





**Convertible
      Notes Payable**





Subsequent
      to the end of the second quarter, the Company was successful in obtaining
      agreements from 19 of the 22 convertible note holders holding notes maturing
      on
      June 30, 2006. The note holders have exercised their conversion option and
      agreed to accept capital stock of the Company at $0.40 per share in exchange
      for
      the outstanding notes, plus the interest due. Based upon the agreements, the
      convertible note liability was reduced by approximately to $700,000 during
      the
      second quarter, and the Company will be transferring approximately $550,000
      in
      liabilities to equity during the third quarter.





**Employee
      Matters**




Subsequent
      to June 30, 2006, the Company entered into at-will employment agreements with
      three executives. 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. The 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). The employees will receive non-qualified incentive
      stock options to purchase a cumulative 1,375,000 shares of common stock at
      an
      exercise price of $1.00 per share. 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 1,100,000 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. 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).




25





On
      August
      1, 2006, Eric Young resigned as the Company’s Chief Financial Officer to pursue
      other opportunities.




**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 $141,137.25 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.





**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 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
      access operator services (0), directory assistance (411) and emergency services
      (911).





**Approval
      of the “WINSONIC” Trademark and Service Mark**





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, services, marketing and advertising. 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.




26





**Legal
      Proceedings**





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




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.





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





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.





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





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
      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)





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. The Company has accrued the additional
      obligation of approximately $25,000 as of June 30, 2006.





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





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. As of the date
      of
      this report, no significant action has been taken in this matter.





**Yalley** **vs.
      Winsonic Digital Media Group, Ltd. (District Court of Nevada, Clark County
      -
      complaint filed 10/13/06)**





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. 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. As of the date of this report, no additional action has been
      taken in this matter.




27





**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.





**Consulting
      Contracts**





Subsequent
      to June 30, 2006, the Company entered into two consulting agreements. Both
      of
      the agreements provide for compensation by issuance of the Company’s restricted
      common stock. In connection with the agreements, the Company will issue a total
      of 210,000 shares if its common stock.




Contractor
            
            Date
            
            Shares
                to be issued
            
            Services
            
            Period
                of AgreementFraserNet
            
            July
                28, 2006
            
            150,000
            
            Business
                Development and Financial Advisor
            
            1
                YearMelvin
                Cooper
            
            August
                1, 2006
            
            60,000
            
            Strategic
                and Long-term Financial Advisor
            
            6
                Months





**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.




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.





28




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.





WSDCN
      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.




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.




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. .




29





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 June 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, as well as, 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.





*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 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
      access operator services (0), directory assistance (411) and emergency services
      (911).





30




*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 granted certification 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.





Lastly,
      on September 12, 2006, the Company was approved by the United States Patent
      and
      Trademark Office to use the “WINSONIC” name on its products and services and in
      its marketing and advertising campaigns.





**Material
      Changes in Results of Operations**




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




31





During
      the quarter ended June 30, 2006, the consolidated operations of the Company
      and
      AI yielded revenue of $236,776.





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





**WDMG**
            
            **AI**
            
            **Combined**Revenue
            
            $
            -
            
            $
            662,283
            
            $
            662,283Gross
                Profit
            
            
            -
            
            
            188,269
            
            
            188,269G
                & A expenses
            
            
            (2,558,239
            )
            
            (143,266
            )
            
            (2,701,505
            )Profit
                (Loss ) from operations
            
            
            (2,558,239
            )
            
            45,003
            
            
            (2,513,236
            )Net
                Income (Loss)
            
            
            (3,315,796
            )
            
            46,883
            
            
            (3,268,913
            )Income
                (loss) per share - basic and diluted
            
            
            
            
            
            
            
            $
            (0.072
            )





For
      the
      three months ended June 30, 2006, we had gross consolidated revenue of $236,776
      with a gross profit of $80,827. The consolidated operations, however, continued
      to generate an operating loss, in the amount of $2,574,317 for the six months
      ended June 30, 2006. The consolidated losses were composed of Winsonic losses
      of
      $1,818,292 and $2,574,317 for the three-month and six-month periods ended June
      30, 2006. During the comparable periods ended June 30, 2005, the Company
      incurred net losses of $718,097 and $1,372,214, respectively. The operating
      losses for the three-month period ending June 30, 2006, primarily represent
      selling, general and administrative expenses of approximately $1,846,943 and
      depreciation expense of approximately $35,176, compared to total operating
      expenses of approximately $718,097 in the comparable period last year,
      consisting primarily of selling, general, and administrative expenses of
      approximately $632,497 and depreciation expense of approximately
      $85,600.





During
      the period ended June 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 six months ended June 30, 2006 include compensation
      expenses of $303,661 and $419,645 arising from vested employee stock options
      committed to employees during the quarter.  The related period ended June
      30, 2005 has no comparable charge.  For
      additional information, see “Note 2 - Summary of Significant Accounting
      Policies, Stock Based Compensation” of the financial statements.





For
      the
      three months period ending June 30, 2006, the Company incurred interest expense
      of $428,678 compared to an interest expense of approximately $302,987 in the
      comparable period of 2005, which reflects an increase of $125,691. The increase
      is primarily due to the accretion of interest of $233,570 during the second
      quarter of 2006 compared to $274,000 during the second quarter of 2005 for
      principal and interest related to convertible promissory notes. Other interest
      expense related to the convertible notes also increased during the period ended
      June 30, 2006 compared to the related period ended June 30, 2005, primarily
      due
      to the sales of $814,200 in notes with necessary related discounts for
      beneficial conversion features and attached warrants. (See Footnote 10 -
      Convertible Notes for more information.)





During
      December of 2004 and January of 2005 the Company issued a total of 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”
of the financial statements 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 June 30, 2006, the Company recorded an unrealized
      gain of approximately $301,122 compared to a loss of approximately $78,944
      during the period ended June 30, 2005 from the adjustment of these liabilities.




32





For
      the
      three-month period ending June 30, 2006 the Company recorded a net loss of
      approximately $1,934,210, compared to the three-month period ended June 30,
      2005
      when the Company recorded a net loss of approximately $1,100,015.




The
      largest component of change in loss recognized during the three month period
      ended June 30, 2006 compared to June 30, 2005 is the portion of the loss related
      to the selling, general and administrative expenses. During the second quarter,
      the selling, general and administrative expenses increased from $314,390 during
      the three months ended June 30, 2005 to $1,636,751 during the three months
      ended
      June 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 June 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.





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
      June 30, 2006, we had a working capital deficit of approximately $6,991,699,
      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
      six-month period ending June 30, 2006, we used approximately $658,892 in our
      operating activities, compared with approximately $501,967 in the comparable
      period of 2005.





For
      the
      six-month period ending June 30, 2006 our investing activities used
      approximately $160,182 for the purchase of fixed assets, compared to $11,720
      in
      the comparable period of 2005.





For
      the
      six-month period ending June 30, 2006 our financing activities generated
      approximately $819,075 compared to approximately $76,938 being generated in
      the
      comparable period last year. The $819,075 generated from our financing
      activities in the second quarter of 2006 consists primarily of proceeds from
      loans payable and convertible loans of $862,075, which was partially offset
      by a
      payment of related party loan payable of $43,000 and the payment of legal fees
      through the issuance of restricted common stock valued at $445,000. For the
      comparable period ended June 30, 2005, the Company raised $236,938 from loans
      and convertible notes, which was offset by repayments of $160,000 on loan
      obligations.





From
      inception, the Company has raised $5,258,316 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.




33





For
      the
      six-month period ending June 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.





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 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
      June 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.




34





**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 June 30, 2006. Based on this evaluation, our
      management concluded that our disclosure controls and procedures were not
      effective as of June 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,
      as well as, 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.




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 38% and 100%, respectively, of the related consolidated
      financial statement amounts as of, and for, the quarter ended June 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 June 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





35




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





**Part
      II - Other Information**





**Item
      1. Legal Proceedings.**





See
“Note
      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.





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





As
      of
      June 30, 2006, and subsequently, the Company had several convertible notes
      mature without conversion or repayment. As of October 5, 2006, nineteen note
      holders have provided written notice to the Company for the conversion of their
      notes; one note holder has agreed to extend the term of its note; and only
      three
      notes totaling $125,000 are currently in default.





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
            
            Amended
                and Restated Acquisition and Share Exchange Agreement by and among
                Winsonic Digital Media Group, Ltd and Automated Interiors, LLC and
                William
                H. Mann and Jeffrey Fischer executed on May 15, 2006 and effective
                as of
                April 18, 2006.(1)10.2
            
            Sublease
                Agreement, by and between Rogers Telecom, Inc. and Winsonic Digital
                Media
                Group, Ltd., dated as of May 17, 2006.(2)10.3
            
            Lease
                Agreement by and between JT Communications, LLC and Winsonic Digital
                Media
                Group, Ltd., dated as of June 22, 2006.(2)10.4
            
            Employment
                Agreement for Joseph Morris dated June 7, 2006.(3)*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 May 16,
      2006.


(2)
      Incorporated herein by reference to the Registrant’s Form 8-K filed June 27,
      2006.


(3)
      Incorporated herein by reference to the Registrant’s Form 8-K filed June 29,
      2006.




36


**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)December
                15, 2006
            By:
            /s/ Winston
              JohnsonWinston
                Johnson
              Chairman
                & CEO
              (Principal
                Executive Officer and Principal Financial Officer)




37